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?

In view of 2.7% stable Eurozone inflation, was the ECB rate hike needed after all?

According to the Eurostat:

June 2011 Eurozone annual inflation stable at 2.7% (ie same as in May).

In the EU (27( it is down to 3.1%

Was the ECB new rate hike from 1.25% to 1.5% needed last Thursday then?

Why?

Note: Maybe the May industrial producer prices? See my "What is driving Eurozone prices up?" post July 7.

Does the Eurozone need a new (!!) central bank?

"With the unemployment rate above 9%, Fed officials are reluctant to boost its target for short-term rates" reports the WSJ.com in "ECB's Trichet Extends A Hand to Portugal", July 7, 2011.

Today, while the Bank of England kept its rate unchanged, in spite of inflationary pressures (yet very low growth) plus a very high (No. 1 in the EU) May 2011 (compared to May 2010) industrial producers prices hike, the European Central Bank raises its basis rate for a second time in 3 months. from 1.25% to 1.5%.

It seems that the Eurozone urgently needs a different central bank!!! One eg that, lie the Fed, cares about employment as much as it cares about inflation. The ECB seems too "dependent" on Bundesbank's preoccupation (or should one call it obsession) with inflation.

Note: While the Fed & the Bank of England have kept their recession rates of 0%-0.25% & 0.5% the ECB has raised its rate frm 1% to 1.5% in 3 mo

Bank of England keeps its rate at 0.5%. Lessons for the ECB?.

Yesterday (Thursday) the Bank of England decided to keep its interest rate at 0.5% inspite a March 4% annualised inflation rate and a whopping +10.7%. in March 2011 compared with March 2010 in the UK industrial producer prices gained (see Eurostat stats)

But it should be noted that 4% March inflation according to Eurostat stats (released back in April 15 annualised, ie March 2011 compared with March 2010), was down from 4.4% in February, (it was 4% back in J.anuary too).

According to economists, Producer Prices are an indication as to what inflation will be a few months later. Thus the 10.8% IPPI figure for March seems cause for concern.

Taking into consideration that in March 2011 compared with March 2010, industrial producer prices gained 6.7% in the Eurozone and 7.4% in the EU27 and in February 2011 vs February 2010 the corresponding numbers were 6.6% and 7.1%, that causes concerns re the systemics related to the UK industry.

Yet the Bank of England decided to keep interest rates that a) aid growth b) keep the Pound at reasonable exchange rate (impact on exports and incoming tourism).

Food for thought: Compare and contrast BoE and ECB policy/decisions/philosophy.

Euro interest rate by ECB stable

On January 14, the European Central Bank kept its central interest rate at 1% for yet another month.

Bank of England keeps interest rate at 0.5%

Last Thursday, the Bank of England decided to keep its central interest rate at 0.5%.

US Fed keeps its interest rates unchanged

The US Federal Reserve Bank has decided to continue holding its US interest rates unchanged at between 0% and 0.25% for yet another month.

ECB keeps Euro interest rate at 1%

The European Central Bank (ECB) has decided to keep its central interest rates on the Euro at 1%. Since October 2008 the ECB's rate has gone from 4.25% to the current record low rate of 1% in May where it has remained since.

UK and EU central banks keep their interest rates unchanged

The Bank of England and the European Central Bank (ECB) decided to keep their interest rates unchanged at 0.5% and 1.0% respectively

UK interest rates

The Bank of England holds the central interest rate at 0.5% for the sixth month in a row.

Several central banks decided to cut their interest rates today.

Several central banks decided to cut their interest rates today.

The European Central Bank has cut interest rates in the Eurozone to a record low of 1%, from 1.25%. It is the seventh time the ECB has lowered its key rate since October 2008, when it stood at 4.25%.
Iceland's central cut rates from 15.5% to 13% in its third cut this year. Denmark cut rates from 2% to 1.65% and the Czech central bank cut rates from 1.75% to 1.5%.