European Central Bank raises interest rates for first time in 11 years

[Martin Everson]

https://www.theguardian.com/busines...ses-interest-rates-for-first-time-in-11-years
https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html
The end of negative deposit rates on the Euro from 27 Jul 2022. But right when the Euro is at effective parity with the dollar and eurozone inflation rates are above 8%. It's plaster on a gunshot wound .

 

[void]

do you guys think this will have any visible impact on EURUSD rate?

 

[Martin Everson]

Good question. US interest rates will rise again this year. So maybe the parity is maintained. A strong dollar is not good for US exports and not good for EU imports from U.S.

P.S I won't bet against dollar addiction however .

 

[Golden Fleece]

The U.S. will raise rates again next Wednesday by 0.75% to possibly 1.00%. Then another rate hike on September 21st. Probably a third one on November 2nd. The Fed interest rate will likely reach 3.5% or so.

This is an effort to tamp down the highest inflation rate in forty years, which has caused huge economic and political problems. By comparison, what the ECB has done is anemic. As a result, foreign funds will flow to the USD for the higher yield.

 

[void]

The U.S. will raise rates again next Wednesday by 0.75% to possibly 1.00%. Then another rate hike on September 21st. Probably a third one on November 2nd. The Fed interest rate will likely reach 3.5% or so.

This is an effort to tamp down the highest inflation rate in forty years, which has caused huge economic and political problems. By comparison, what the ECB has done is anemic. As a result, foreign funds will flow to the USD for the higher yield.

so you also agree EUR will lose against USD?

 

[RealDude]

so you also agree EUR will lose against USD?

Yes, at least parity.

 

[algotrader]

To stop runaway inflation, central banks will have to rise interest rates above the inflation rate (like Paul Volcker did in 1981) to the point where the entire economy crashes into a deep depression. Until that happens, inflation rates will only persist or keep growing. Homeopathic increases in ECB rates will not stop inflation neither in Europe nor elsewhere. As these decisions are purely political, Christine Lagarde will probably test how much she can tease citizens of the Eurozone without causing a revolution or civil war. The plan is probably to give the mob some perks (such as the 9 EUR train ticket in Germany) and to keep them diverted with all kinds of entertainment (Covid, Ukraine war, climate crisis, monkeypox). But it's not going according to plan already. Italian parliament has just been dissolved and right populists such as Fratelli d'Italia and Lega could now win the next elections and lead Italy out of the Eurozone.

 

[Golden Fleece]

To stop runaway inflation, central banks will have to rise interest rates above the inflation rate (like Paul Volcker did in 1981) to the point where the entire economy crashes into a deep depression. Until that happens, inflation rates will only persist or keep growing.

That is one potential outcome. There are a few others, including persistent lower inflation at 4%-6% and more transitory inflation that allows the central banks to once again revert to low interest rates.

You must prepare for all the scenarios. You can hear a discussion of the three scenarios here:

 

[EliasIT]

It's all the big players game.

 

[void]

for me as an anarchist and non-believer in current democratic scams, fiat money and violent governments it's kind of difficult to seriously discuss this stuff, however it's hard to impossible to avoid being involved...
can you help me understand the options?

despite their great position in the global economy, importance of USD and convenient conflict in Ukraine US economy is in a deep s**t and they will raise the interest rates

Europe is in a way deeper s**t (closer to and dependent on Russia, winter coming, weak currency, socialist everywhere, spoiled and lazy citizens used to demand anything they want, ...) - they will either keep the interest rates, let EUR weaken against USD and inflation grow to socially intolerable level or they will raise it (which will probably change nothing anyways regarding inflation unless it's like 8-10%) and southern parasites will get bankrupt and EU will fall apart

what are other scenarios and your thoughts?

 

[Golden Fleece]

for me as an anarchist and non-believer in current democratic scams, fiat money and violent governments it's kind of difficult to seriously discuss this stuff, however it's hard to impossible to avoid being involved...
can you help me understand the options?

despite their great position in the global economy, importance of USD and convenient conflict in Ukraine US economy is in a deep s**t and they will raise the interest rates

Europe is in a way deeper s**t (closer to and dependent on Russia, winter coming, weak currency, socialist everywhere, spoiled and lazy citizens used to demand anything they want, ...) - they will either keep the interest rates, let EUR weaken against USD and inflation grow to socially intolerable level or they will raise it (which will probably change nothing anyways regarding inflation unless it's like 8-10%) and southern parasites will get bankrupt and EU will fall apart

what are other scenarios and your thoughts?

