Nieuwsbericht | 03-12-2005
Employers federation UNICE is happy to see that, due to the fragility of the ongoing recovery, the ECB is not yet "pre-announcing further interest rate increases" but ETUC is fuming.
The minimum bid rate on the main refinancing operations of the Eurosystem will be increased by 0.25 percentage point to 2.25%, starting from the operation to be settled on 6 December 2005, says an ECB press release dated 1 December.
The widely announced ECB decision to raise interest rates on 1 December had met with opposition from many sides, including that of Eurogroup Chairman Jean-Claude Juncker and the OECD (see EurActiv 2 December 2005).
Speaking at a press conference following his announcement of the decision, European Central Bank President Jean-Claude Trichet made it abundantly clear that the ECB has not pre-determined a series of interest rate increases:
"There is not an 'ex ante' decision of the Governing Council at today's meeting to engage in a series of interest rate increases. We have decided to increase rates by 0.25 percentage point because we judged that, with this new level, we are in line with our duty, our mandate, which is to preserve price stability and to be credible over time in preserving price stability. It is our responsibility vis á vis the 311 million people in the euro area, our fellow citizens. It is our duty because it is what the Treaty is calling for."
As reported by the BBC, Trichet said that the ECB expected eurozone economic growth of between 1.2% and 1.6% this year, and between 1.4% and 2.4% in 2006. On inflation, the ECB revised its consumer price growth forecast for 2006 up to 2.1%, above its 2% limit.
Asked if the interest rate increase was a one-off measure or part of a broader policy shift towards a gradual removal of accommodation for the economy, ECB Vice-President Lucas Papademos said: "We do not expect that a change in the monetary policy stance is going to have a significant effect on economic activity in the euro area as a whole. And then the extent to which there would be a specific impact in a given country depends on a variety of other factors that influence economic activity in that country as well."
Reactions to the ECB's decision to raise interest rates:
"I believe that the interest rate rise does not alter the Commission's growth outlook and is important to contain inflationary expectations in the medium term. I also continue to believe that all the conditions are in place for a pick up in domestic demand and this was confirmed yesterday by the release of the GDP figures for the third quarter," said Commissioner for Economic and Monetary Affairs Joaquín Almunia.
Speaking just ahead of the announcement, France's Prime Minister Dominique de Villepin said, according to the FT: "My belief is that the ECB wouldn't do anything that would compromise economic growth in the EU."
Also speaking ahead of the decision, the FT reports Giorgio La Malfa, Italy's European affairs minister, as saying that a 25-point rate rise would be "very dangerous" and "wholly unjustified". He underlined that these were his personal views as "a politician and an economist, because the government cannot express an opinion" because of the ECB's independence.
President of UNICE Ernest-Antoine Seillière sounded a note of caution with regard to possible future interest rate hikes: "A moderate interest rate hike will hopefully not affect significantly the economic outlook, but it is not a positive signal. In particular, European businesses would be concerned if this decision triggers renewed appreciation of the Euro. Considering the fragility of the ongoing recovery, UNICE notes the fact that the ECB remains cautious and does not yet pre-announce further interest rate increases," he said on 1 December. UNICE is the voice of over 20m small, medium and large companies.
The European Trade Union Confederation (ETUC) says the ECB has raised its interest rates by 25 base points to ward off an "imaginary" inflation danger and is concerned that further increases will undermine economic confidence and growth.
"If the ECB wanted to give a warning signal to trade unions on upcoming wage negotiations by increasing its interest rate, this was totally unnecessary. Trade unions in Europe already understand the need to have wage increases compatible with the objective of price stability," says John Monks, General Secretary of the ETUC.
"It is questionable whether this rate increase will have any perceptible effect on inflation in the short term but it is crucial that the ECB do not use this as an argument for further hikes, as this would smother demand and undermine investor confidence at a crucial time," said UEAPME President Hans-Werner Müller.
Belgian Finance Minister Didier Reynders told a Belgian radio station that the confrontation with the ECB as to the reasons for the interest rate hike would continue within the Eurogroup. "Once the ECB, fairly and legitimately comments on the eurozone countries' budget policies then there is no reason why it should not accept the opinions of economic ministers on monetary policy," he said, as reported in Il Sole 24 Ore.
"The one thing which I think is interesting is that the 'strong vigilance' wording has been dropped, which clearly suggests once again that they are not planning to hike again any time soon," said Stephane Deo, an economist at UBS, as reported by the BBC.
European Central Bank: 1 December 2005 - Monetary policy decisions
European Central Bank: 1 December 2005 - Q&A session with ECB President Jean-Claude Trichet
UNICE: Press release - 1 December 2005 (niet langer online beschikbaar)
UEAPME: ECB's regrettable rate rise must not become a trend
ETUC: Press release
FT: Politicians put on brave face as ECB lifts rates
BBC: ECB ignores fears to raise rates
BBC: Q&A: ECB interest rate rise