Home > Article
VOL. 42 | NO. 14 | Friday, April 6, 2018
Trade disputes, strong euro worrying European Central Bank
FRANKFURT, Germany (AP) — Top officials at the European Central Bank were concerned about a strengthening euro and the possibility of a global trade war as they decided at their last meeting to go slow in removing economic stimulus.
The written account of the March 8 meeting showed the bank's 25-member governing council saw risks to the world's economy as "tilted to the downside," in part due to the possibility that higher tariffs will hurt trade. U.S. President Donald Trump has announced tariffs on steel and aluminum as well as Chinese goods.
The recently stronger euro, which could hurt exports, was mentioned throughout. The shared currency has risen against the dollar from around $1.18 late last year to $1.24 at the time of the meeting. On Thursday it was at about $1.2330.
The council decided to leave open the end date to its monthly bond-buying stimulus program; the bond purchases are slated to run at least through September.
The bank, the monetary authority for the 19 countries that use the euro, has been purchasing bonds with newly created money since March 2015 in an effort to boost inflation from levels considered too low. The bank's goal is just under 2 percent; right now annual inflation is 1.4 percent. The purchases also drive down longer term interest rates and should make more money available for banks to lend to companies, supporting economic activity. Meanwhile, the bank's short term interest benchmark is at a record low of zero. It has made clear that the benchmark will not be raised until well after the end of the purchases, which likely pushed the first rate increase into 2019.
The bank credits those policies for supporting the current economic upswing in the eurozone as it moves past a crisis over high government and bank debt that threatened to break up the currency union in 2011-2012.
The officials led by bank president Mario Draghi decided that "prudence, patience and persistence with regard to monetary policy remained warranted for underlying inflation pressures to continue to build up."
The only step they took at the meeting was to drop outdated wording from the bank's policy statement in which it said it would step up the purchases if need be. That stance was regarded as no longer relevant since the current upswing has lessened risks of shocks to the economy.
Markets are closely watching the ECB's timetable because the eventual withdrawal of stimulus will have wide-ranging effects on markets and consumers. Borrowing rates will rise for governments, home buyers and other long-term borrowers, while savers will see more returns on conservative holdings such as savings accounts and it should become easier to fund pension savings.