Saturday, April 7, 2012

Eurozone: Cheap money, what cheap money?

I noticed a crossfire that took place about a month ago between the President of Brazil and the PM of Germany (see a press report by China Daily).

"Rousseff (note: President of Brazil) complained rich nations are responding to the global financial crisis with easy credit and low interest rates — and that cheap money makes its way to Brazil, which has high interest rates and a strong currency" 

Since then, the BRICS initiative has taken place, including an plan to make the Yuan a global currency.

I am reminded that one of the reasons for the failure of the Doha WTO Round has been the insistence of leading developing countries to open their markets to US and EU industrial goods, retaining the tariffs that exist (yes. WTO "free trade" is not free, it uses things such as math formulas to calculate how much each economy is allowed to retain barriers to imports).

But my main point in this post is:

What cheap money? The Eurozone's (ECB) rate is 1.00% (used to be 1%, the previous Presidency raised it to 1.5% and the new one back to 1%) but compared to the Bank of England rate (0.5%) and the US Fed's (0 to 0.25%), the Eurozone's interest rate is high!

By the way, ever wonder why the Eurozone has had to maintain a such a differential vis-a-vis the UK and the US?

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