ECB to Raise Interest Rates, Will the Euro Survive?
The ECB has stated that they will raise interest rates for the first time in three years.
This is because the ECB is primarily an inflation targeting institution. And the core countries of the EU are in need of a little cooling off to avoid inflation - especially Germany.
At the same time, Spain, Ireland, and Greece especially are more or less living on the edge, with Spain currently at 20% unemployment, and all three barely avoiding sovereign debt defaults. For them, this might be a death knell. If the ECB raises rates too quickly, these nations will fail to be able to support their debt.
If rates go up too quickly, it is widely expected that the Eurozone will fall apart. However, raise them too slowly, and it might fall apart as well. Trichet's job is one of the worst on earth, and with him planning on retiring soon, there is currently no one who wants to take it on (the two leading candidates both announced they did not want it).
Basically, the EU is walking a tightrope right now, interesting to see what will happen.
This is because the ECB is primarily an inflation targeting institution. And the core countries of the EU are in need of a little cooling off to avoid inflation - especially Germany.
At the same time, Spain, Ireland, and Greece especially are more or less living on the edge, with Spain currently at 20% unemployment, and all three barely avoiding sovereign debt defaults. For them, this might be a death knell. If the ECB raises rates too quickly, these nations will fail to be able to support their debt.
If rates go up too quickly, it is widely expected that the Eurozone will fall apart. However, raise them too slowly, and it might fall apart as well. Trichet's job is one of the worst on earth, and with him planning on retiring soon, there is currently no one who wants to take it on (the two leading candidates both announced they did not want it).
Basically, the EU is walking a tightrope right now, interesting to see what will happen.
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