Europe gets ready to ECB rate hike

Finance Ministers and European central banks officials will meet in Vienna this week to discuss the key challenge for the growing Eurozone economy - is it able to withstand rising interest rates.

Discussions reflect relatively stable economic conditions of the currency bloc after a decade of crisis and recessions and also point to new barriers. A gradual cessation of the multi-year monetary stimulus planned by European Central Bank threatens to destabilize equities and realty markets growth which was fuelled by cheap and accessible capital resources.

Interest rates increase can also create problems for national governments which were ramping up the borrowing during the last decade. The overall Eurozone debt volume this year is approximately 84% of the gross domestic product compared to 67% in 2007, according to the International Monetary Fund’s data.

“Our experience shows that bubbles are often resistant to a gradual interest rates hikes, - director of European Political research centre Daniel Gross said during his speech in a forum which takes place twice a year. - They are right that they should start thinking about this as an obvious and existing threat”.

These talks are assonant to the same discussions in the United States and Great Britain because central banks of that countries already started the monetary policy tightening cycle. The Federal Reserve Chairman Jerome Powell made a clear statement in the Jackson Hole symposium last month that there is a clear need to connect current monetary policy to the financial stability. He also noticed that there were ‘destabilizing excesses’ before two last recessions.

Jerome Powell
Source: The New Yorker
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Weekly market overview November 12 - 16
Weekly market overview November 12 - 16
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