Brussels, 02/12/2005 (Agence Europe) - The interest rate rise decided on Thursday by the European Central Bank (ECB) (see EUROPE 9080) has been greeted in European circles with a whole range of reaction, from positive to careful to downright negative.
At the European Parliament, Pervenche Beres, French Socialist MEP and President of the European Parliament's Economic and Monetary Affairs Committee, said the 'unnecessary rate rise risks breaking recovery'. In a press release, she mentioned the visit by the President of the ECB, Jean-Claude Trichet, to the Committee on 21 November: ' 'Trust us,' Mr Trichet told members of my Committee last Monday 21 November. Our answer was: 'Listen to us!' We told him that this was not the right time to raise interest rates, particularly not after the European Commission's downgrade of euro area growth for 2005 to 1.3%' (see EUROPE 9072).' She continued: 'Mr Trichet continuously tells us that prevention is better than cure. Has the ECB paid attention to those who consider that were it not for the oil price, the euro area would be in deflation?... If the ECB prematurely sounds the alarm bell, if it cries wolf when it is not warranted, its credibility might suffer.' Beres also criticised the way Trichet 'makes calls for citizens and businesses to go out and invest as much as they can but at the same time tightens monetary policy… Isn't it time to negotiate some sort of long-term agreement between the ECB and Council of Ministers, aimed at reviving internal consumption and investment, aimed at making the goals of the Lisbon Strategy truly reachable, aimed at securing that the recovering is successful?' On the ECB's independence, she said: 'I still think that independence does not necessarily mean isolation, and dialogue is something that cannot be practised alone.' On the EPP-ED and ALDE groups, Germans Werner Langen (CDU) and Wolf Klinz (FDP) are happy with the rise, arguing that it is better safe than sorry.
Among the trade unions and employers, reactions were also mixed. John Monks, General Secretary of the European Trade Union Confederation, expresses disappointment in a press release that the 'fragile nature of the present recovery has not been sufficiently taken into account… 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.' Little enthusiasm from employers' organisation UNICE: 'A moderate interest rate hike will hopefully not significantly affect the economic outlook, but it is not a positive signal for growth. In particular, European businesses would be concerned if this decision triggered renewed appreciation of the euro,' warns Ernest-Antoine Seilliere in a press release. Eurochambers chair Christoph Leitl, unveiling the mixed results of a Eurochambers poll into business confidence for 2006 a few days ago, hoped there would be no further rises, warning that rate rises had to stop to avoid shooting oneself in the foot. Hans-Werner Muller, chair of UEAPME (the European small and medium business organisation) said: '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.'
Before the ECB's decision on Thursday, Alejandra Kindelan of the European Banking Federation (EBF) told reporters that signs of recovery had only been detected in a single quarter and a 0.25% rate rise would have no significant impact on the economy but could impact negatively on confidence. She said the EBF was expecting another rate change in the first quarter of next year, warning that this would have to take strict account of economic developments in the eurozone.