JEREMY HOBSON: To Europe now — where officials are meeting today to hash out the details of the Portuguese bailout. But I wouldn’t be surprised if economists in Europe were focused instead on yesterday’s interest rate hike by the European Central Bank.
Marketplace’s Stephen Beard joins us live from London with more on all this. Hi Stephen.
STEPHEN BEARD: Hello Jeremy.
HOBSON: Well, remind us why this rate hike by the European Central Bank is so significant.
BEARD: Well, it was only a small one from 1 to 1.25 percent, but it’s been hailed a major landmark, the beginning of the end of easy money — this long period of very low interest rates. This is the first big developed economy to raise rates since the global financial crisis struck three years ago.
Andrew Hilton of the CSFI Thinktank says it does set an import precedent.
ANDREW HILTON: The fact that the Europeans, the European Central Bank, has raised interest rates is going to tempt the markets to push the higher rates elsewhere.
The U.S. Fed is much less worried about inflation and is expected to leave its rate on hold until much later in the year, but it will now be able to watch what happens in Europe to see if this rate rise curbs inflation without snuffing out the economic recovery.
HOBSON: And Stephen, cheap money has been so key to this entire global recovery. If this is the beginning of the end of easy money, isn’t there a concern that this is happening just as some countries in Europe like Portugal need easy money the most?
BEARD: Yes, absolutely, but the ECB has got to set interest rates for the 17 different economist that use the Euro and the biggest, Germany is booming. So this rate rise has Germany in mind. The smaller and weaker economist in the south, like Portugal will certainly suffer.
HOBSON: Marketplace’s Stephen Beard in London, thanks.
BEARD: OK Jeremy.
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