On July 21st, the European Central Bank (ECB) announced that it is raising interest rates by 0.5 per cent, opting for an even higher hike than what was announced in June. Over the past few months, Positive Money Europe has repeatedly warned that higher interest rates are simply not the right solution to current price increases, as they will negatively affect people and jeopardise the well-being of our economies and the future of the post-pandemic green recovery. Why do we think so? In this blog, we answer a few questions about the impact that rising interest rates will have on people’s daily lives.
The risk of fragmentation has accompanied the Eurozone since its origin. With the ECB ending its expansionary monetary policy, it has reoccurred once again. The ECB vowed to put the issue of fragmentation at rest with a new tool announced in July 2022. But its success depends on the ECB’s decision-makers realising their power and using it accordingly.
The combination of higher inflation and the still too slow green transition creates a dilemma for the European Central Bank because taming down inflation using its traditional interest rate policy would effectively make green energy investments costlier. To avoid such counter-productive outcomes, the ECB needs to signal clearly that any effort to fight inflation will also maintain favorable funding conditions for spending or investments that contribute to a successful energy transition.