The European Central Bank minutes from the latest interest rate meeting were released this afternoon, causing the GBP/EUR to drop half a cent. The ECB minutes didn’t suggest there would be any changes to the currency extensive quantitative easing policy, but they were optimistic for the future.
There was a belief from policy makers that the risk of deflation had all but disappeared, however they went as far to suggest there wouldn’t be an interest rate hike in the near future. Whilst the fiscal stimulus isn’t going to change immediately there could be a change as soon as September potentially.
The ECB does have a major challenge on their hands at the moment as they have several of the major nations performing at a high level, but the nations on the south coast are struggling. Italy, Spain and Greece have been struggling economically with banks going bankrupt and being bailed out still. Furthermore the unemployment rate especially for the young age groups reaches well over 40% in certain instances. Whilst this may not have a major short term effect over the next few years this could become an uncontrollable problem.
The ECB must decide what the consequences will be on both the performing nations and the weaker economies. Germany and France would certainly benefit from an interest rate hike, however nations in billions of debt would only be expected to pay back further interest making the situation worse. Over the course of the next few months I think the Euro’s problem may start to become more prevalent because at the moment the comments from the ECB are the same thing every time, it’s almost as if they’re just playing for time currently.