For the EU, the solution is to allow each country to have its own currency. It would take far too long to explain, but like the idiom that water seeks its own level, having an independent national currency would solve these problems over time. One currency simply does not work for twenty countries with far different economies. For example, the Euro destroyed the economies of the countries in Southern Europe.

Some country, e.g., Italy, will leave the EU and go back to its old currency and then others will follow. It is inevitable.

 

[Martin Everson]

Please stick to topic...thx.

 

[void]

For the EU, the solution is to allow each country to have its own currency. It would take far too long to explain, but like the idiom that water seeks its own level, having an independent national currency would solve these problems over time. One currency simply does not work for twenty countries with far different economies. For example, the Euro destroyed the economies of the countries in Southern Europe.

Some country, e.g., Italy, will leave the EU and go back to its old currency and then others will follow. It is inevitable.

Poland or Czech republic have their own currencies and it doesn't work for them much better

Greece, Italy and Spain going back to their own currencies is maybe rational but would probably mean end of Eurozone anyways

 

[Golden Fleece]

Poland or Czech republic have their own currencies and it doesn't work for them much better

Greece, Italy and Spain going back to their own currencies is maybe rational but would probably mean end of Eurozone anyways

Are you joking? Poland, Hungary, and the Czech Republic experienced fifty years of communism and then took another twenty years to rebuild. Yet, Poland and Hungary are near Greece in Gross Domestic Product (GDP) per capita and the Czech Republic is right near Spain and Italy.

Greece = $28.5k

Hungary = $29k

Poland = $30k

Czech Republic = $38k

Spain = $39k

Italy = $41k

https://www.worldometers.info/gdp/gdp-per-capita/

 

[kkein]

Do you think Wise will remove their insane negative interest rate on € deposits?

 

[void]

Are you joking? Poland, Hungary, and the Czech Republic experienced fifty years of communism and then took another twenty years to rebuild. Yet, Poland and Hungary are near Greece in Gross Domestic Product (GDP) per capita and the Czech Republic is right near Spain and Italy.

I didn't mean economically in general of course - they are doing very well (actually much better than southern nations)
but CZK or PLN currencies are suffering pretty much the same as EUR

 

[Golden Fleece]

I didn't mean economically in general of course - they are doing very well (actually much better than southern nations)
but CZK or PLN currencies are suffering pretty much the same as EUR

Yes, almost every currency in the world is down against the USD for the reason explained in post #4. But that is a completely different issue versus using your local currency to improve your moribund economy. When you lose control of your own currency you lose control of options and flexibility.

As growth slowed and unemployment increased in countries like Italy and Greece, investors feared for their solvency, driving up interest rates. Typically, there would be no solvency fears for governments under a fiat money regime because the national government could order the central bank to print more money. However, the European Central Bank's independence meant printing money was not an option for eurozone governments. Higher interest rates increased unemployment and even caused deflation and negative economic growth in some countries.

https://www.investopedia.com/ask/answers/09/euro-introduction-debut.asp

 

[RealDude]

Population Germany: 83m
Population India: 1407m
Population Brazil: 214m

Who is lazy?

Population Russia: 145m

 

[JackAlabama]

The US is just way better at bullshitting the whole world into believing pulling off Volcker 2.0 with their debt levels not just being at Mars but at Pluto and wanting high interest rates.
So far that worked very well as can be seen but a turnaround is inevitable, and it looks to be coming quicker than expected.

 

[Ads911]

For the EU, the solution is to allow each country to have its own currency. It would take far too long to explain, but like the idiom that water seeks its own level, having an independent national currency would solve these problems over time. One currency simply does not work for twenty countries with far different economies. For example, the Euro destroyed the economies of the countries in Southern Europe.

Some country, e.g., Italy, will leave the EU and go back to its old currency and then others will follow. It is inevitable.

If Italy goes back to our old currency will become a new Argentina, the euro was really good for us; joining made us save billions and billions of interests on our huge debt, and the euro saved our a*s at least two times.

If southern Europe and Italy, in particular, have economic problems, it's the politicians' fault, not the euro, as I said; it's actually the contrary.

Greece falsified public accounts after they waste billions on ridiculous pensions; if they weren't in the euro, it would have been much, much worse.

But I partially agree we, Italians, don't deserve the privilege to use the euro, at least as long as we keep throwing public money out of the windows or making debts to gift privileged people.

So as the great Mario Draghi said, the euro is irreversible, and Italy is the last country that can afford to leave the single currency; it would mean an immediate economic collapse, much worse than Greece.