While the ECB is insisting that the “options still remain open” for the possibility of a rate rise next week, others in the Eurozone are banking on a freeze.
Jean-Claude Trichet, the ECB’s president, hinted in Budapest on Monday that a review of the bank’s hawkish stance was on the cards. Earlier indications of a rate-rise were “…said before market turbulences,” said Trichet.
But President Sarkozy of France, mercifully short on central banker crypto-speak, was a little less emollient. According to a leaked memo in French political magazine Canard Enchâiné, Sarkozy told aides:
“What’s happening on world markets is a rebuke for the ECB. It shows I’m right, and that Trichet shouldn’t be considered Europe’s sacred cow.”
“After causing a liquidity squeeze by raising rates, [Trichet's] now had to inject liquidity to calm the crisis. We’ve now got to take advantage of this crisis to bend it [the ECB] to our will.”
It’s not just France pressuring Trichet either.
Germany too is gunning for rates to be held steady. A survey of the country’s leading economists in the Handelsblatt newspaper, called for the ECB to stick at 4 per cent. Bert Rürup, the head of Berlin’s “Wise Men” panel is also cautioning against a rise. “I would advise against it at this juncture,” he said.
But banks are girding themselves anyway – pessimists at Unicredit told the UK’s Daily Telegraph that a rate rise from the ECB would be dangerous for Europe’s already weary banking sector. According to Marco Annunziata:
“If they go ahead with a rate rise, it could put the already-strained banking system under severe pressure.”