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Inflation haunts Europe too

The euro.

TEXT OF INTERVIEW:

Kai Ryssdal: The European Central Bank didn't have the luxury of time. It met this morning. And despite worsening indicators over there, held its short term rate steady. Marketplace's Stephen Beard is on the line from London. And Stephen, why didn't the ECB cut rates?

Stephen Beard: The bank says, it's still worried about inflation. Inflation across the 15-member states at the euro zone is running at 3 percent, and that's well above the bank's target rate of 2 percent. And unlike the Fed, the ECB doesn't have a commitment to maintain growth. It's supposed to just simply maintain price stability and that's what it's determined to do at all cost, to hold the line against inflation.

Ryssdal: So, things are rosy there otherwise?

Beard: No, they certainly are not. This week alone we had four big banks being bailed out and propped up by EU governments. There is a lot of worry about the possibility of recession, not apparently in the ECB, but the governments certainly are. But the problem is, of course, that the governments can't agree. I mean, we had this week the French government proposing a $400 billion Europe-wide bailout fund. But the Germans, who, no doubt, would be expected to fund a large part of it, said, absolutely no. So there's a lot of disagreement, a lot of disarray. And EU governments will be meeting on Saturday to try and come up with a coherent plan.

Ryssdal: Must be tricky to get 15 governments to agree over there. We're trying to get just the House and the Senate and the president to agree.

Beard: That's right. And it's particularly to get rapid agreement. When you've got within the euro's zone 15 different countries. This, of course, has exposed the fundamental weakness in the single currency. The simple fact that you've got not one country, but 15. You've got one interest rate for 15 different economies. And it's very possible to imagine a situation in which the citizens of one of those countries which is in recession get very angry about the high ECB interest rates and put a lot of pressure on their governments to pull out of the euro.

Ryssdal: Let me ask you about currency for a second,
stephen, as long as we're on the topic. The dollar is doing swimmingly against the euro.

Beard: Yes, I think for that reason, because there is a lot of doubt with the dollar once again re-asserting itself as the sort of safe haven currency. And there is a sort of gathering concern, a growing anxiety about the euro. I mean, potentially, if this crisis continues, if it deepens, we could see the whole euro project destabilized. I mean, we could, potentially, see the euro blow up and the euro zone fall apart.

Ryssdal: Hmm. Let me ask you then the zeitgeist question: What's the fear factor over there? If you walk around London, are people talking about this a lot.

Beard: Well, I think there is fear, but there's also is a kind of air of unreality. This hasn't really, this financial crisis, hasn't really developed into a major economic yet. People sense that something's coming, but it hasn't yet in a very big way, so I would say there's anxiety. People are pinching themselves and hoping for the best.

Ryssdal: Stephen Beard, at the Marketplace European desk in London. Thanks, Stephen.

Beard: OK, Kai.

About the author

Stephen Beard is the European bureau chief and provides daily coverage of Europe’s business and economic developments for the entire Marketplace portfolio.

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