Editorial: The ECB interest rates ‘prescription’

The European Central Bank has “crossed the Rubicon”, implementing a decision that is unprecedented by European standards – raising interest rates by 75 basis points.

It is a bold move, given the normally restrained economic policy of the EU.

Those who sought a milder approach were disregarded and the “hawks” who sought drastic measures to deal with “exceedingly high inflation” prevailed.

Galloping inflation persists in the shadow of Russian President Vladimir Putin’s threat that he may cut off the flow of natural gas from the Nord Stream pipeline, until the West lifts sanctions against Moscow over its invasion of Ukraine.

ECB chief Christine Lagarde (photo) opted for an aggressive strategy, in line with the “whatever it takes” [to safeguard the euro] approach of her predecessor Mario Draghi when he was managing the debt crisis.

Yet, there are two sides of the same coin, and the choice of the “iron lady” of Frankfurt will have a series of repercussions that will impact on daily life.

First of all, it will deal a blow to economic growth in Europe, which is already being rocked by the energy crisis, and it will have a negative impact on employment and the income of households.

Moreover, it marks the end of cheap money – which for many years was plentiful – for businesses.

That affects their economic planning, while the hike in the cost of borrowing will have an immediate impact on government bonds in the entire eurozone.

It remains to be seen whether the “prescription” of an unprecedented interest rates increase inspired by the guardians of economic stability in the eurozone succeeds.

If not, we shall pay a heavy price.