The Hindu Business Line : European Central Bank likely to raise interest rate by 25 basis points

THERE is concern about rising inflation rate and the European Central Bank is poised to raise basic interest rate, which is historically low at 2 per cent since June 2003. A quarter per cent interest rate in the Eurozone region is widely predicted.

Apart from worries about rising inflation rate, the Eurozone economies are in a "healthy" state although falling export orders in Germany are raising some eyebrows. But, most analysts also agree that these economies are "in trouble" and the unemployment rate is high — nudging at a record 10 per cent mark. At the same time, Eurozone economies, in the past decade, have created as many jobs as the dynamic American economy, and with the exception of Germany, the rate of unemployed in non-German regions has been falling.

In Germany, the unemployment rate has crossed the politically and psychologically-sensitive five million mark as center-right Christian Democrats and Centralist Socialists try to stitch up a coalition government in the background of a `close and indecisive' election result. Germany is the `locomotive' economy of the European Union and any economic fallout can have wide-ranging repercussions as Germany has 60 per cent economic hold in the Eurozone region. Germany has to under go major economic, labour and social reforms and obviously Berlin needs a strong central government to ensure a smooth reform process. Unemployment in the non-German sector has fallen because of key labour reforms highlighted by less social security costs, employers' easy access to `hire and fire' strategy to reduce production costs, and articulate manufacturers' competitive edge in the global market place.

European observers agree that European nations need `dynamic' political leadership and as some cynics put it, key European heads of government are in the `departure lounge.' The German Chancellor, Mr Gerhard Schroeder, is in the evening of his political career and the French President, Mr Jacques Chirac, may be replaced by the up-coming French politician, Mr Nicholas Sarkozy, — now in his late 40s. There are big question marks about the political future of the British Prime Minister, Mr Tony Blair, who is under pressure from the New Labour rank and file to make room for his natural successor, Mr George Brown. In Italy, the Prime Minister, Mr Silvio Berlusconi, is under pressure to resign. In Brussels, the European Commission has yet to make its mark on the reform process.

European politicians are `traumatised' by the embarrassing rejection of the European Constitution, led by Dutch and French voters. Without the Constitution, the European Union is widely regarded as a `lame duck' as it is handicapped in launching a pan-European reform movement and was unable to agree on the budget for 2007 to 2013.Currently, reforms are initiated by national governments that waver from center-right to center-left agenda. Despite all this, the European Union has a dynamic economic base and is fast nearing the US economic base of $11 trillion. India and China are the key Asian developing economies with high trading and investment stake in the European Union. By the end of the year, over a third of India's two-way export-import trade will be with the European Union and China may cross the $100-billion mark.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Forex reserves up $42 m

LIC Housing Fin may rework plans on raising resources

J&K Bank to work on Sunday in quake-hit areas

ICRA to develop credit risk-rating model for United Bank of India

European Central Bank likely to raise interest rate by 25 basis points

Interest rates may harden, say bankers

RBI proposes to raise Rs 2,500 cr under MSS