The European Central Bank (ECB) has decided to cut the interest rates 0.25 points, from 2.75%to 2.5%, at the second ordinary meeting of its Governing Council in 2025. This is the fifth consecutive decrease in the official ‘price’ of the money in the eurozone and the sixth since June, when it was in 4%, given the moderation of inflation, the weakness of economic growth and investment needs, especially in defense.
This “relaxation” of the financing conditions – which are reflected in the fall of the Euribor and the lowering of mortgages and the rest of loans – was within the road map of the monetary institution to give oxygen to the eurozone, where Spain is the only positive exception. From here, a complex debate begins on the following decisions of the ECB with the commercial war and the effects of tariffs on inflation, growth and exchange rate euro/dollar as a backdrop.
“Monetary policy is becoming significantly less restrictive, since interest rates are making the new indebtedness less expensive for companies and households and loan growth is replacing. At the same time, an obstacle to the flexibility of financing conditions comes from the previous increases that are still transmitted to loans in general, ”the ECB statement starts this Thursday.
Inflation in 2% and less growth
The internal factors in the Eurozone, such as the expectation that inflation is close to the objective of 2% – corroborated in the update of the forecasts of the ECB itself of this Thursday (in the first post embedded in this information) -, the deceleration of the salary increases, the stagnation of the activity, especially in Germany, and the fiscal imbalances of France, support more lowers of the interest rates of the interest rates of the interest rates of the interest. next months. However, “the Governing Council does not compromise in advance with a specific type trajectory,” continues the statement.
In the update of its forecasts, the ECB has re -reduced the projections of economic growth of the eurozone assembly (0.9% by 2025, 1.2% by 2026 and 1.3% by 2027, in the second post that follows this paragraph). “The downward reviews for 2025 and 2026 reflect a drop in exports and a persistent weakness in investment, partly caused by the high uncertainty” of the commercial war, “as well as for a broader political uncertainty,” says the statement of the institution.
The external factors, mainly the commercial war that has climbed the new president of the United States, Donald Trump, and geopolitical tensions, imply the risk of a rebound in inflation “by the tariff Real Elcano Institutein statements to eldiario.es.
Another option is that “the European Union decides not to answer with significant tariffs, but try to depreciate its exchange rate [el euro] In response and get a competitiveness gain equivalent to tariffs, ”says this expert. In other words, a euro drop at its crossroads automatically lowers exports to the United States, and interest rates support that currency depreciation.
“Internal factors [inflación, crecimiento…] They should be decisive in the orientation of monetary policy, for two reasons. First, the effects of external factors on inflation are uncertain and highly speculative: they depend on the scenario that one visualize. Secondly, when the impacts of these external factors occur, those are going to materialize in variables such as growth, employment or exchange rate, which are already contemplated in the ECB analysis, ”explains Jordi Schröder, a researcher at Positive Money, to this newspaper.
“That said, investment is an area where both factors, external and internal, are intertwined. Europe needs to significantly increase investment in strategic sectors, especially in the green transition, both to mitigate climate change and to ensure its energy security and geopolitical autonomy, ”he concludes.
Public expenditure and investment needs in the Eurozone
These investment needs have meant a historical turn in Germany, where after the latest elections, conservatives and social democrats they have agreed to lift the rigid limits to indebtedness and deficit to increase public spending. This commitment to raise the fiscal effort-obtained by the urgency of the investments in defense-has raised the interest that is required to the debt of Germany, the most reliable reference of the eurozone, until approaching 3%-which has reduced the risk premium of Spain, as explained in this information-.
That interest offered by the ‘Bund’ (which of course exceeds the bonds of Spain, France or Italy) again exceeds the reference rate of 2.5% of the ECB, which implies that it is more profitable for banks to invest in German debt (or the rest of the large economies of the Eurozone) that park its liquidity in the central bank and collect “the ease of deposit” to that 2.5%.
This attraction, also for fund and other investors, to finance the new debt – to finance deficits (the differential between income and public expenses) – of the Eurozone countries is an impulse for the activity, because most of this money will be intended to increase productive public investment and added investment, and not so much current spending.
The other ECB tools
Official interest rates are only one of the ECB tools. Your money creation programs to buy debt [bonos] From Eurozone countries and companies are their other key lever of monetary policy. Currently, even if it continues to lower its reference interest rates, the institution has abandoned all gross purchases of financial assets, either within the app. [el programa que diseño para favorecer la salida de la crisis financiera] o part pepp [el programa de emergencia de la pandemia]. “Therefore, the ECB practices a passive quantitative hardening,” explains Professor Eric Dor.
“The stock of financial assets in the hands of the Eurosystem [es decir, del BCE, a través de los bancos centrales de cada socio del euro] It will be reduced as the bonds reach their expiration and are amortized. This is an argument in favor of new gradual cuts of official interest rates, even if the risks for inflation persist, ”adds this economist.
Source: www.eldiario.es
