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ECB cuts to 2.5pc and mulls "printing money"
Ambrose Evans-Pritchard
London
Telegraph
Friday, Dec 05, 2008
The European Central Bank has slashed interest rates
by three-quarters of a point to 2.5pc in the boldest move since
the launch of monetary union and hinted at revolutionary action
to head off a severe slump next year as the economic crisis ravages
the car, steel, and machine tool industries.
"Tensions have increasingly spilled over from
the financial sector to the real economy," Jean-Claude Trichet,
the ECB's president, said. He added: "Global and euro-area
demand are likely to be dampened for a protracted period of time."
Sweden's Riksbank went even further, stunning the markets with
a cut of 175 basis points to 2pc. The Swedish authorities are
deeply alarmed by the collapse of vehicle sales at Volvo, as well
as the large exposure of Swedish banks to the property crash in
Eastern Europe
"We're moving towards a world of zero rates in Europe and
the G10 countries, perhaps as soon as the second half of next
year," said Michael Klawitter, a strategist at Dresdner Kleinwort.
(ARTICLE CONTINUES BELOW)
Mr Trichet said the eurozone is likely to contract by 0.5pc next
year amid a "hardening" of the credit markets. This
is a dramatic reversal from the ECB's forecast of an economic
rebound published in September. The bank has undoubtedly been
startled by the latest PMI confidence data, which has a good record
as a leading indicator and is now pointing to a brutal contraction
of 2.7pc year-on-year in early 2009.
In France, President Nicolas Sarkozy unveiled a €26bn (£22bn)
stimulus package of tax cuts and state spending to fight unemployment.
It includes €1bn in loans for the French car industry, which
is shutting a string of plants for up a month to clear an unprecedented
glut of unsold vehicles. The state will build 100,000 new homes
to keep construction alive.
Full
article here
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