Yes, ECB rate hikes did hurt periphery

24/08/2011 by

One of the arguments – there are others – I and other commentators made against the ECB’s two rate hikes (here, here and here) was that it would significantly worsen the outlook for the already struggling peripheral euro area countries. A simple chart (source) shows just how justified this fear was:

Bond spreads had been on a slowly declining trajectory since the start of the year, declining quite markedly in the month prior to the ECB decision. Spreads rose sharply immediately after the announcement of higher rates on 13 April and, more importantly, have since been on a persistent upward trend. The second hike had a similar effect. This is not to say that the only cause of the shift was monetary policy, of course. But note also the sharp downward trend in Spanish and Italian spreads at the end: this followed the ECBs decision to buy these bonds, in an effective policy U-turn.

Sigh! Economics really isn’t rocket science. But still too hard for the ECB, it seems.

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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:
    24/08/2011 at 10:32

    New blogpost: "Yes, #ECB rate hikes did hurt periphery" by Andrew Watt http://t.co/FIOY065 #blogs #bondspreads

  2. John Moynes says:
    24/08/2011 at 10:33

    New blogpost: "Yes, #ECB rate hikes did hurt periphery" by Andrew Watt http://t.co/FIOY065 #blogs #bondspreads

  3. Lurdes Fonseca says:
    24/08/2011 at 11:14

    SEJ: "Yes, ECB rate hikes did hurt periphery" by Andrew Watt http://t.co/9uscKtc #SocioTweets

  4. Robin Wilson says:
    24/08/2011 at 12:18

    Yes, #ECB rate hikes did hurt periphery http://t.co/kVK9oXa

  5. European Almanac says:
    24/08/2011 at 13:10

    Yes, ECB rate hikes did hurt periphery http://t.co/q9BMETk [@SocialEurope]

  6. Josh Mosca says:
    24/08/2011 at 13:15

    ECB rate hikes hurt periphery – http://t.co/MFYCVwF

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    15/10/2011 at 17:03

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