The tyranny of the central bankers

Raising interest rates in the euro zone

The European Central Bank (ECB) announced earlier this month that it was raising its overnight lending rate by a quarter of a percentage point to 1.25%. This is very bad news for people across the euro zone countries and possibly the rest of the world as well. Furthermore, it reveals the democratic deficit of fundamental decisions about economic policy, comments Dean Baker.

The rate rise shows two things. First, the ECB is prepared to slow the euro zone economy and throw people out of work. This is the point of raising interest rates. The ECB targets 2% inflation with the current inflation rate in the euro zone around 2.5%. The inflation rate is above the ECB target due to a jump in the price of oil and other commodities. These price rises in turn are primarily attributable to instability in the Middle East and increased demand from China, India and other fast-growing developing countries ...

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