THE doves uncharacteristically rattled the cage of the hawks in the European Central Bank (ECB) last week by forcing through a quarter point cut in the eurozone’s interest rate to historic lows of 0.25 per cent.
ECB president Mario Draghi will feel the backdrop justified the rate cut: economic weakness and record joblessness in the eurozone (particularly in Spain and Greece and, to a lesser extent, Italy), plus the spectre of deflation.
That concern about deflation is particularly worrying to the ECB, because people holding off from spending would choke off what is a pallid economic revival anyway.
Inflation in the eurozone fell to 0.7 per cent in October, its lowest since 2010. So the ECB can argue it is fulfilling its remit of keeping inflation under under control and therefore should have the freedom to inject stimulus into the economy.
But it has exposed anew the faultlines in the ECB’s 23-strong governing council, with the Austrians, Dutch and Germans spitting feathers at the rate cut.
One suspects that Germany, the keeper of the flame of fiscal rectitude within the zone, believes Draghi is cutting rates to help borrowers in the distressed south get soft loans.
Frankfurt believes this could undermine the work of the last two years in getting the likes of Greece, Italy, Portugal and Spain to face up to their high personal, corporate and fiscal debts.
There has been strong criticism by eminent economists in Germany of this policy, and resentment again among the debt-strapped nations that the biggest economy in the European bloc is living in an ivory tower and doesn’t understand or care sufficiently about the immense hardship farther south.
It is a long-running dialogue of the deaf, with the Dutch never too far behind Germany in playing Calvinistic hardball on the subject of if it ain’t hurting, it ain’t working. Low interest rates bailing out the profligate south doesn’t fit into their thinking at all. It was only two years ago that the German member of the ECB executive board and the head of the German Bundesbank resigned over the ECB’s purchase of struggling eurozone countries’ sovereign bonds.
And Draghi? It seems an age since he was hailed as the man of the hour in saying he would do “whatever it takes” to save the euro. Germany thinks he may have over-reached himself and further strains look likely within the ECB as a result.
Future looks bleak even if retail duo are rescued
FOOTWEAR retailer Barratts has gone into administration for the third time in four years. Talk about walking a mile in my shoes.
The same fate has fallen film and computer game retail group Blockbuster. The pressures on the sector remain unabated.
Even if buyers can be found, the slimmed-down businesses private equity might acquire, and the usual retrenchment, make it seem likely that many hundreds of jobs may go in the run-up to Christmas, compounding the personal misery.
Like some other industries, the high street is being drenched by two simultaneous enfeebling storms: massive systemic change and consumer pressures.
And while shoppers may buy their DVDs over the internet, potentially helping Blockbuster, do many consumers buy shoes online? Barratts looks vulnerable.