No Measurable Effect
"The interest rate cut will likely not have measurable effects on real economies in crisis-stricken countries," Kai Carstensen, of the Munich-based Ifo Institut, told Reuters. "In my opinion, the interest rate cut can best be understood as a further step to subsidize struggling banks."
Prior to Thursday's announcement, International Monetary Fund head Christine Lagarde likewise indicated that she didn't have high hopes from a rate cut and urged the ECB to resume its program of buying up sovereign bonds from struggling euro-zone countries. Many would like to see the ECB buy up large quantities of Spanish and Italian sovereign bonds on the secondary market as a way of pushing down their borrowing costs.
ECB Governing Council member Klaas Knot indicated in a magazine interview published on Wednesday that resuming the program was unlikely. "If someone needs to help Southern Europe, then it should be other authorities, not the ECB," Knot told the Dutch magazine Elsevier. "Public aid requires strict conditions. We should not be drawn back into that political game. The (bond) buying program is in a deep sleep. That is where it will stay."
More Trouble For Spain
Just what that means for Spain was once again underlined this week. The country issued €3 billion ($3.73 billion) worth of bonds on Thursday, including €747 million worth of 10-year bonds. Despite solid demand, Madrid had to pay a rate of 6.43 percent on the 10-year bonds, up from the 6.04 percent it paid in its last such issue a month ago.
The rate rise comes despite the European Union summit last week which agreed to allow the euro bailout fund the ability to loan money directly to Spanish banks as a way to keep Spain's debt load from rising significantly. The summit also agreed to make moves toward the establishment of a European banking union.
Rates of 7 percent on 10-year bonds are considered unsustainable and, should Spanish rates continue to rise, there is fear that the country might have to apply for emergency aid from the euro-zone bailout fund, over and above the assistance it has already requested for its banks.
Thursday's ECB rate cut comes on the heels of a surprise rate cut undertaken by China's central bank, which lowered rates by 0.31 percent to 6 percent on Thursday. It was the second such rate cut in a month. The Bank of England likewise announced it was injecting a further 50 billion pounds into the British economy in an effort at revitalization.
Intellpuke: This article is a compilation of reporting by Spiegel journalists and various news agencies; you can read it in context here: www.spiegel.de/international/business/european-central-bank-rate-cut-not-likely-to-have-significant-effect-a-842801.html