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| European Central Bank President Jean-Claude Trichet
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European Central Bank (ECB) President Jean-Claude Trichet, signaled on Monday that the bank will respond to plunging economic growth in the Eurozone by cutting the benchmark rate at next week's meeting of the Governing Council. Markets are expecting a fall to 3.25%.
``I consider it possible that the Governing Council would decrease interest rates once again at its next meeting,'' Trichet said in a speech in Madrid.. ``It is not a certainty, it is a possibility.''
Also on Monday, it was reported that the German Ifo Business Climate Index fell to a five year low;
Finfacts Report: German Ifo Business Climate Index falls to five-year low in October
Trichet said “all our decisions” depended on the inflation outlook but the rate cut is a virtual certainty.
Businesseurope, a body which represents 40 business organisations, said in a report, published on Monday, that it expected real GDP growth in the EU to fall from 1.4% this year to just 0.4% in 2009. The outlook for business investment was “particularly dim,” with fixed investment spending forecast to contract 1.7%, compared with a 1.2% rise this year.
The group said that although the risk of a severe credit crunch in Europe is not imminent at the present stage, policy-makers need to do the utmost to ensure the orderly functioning of financial markets.
It said that the business community strongly supports the measures undertaken by governments and central banks to stabilise financial markets, and especially their growing degree of coordination.
The ECB said on Monday, that while growth of M3 - - a broad measure of money and credit - - in the Eurozone economy, fell to 8.6% in September 2008, from 8.8% in August 2008, loans to non-financial businesses, were still growing at an annual rate of 12.1%, down from 12.6%.
Until the recent acceleration of the financial crisis, some Irish armchair "experts" were advocating withdrawal from the European Monetary System.
Business journalist Matt Copper wrote in the Irish Examiner last January, regarding abandoning the euro:"While it would be hard in practice to achieve, it is possible — although you can imagine how the doom-mongers would scream that to leave the euro would be disastrous for the prestige and reputation of the economy and to our place in Europe."
Disastrous indeed at a lot more cost than prestige!!
While Iceland's casino economy had close parallels with Ireland's, Denmark, which has one of Europe's most successful economies, has been forced to raise its benchmark interest rate 5.5% to protect its currency.
On Monday, the Danish central bank arranged a €12bn swap facility with the European Central Bank to improve liquidity in the country’s money markets.
While Denmark remains outside the Eurozone, the swap facility illustrates the dependence on the ECB and the travails encountered by the currencies of small economies.
Denmark is the third European country, which the ECB has assisted after Hungary and Switzerland.
* CBI is in the process of reviewing and updating its economic forecasts.
