by Nicholas Hastings
Wall Street Journal
March 4, 2011
Jean-Claude Trichet may have boosted the credibility of the European Central Bank, but only at a high cost to the euro.
The ECB president’s decision to signal a rate rise as early as next month certainly gave the single currency a strong boost, but Portugal, Ireland, Greece and Spain must have the distinct feeling they are being sacrificed for the good of the central bank.
As these ‘peripheral’ countries of the euro zone struggle to avoid defaulting on their debts, and funding their banks becomes increasingly difficult, higher rates are the last thing they need.
Sure, Trichet has attempted to mollify the markets with the promise that a little rise next month doesn’t mean the start of a series of interest rate increases. But, as the euro’s 10-cent rally since the start of the year shows, just talk of higher rates is enough to push the currency sharply higher.
So peripheral debtors–who are already teetering on the edge of default–are now faced not only with higher rates, but also with a stronger euro that will undermine export growth just at the time they need it.
More
No comments:
Post a Comment