European Central Bank Raises Interest Rates

    Photo: Reuters [via Aljazeera]

    The Facts

    • On Thurs., the European Central Bank (ECB) announced plans to raise interest rates for the first time in more than a decade as it tries to control eurozone inflation, starting July 27.

    • The base rate will reportedly be increased by half a percentage point, bringing it back to zero and marking its largest increase since 2000. Rates in Europe have been negative since 2014.

    The Spin

    Narrative A

    Like all major economies, the ECB is having to control inflation by raising rates without bringing a recession. To act too tough on inflation could create market panic, but to do nothing at all could be just as damaging. This is further complicated as the eurozone is propping up indebted countries who are unable to deflate their own currencies - it seems like every policy choice could potentially risk a repeat of the eurozone crisis.

    Narrative B

    Although the economy may appear to be taking a turn for the worse, and many fear that the 2008 eurozone crisis is going to repeat itself, conditions are not as bad as they appear. Banks are still in relatively good shape, property prices are not expected to collapse and asset prices will likely not drop. In fact, some European countries may even benefit from recovery packages.

    Nerd narrative

    There is a 4% chance that Eurozone will collapse before 2030 according to the Metaculus prediction community.

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