Congress criticises interest rate rise
1 Dec 2005
The Congress of Trade Unions has strongly criticized the decision of the European Central Bank (ECB) to raise interest rates.
General Secretary, David Begg, said: "This interest rate hike will add in the region of €40 per month to the average mortgage. In circumstances where house prices forced many couples to borrow up to the limit of their capacity this rise will have a more serious impact than many seem to think. It must be remembered that the cohort of people most affected - young couples - are the same people who have to struggle with exorbitant childcare costs."
Mr Begg also said that the increase was ill-judged in economic terms.
"Economic recovery in Europe is very tentative. An interest rate increase may set it back before it can take hold. This is particularly worrying in the context of manufacturing industry facing competition from emerging economies."
The statement by Congress also said that there was no evidence to justify the ECB's action.
"At the beginning of November the ECB concluded that there was no need for a rate increase. So what has changed? Oil prices have actually dropped and in any event there is no sign of second round effects on inflation arising from oil price movements."
Mr Begg blamed the ECB decision on the influence of Monetarists on the Board of the bank.
"These people are economic ideologues, preoccupied by the growth of money supply. Money supply is a poor harbinger of inflation. It didn't happen in 2001 so why should it happen now? What will the ECB do if oil prices and inflation fall in the future even if money supply remains in strong growth? Following their own logic they should continue to raise interest rates but this would be patently stupid," he said.
Mr Begg said that it had been a mistake to give such complete power to the ECB when the single currency was agreed.
"At the very least they should be required to have more regard for economic conditions. The remit of the ECB is to focus on price stability. Even the FED in the US has a broader remit than this," he concluded.
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