JEREMY HOBSON: To Europe now. We just got word minutes ago that the European Central Bank is raising interest rates on borrowing for the first time in three years. The bank is doing this to battle inflation. But, it comes less than 24 hours after debt-ridden Portugal requested a bailout worth more than $100 billion from the European Union.
Marketplace’s European Correspondent Stephen Beard is here live with the latest, Stephen.
STEPHEN BEARD: Hello Jeremy. Well, the European Central Bank is clearly more worried about inflation than the debt problem’s of Eurozone countries like Portugal. The ECB has raised interest rates to curb further price rises. But the U.S. Fed is facing a similar level of inflation. And it’s keeping its interest rates on hold. So, who’s right? The Feb or the ECB?
Economist Simon Tilford says the ECB has blundered. The Fed is right.
SIMON TILFORD: Given the uncertainties facing economic recovery and the fact that one way or another, the U.S. government is going to start cutting spending, it really is crucial that monetary policy remains as expansionary as possible.
And today is a landmark Jeremy. This is the first time in 40 years that after an economic downturn, a key European Central Bank has raised rates before the Fed.
HOBSON: Wow, Marketplace’s Stephen Beard in London. Thanks Stephen.
BEARD: OK Jeremy.
STEVE CHIOTAKIS: With time running out, the latest budget negotiations again have failed to pull the U.S. government from the brink of shutting down. The world, of course, is watching our budget battle and we’ll get to that in a moment but a lot of eyes right now are on Portugal. Their money woes have forced that country to ask the European Union for a bailout of at least $85 billion.
Marketplace’s Stephen Beard is with us live from London with the latest now. Hi Stephen.
STEPHEN BEARD: Hello Steve.
CHIOTAKIS: First Greece. Then Ireland. Now Portugal. Should we be watching for more countries needing bailouts?
BEARD: Well, analysts at Goldman Sachs say no. Portugal will be the last. But it all depends on the performance of other troubled economies like Spain for example. If it fails to grow this year, it could need a bailout and that would be a really big problem for the Eurozone.
CHIOTAKIS: And the European Central Bank, Stephen, is expected to raise interest rates today to battle inflation later. That can’t help.
BEARD: No, certainly not, but as you say, they’re worried about inflation from higher oil and commodity prices. However, here’s the thing: the U.S. fed is facing a similar level of inflation in the states, but it’s keeping rates on hold. So who’s right: The Fed or the ECB?
Analyst Simon Tilford says the Fed. He says if the ECB raises rates today it will have blundered.
SIMON TILFORD: I think the case of raising the Eurozone interest rates is very weak. Given the uncertainties across Europe, it would do no harm at all to just delay this.
By the way, if the ECB, as expected, does raise rates today, it will be the first time in 40 years that a key European Central Bank will have acted in this way ahead of the Fed.
CHIOTAKIS: Wow. All right. Marketplace’s Stephen Beard. Stephen thank you.
BEARD: OK Steve.
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