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world news Diabierna 22 Juli 2022

Europe’s central bank backs larger-than-expected rate hike

(AP) — The European acknowledged the uncertain- the ECB is more concerned
Central Bank raised in- ty ahead. about this credibility than
terest rates Thursday for about being predictable,”
the first time in 11 years “Economic activity is slow- Brzeski said.
by a larger-than-expected ing. Russia’s unjustified ag-
amount, joining steps al- gression towards Ukraine is Recession concerns have
ready taken by the U.S. an ongoing drag on growth,” helped push the euro to a 20-
Federal Reserve and oth- the ECB chief said at a news year low against the dollar,
er major central banks to conference. Higher infla- which adds to the ECB’s task
target stubbornly high in- tion, supply constraints and by worsening energy prices
flation. uncertainty “are significantly that are driving inflation.
clouding the outlook for the That is because oil is priced
The move raises new ques- second half of 2022 and be- in dollars.
tions about whether the yond.”
rush to make credit more Raising rates is seen as the
expensive will plunge major The ECB is coming late to its standard cure for excessive
economies into recession at rate liftoff — a token of in- inflation. The ECB’s bench- get right as central banks re- Ukraine.
the price of fighting inflation, flation that turned out to be marks affect how much it verse what has been a decade
which is forcing people to higher and more stubborn costs banks to borrow — and of very low rates and infla- Rising interest rates follow
spend more on food, fuel and than first expected and of the so help determine what they tion. the end of the bank’s 1.7
everything in between. shakier state of an economy charge to lend. trillion-euro (dollar) stimu-
heavily exposed to the war in “The most precious good lus program that helped keep
The ECB’s surprise hike of Ukraine and a dependence But by making credit harder that we can deliver and that longer-term borrowing costs
half a percentage point for on Russian oil and natural to get, rate increases can slow we have to deliver is price low for governments and
the 19 countries using the gas. Recession predictions economic growth, a major stability. So we have to bring companies as they weathered
euro currency is expected to have increased for later this conundrum for the ECB as inflation down to 2% in the the pandemic recession.
be followed by another in- year and next year as soaring well as for the Federal Re- medium term. That is the
crease in September, possibly bills for electricity, fuel and serve. The Fed raised rates by imperative,” Lagarde said. Those bond-market borrow-
of another half-point. Bank gas deal a blow to businesses an outsized three-quarters of “And it’s time to deliver.” ing rates are now rising again,
President Christine Lagarde and people’s spending power. a point in June and could do especially for more indebted
had indicated a quarter-point so again at its next meeting. Yet the European economy eurozone countries such as
hike last month, when infla- The ECB made the bigger- The Bank of England started has the added worry of a po- Italy, where Premier Ma-
tion hit a record 8.6%. than-expected increase to the march higher in Decem- tential cutoff of Russian natu- rio Draghi’s resignation has
underline its determination ber, and even Switzerland’s ral gas, which is used to gen- brought back bad memories
She said the bigger hike was to get inflation under con- central bank surprised with erate electricity, heat homes of Europe’s debt crisis a de-
unanimous as “inflation con- trol after its late start, said its first increase in nearly 15 and fuel energy-intensive cade ago. Markets fear the
tinues to be undesirably high Carsten Brzeski, chief euro- years last month. industries such as steel, glass- exit of the former ECB presi-
and is expected to remain zone economist at ING bank. making and agriculture. Even dent, who has pushed poli-
above our target for some The move aims “to restore The goal for all central banks without a total cutoff, Russia cies meant to keep debt man-
time.” As the bank leaves an the ECB’s damaged reputa- is to get inflation back down has steadily dialed back gas ageable and boost growth in
era of negative interest rates, tion and credibility as an in- to acceptable levels — for flows, with EU leaders ac- Europe’s third-largest econ-
Lagarde said economic fore- flation fighter.” the ECB, it’s 2% annually — cusing the Kremlin of using omy, could raise the risk of
casts don’t point to a reces- without tipping the economy gas to pressure countries over another eurozone crisis.
sion this year or next but she “Today’s decision shows that into recession. It’s difficult to sanctions and support for

Italy heads to early election after Draghi’s coalition fails

(AP) — Italy is headed possibility for cobbling The demise of Draghi’s co- ing blow to the country and ventions to contrast the eco-
for an early election af- together another govern- alition in the eurozone’s Europe amid rising inflation nomic and social crisis, and
ter its president accepted ment following the rapid third-largest economy and and Russia’s war in Ukraine. in particular the increase in
Premier Mario Draghi’s collapse of the ruling co- the uncertainty of what Ital- inflation, which brings heavy
resignation Thursday alition. ian voters will decide at the Dissolving Parliament “is al- consequences for families
and decided there was no polls have dealt a destabiliz- ways the last choice to make, and businesses,″ he said.
especially if, as in this mo-
ment, there are important Draghi was staying on at
tasks to carry to completion,″ Mattarella’s request in a
President Sergio Mattarella caretaker role, ensuring the
said in a brief speech at the government can carry out ba-
presidential Quirinal Palace, sic measures in the months
where Draghi had tendered before a new coalition is in
his resignation hours earlier. place.
Mattarella’s office said the But with Italy’s often-squab-
election will be held Sept. 25. bling political parties, it could
be weeks beyond that before
He appealed to political par- a new government is in place.
ties in their campaigning to After 2018 elections for Par-
keep in mind “the superior liament, it took 90 days be-
interests” of the nation. Cit- fore a new government was
ing soaring food and energy sworn in.
prices, he noted that those
suffering the most are always Parliament’s five-year term
the weakest in society. would have expired in March
2023, so effectively the elec-
“The period we are going tion would be held barely six
through doesn’t allow for any months ahead of time.
pause in determining inter-