Tag: ECB

Retail sales in the eurozone have been falling for several months as the recession deepens. The latest figures show a drop in sales of 4.2% between March 2008 and 2009. But what are the implications for fiscal and monetary policy?

With many eurozone countries worried about growing budget deficits the pressure is on the ECB to cut interest rates. Would this help to halt the decline in sales, or do policy-makers need to go further? The linked articles look at the facts and some of the solutions.

Volume of retail trade down by 0.6% in euro area Eurostat news release (6/5/09)
Brussels doubles EU recession forecasts for 2009 Independent (5/5/09)
Euro zone retail sales in record fall IrishTimes.com (24/4/09)
Record decline in eurozone sales BBC News (6/5/09)
EU businesses say worst of crisis over, urge action Guardian (6/5/09)
ECB Is Expected to Cut Rate to 1%, Enlist Other Tools The Wall Street Journal (6/5/09)
ECB set to cut interest rates to record low of 1% Times Online (5/5/09)
See also
Economic Forecast, Spring 2009 European Economy (European Commission)

Questions

  1. What determines the level of retail sales?
  2. What would halt the decline in retail sales?
  3. Discuss various measures that the ECB could take to stimulate the eurozone economy. Why might it be reluctant to take some of the measures?

The European Central Bank has its tenth anniversary this year and the year is shaping up to be one of the toughest of the last decade in terms of economic management. While the Eurozone has generally withstood the global credit crisis very well, there are some possible problems emerging and the ECB will have to manage interest rates carefully to cater for the conflicting demands from economies at different stages of the business cycle.

If the Eurozone is on fire, will the ECB get burnt? Observer (1/6/08)
More testing times ahead as the euro turns ten Times Online (26/5/08)
Euro growth better than expected BBC News Online (15/5/08)

Questions

1. Explain the role of the European Central Bank (ECB).
2. Assess the difficulties faced by the ECB in setting interest rates for the whole Eurozone.
3. Discuss the extent to which the economic performance of stronger countries in the Eurozone will be constrained by weaker-performing economies.

The euro has climbed during March to a record high against both the dollar and the pound. The reluctance of the ECB to cut interest rates has simply served to strengthen this trend and it looks set to continue for a while.

Euro hits record highs Times Online (6/3/08)
Euro hits new highs as ECB rejects early cut in rates Times Online (7/3/08)
Sterling hits new low against euro Guardian (5/3/08)
Dollar slides to fresh euro low BBC News Online (14/3/08)

Questions

1. Explain the principal factors that have led to the appreciation of the euro against the dollar.
2. Discuss the likely impact of this appreciation on firms in (a) the eurozone and (b) America.
3. Examine whether the appreciation of the euro strengthens or weakens the case for those in the UK wanting to join the euro.