Why a new eurozone crisis now looks a distinct possibility

The European Central Bank (ECB) has confirmed speculation that it will become the latest central bank to start raising headline interest rates to try to ward off inflation. The bank is to raise rates by 0.25 points to 0.25% for lending and -0.25% for deposits, with plans for another rise at the next meeting in September. It will also curtail its programme for buying the government bonds of countries like Italy and Greece by not increasing purchases every month overall.

All major economies are struggling with the difficulties of trying to deal with inflation by raising interest rates in the knowledge that it will drive up borrowing costs for consumers and businesses and potentially bring about a recession.

But for the eurozone, the situation is complicated by the fact that it has been propping up indebted countries who can’t deflate their currencies to get through economic turbulence. If the ECB now gets too tough on inflation, it could create a market panic that might revive the eurozone crisis of the 2010s.

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Πηγή: theconversation.com

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