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The European Central Bank’s Decisions

Italy is on the right path, finally announced a coalition government on Saturday which will be led by the Prime Minister Enrico Letta. The priorities of this new government are the economy, the unemployment rate (currently at 11.6%), regaining investors’ trust and fighting for the Europe to turn away from the austerity. On Friday the rating agency Moody’s kept its rating on Italian government debt unchanged at Baa2 forecasting also a shrink of the economy of 1.8% this year.

The main issue this week would be the interest rate of Euro zone which is actively debated by analysts. The common believe is that the interest rate should be cut, in this way Euro zone will align with U.S. and Asia. Euro is considered to be the weak point of the global economy and there are voices saying that it’s time for the Euro to react to the aggressive monetary policies applied by the other economic powers.

On the other hand, Angela Merkel thinks that a cut in interest rate is the opposite of her intentions for Germany. She thinks that Germany needs an increase of the interest rate but the ECB can’t take separate monetary policy decisions and it has to think at all the euro countries as if they were one economy which currently needs to make available more liquidity, especially for the corporate financing.

The latest review of the situation of Europe reveals us that E.U. is being understanding with its countries. Thus, Spain asked for more time in order to reduce its fiscal deficit in line with European rules. The country will increase its deficit target at 6% of GDP and is struggling to gain more time to get to a 3% deficit which currently is targeted for 2014. By the end of this month Spain is asked to come up with a stability plan in order to receive the approval for the delays. Also, Ireland and Portugal earned seven more years to pay back their bailout loans and Greece’s austerity program is going to be discussed again by Troika.

It is obvious that the ECB is seen as a conservative bank but the current economic situation requires this thing to be changed. Furthermore, some additional measures will be needed in order to establish the calm for the Euro continent.

The European Central Bank’s Decisions by