By Swann Collins, investor, writer and consultant in international affairs – Eurasia Business News, February 2, 2023
With inflation rising steadily in the euro area since July 2021, reaching 9.1% in December and 8.5% in January, Christine Lagarde, President of the European Central Bank, is under fire for having taken too long to tighten an extensive monetary policy in force since 2010 and which has shown its ineffectiveness in supporting sustainable economic growth.
The European Central Bank (ECB) raised its three key rates by 50 basis points (bps) following its monetary policy meeting on 2 February. This is the 5th hike in a row.
The base interest rate on loans was raised to 3%, the deposit rate to 2.5%, the margin loan rate to 3.25%.
“The Governing Council will continue to raise interest rates significantly at a steady pace and to keep them at sufficiently restrictive levels to ensure an early return of inflation to its 2% objective over the medium term. It therefore decided today to raise the ECB’s three key interest rates by 50 basis points and plans to continue raising them,” the ECB said.
“Given the continuing inflationary pressure, the Governing Council intends to raise rates by an additional 50 basis points at the March meeting, and only then will it assess the future direction of monetary policy.” says the press release.
“Ultimately, keeping interest rates at restrictive levels will reduce inflation by dampening demand and avoid the risk of a persistent upward slide in inflation expectations. In any case, future Governing Council decisions on policy rates will remain data-driven and will continue to be taken on a meeting-by-meeting basis.”
In any case, the central bank’s decisions depend on emerging data and are taken at each individual meeting, the regulator said.
The ECB also took decisions on Thursday on the terms of its balance sheet normalization program.
As mentioned in December, the portfolio of bonds purchased by the ECB under the asset purchase program will shrink by an average of €15 billion per month until the end of the second quarter of 2023, after which the regulator will determine the subsequent pace of its reduction.
On October 27 the European Central Bank (ECB) raised the key rate by 75 basis points to 2% per year, after an increase on September 8 to 75 basis points as well. On 21st July the ECB raised the rate by 50 basis points to 0.5% for the first time since 2011.
On September 28, Christine Lagarde, President of the European Central Bank (ECB), said that the institution must continue to raise interest rates to curb inflation, even if this leads to a slowdown in growth.
The European Central Bank (ECB) is the central bank of the European Union and is responsible for managing the monetary policy of the Eurozone. The ECB sets interest rates to maintain price stability and support economic growth.
A central bank’s monetary policy refers to the actions taken by the central bank to influence the supply of money and credit in an economy, and to achieve specific macroeconomic objectives such as price stability, full employment, and economic growth. The main instruments of monetary policy are changes in interest rates, the volume of money in circulation, and the lending conditions for banks.
Over the past decade, the European Central Bank (ECB) and the US Federal Reserve (Fed) have implemented quantitative easing and low interest rate policies, aimed at stimulating economic growth through money creation, after the 2008-2009 global financial crisis. The objective was to boost inflation to around a 2% target and finance growth. Both central banks set their short-term rates to zero or below to support credit, increase the M3 monetary aggregate, and stimulate economic activity. As the money supply increased, inflation was the logical consequence.
Economic growth in Europe, which was the primary target of these low interest rate policies (Quantitative Easing policies, initially designed to boost economic growth by injecting massive amounts of money into the economic circuit), has remained weak or moderate since 2010.
The low interest rates since 2010 have dangerously encouraged the Member States of the European Union to take on more debt, well beyond their national repayment capacity.  The covid-19 crisis and the monetary policy of the ECB only deepened this problem. The result is that with the return of high inflation, caused in particular by expansive monetary policies, but also by the restart of the global economy in the summer of 2021 after the covid-19 pandemic, any rise in key rates by central banks and 10-year rates on treasury bills by the financial markets, will make the repayment of public debts in Europe unsustainable.
Europe is in a difficult situation today. As interest rates rise, the cost of debt will rise, putting increased pressure on workers and small and medium-sized businesses. The real estate market could be the first to plunge in the coming months in the euro zone. As a result, investors and workers have been turning since 2021 to safe-haven assets, such as gold and silver, in proportion to their financial capabilities. Real estate, whose prices are stagnating or have begun to fall in Europe, is no longer a safe haven for wealth protection. Inflation in Europe since the summer of 2021 has become too high.
Compared to the third quarter of the previous year, GDP expanded by 2.3 % in the euro area and by 2.5 % in the EU. The average year-on-year growth for the first three quarters of 2022 was 4.0 % in the euro area and 4.1 % in the European Union. Investors and central banks had expected more for 2022.
Annual demand for gold (excluding Over-the-counter (OTC)) jumped by 18% in 2022 to 4,741 tonnes, a record since 2011, revealed the World Gold Council on 31st January. The annual total was helped by record demand in the fourth quarter of 1,337 tonnes of gold.
Read also : How to invest in gold
Gold prices were hovering between $1,916 and $1,960 per troy ounce today, gaining nearly 4.12% over the past 30 days. Silver prices were traded between $23.60 and $24.70 per ounce today (February 2, 2023).
The yellow metal has always been an excellent hedge against inflation because its price rises when the cost of goods and services rises. Gold can effectively store value over time, when paper money such as the dollar or euro loses purchasing power due to inflation. Gold is a resilient asset that resists the erosion of inflation and preserves wealth in the medium and long term.
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© Copyright 2023 – Swann Collins, investor, writer and international affairs consultant.
 Between the end of 2019 and the end of 2020, the debt-to-GDP ratio increased in the 27 EU Member States and Norway. The largest increases were recorded in Greece (+25.1 pp.), Spain (+24.5 pp.), Cyprus (+24.2 pp.), Italy (+21.2 pp.), France (+18.1 pp.), Portugal (+16.8 pp.), Belgium (+16.1 pp.), Croatia (+15.9 pp.), Slovenia (+15.2 pp.) and Hungary (+15.0 pp.). At the end of 2020, 14 of the 27 EU Member States reported debt-to-GDP ratios above the 60.0% reference value, while seven EU Member States recorded debt-to-GDP ratios above 100.0%: Greece recorded the highest debt-to-GDP ratio at 205.6%, followed by Italy (155.8%), Portugal (133.6%), Spain (120.0%), Cyprus (118.2%), France (115.7%) and Belgium (114.1%). Source: Eurostat, “Structure of government debt“, June 2021: Structure of government debt – Statistics Explained (europa.eu) ;