150,000 more reasons why the ECB was wrong to raise interest rates

31/08/2011 by

The ECB raised interest rates on 13 April and again on 13 July. That that was a mistake was evident at the time (here and here).

We have since seen  how the predicted worsening of the situation for peripheral countries has indeed come to pass.

As of today we have 150,000 more reasons to protest at the damage being inflicted on the euro area by its central bank. Eurostat has just published the latest unemployment numbers. Between April and July unemployment in the euro area rose  by c. 150,000 (from 15.6 to 15.75 million). In other words the 17 member countries have in three months given up almost one third of the gains achieved in terms of reducing unemployment since the middle of last year. (The numbers are seasonally adjusted, so the loss does not reflect  seasonal factors.)

We know that monetary policy works with the famous ‘long and variable lags’. I am not suggesting the two hikes caused the rise in unemployment. The fact remains that two decisions to hike rates were taken in an environment in which an already disastrous labour market situation was getting worse instead of better, headline inflation was declining and core inflation below target and policymakers are desperately trying to consolidate public finances.

The euro area needed and needs interest rate hikes like a hole in the head. The euro area needs a central bank that is committed to supporting the agreed priority policy goals of the euro area and its member countries: getting back to growth, reducing unemployment, bringing government debt levels down. It is mandated to do so given the lack of any (upward) threat to price stability. It does not have such a central bank at present.

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About Andrew Watt

Andrew Watt is Head of the department Macroeconomic Policy Institute (IMK – Institut für Makroökonomie und Konjunkturforschung) in the Hans-Böckler Foundation. He was previously senior researcher at the European Trade Union Institute, where he coordinated research on economic, employment and social policies. For many years he has focused on European economic and employment policies and conducted European-comparative socio-economic research. Special interest: economic governance in the euro area and the coordination of macroeconomic policies and wage setting. He has served as an advisor to a considerable number of European and national institutions, think tanks, foundations and political parties.

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  1. SocialEurope Journal says:
    31/08/2011 at 13:44

    New blogpost: "150,000 more reasons why the #ECB was wrong to raise interest rates" by Andrew… http://t.co/mgNQdVh

  2. Fredrik Jansson says:
    31/08/2011 at 13:45

    RT @SocialEurope: New blogpost: "150,000 more reasons why the #ECB was wrong to raise interest rates" by Andrew… http://t.co/NAiTS5H

  3. Emmanuel Lorenzon says:
    31/08/2011 at 14:37

    New blogpost: "150,000 more reasons why the #ECB was wrong to raise interest rates" by Andrew… http://t.co/mgNQdVh

  4. Lurdes Fonseca says:
    31/08/2011 at 15:25

    SEJ: "150,000 more reasons why the ECB was wrong to raise interest rates" by Andrew Watt http://t.co/W2ad51F #SocioTweets

  5. European Almanac says:
    31/08/2011 at 16:40

    150,000 more reasons why the ECB was wrong to raise interest rates http://t.co/TD8qyVF [@SocialEurope]

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    31/08/2011 at 17:40

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