Zapatero calls for caution after ECB warns of rate hike

9th June 2008, Comments 0 comments

Spanish government fears that a tightening of monetary policy could lead to a further slow down in the country’s economy.

9 June 2008

MADRID - European Central Bank President Jean-Claude Trichet's forewarning of a possible interest rate hike this summer has been met with an icy response in Spain, where the government fears that a tightening of monetary policy could further harm the country's slowing economy.

In a rare criticism of the ECB, Spanish Prime Minister José Luis Rodríguez Zapatero has called on Trichet to proceed with "caution" and "responsibility".

"We all respect the independence of the ECB, but we also expect it to act responsibly," Zapatero told reporters on Saturday, suggesting that he thought Trichet's comments had been reckless.

On Friday, a day after Trichet signalled the possible rate hike, stock markets fell, the price of dollar-denominated oil surged on renewed expectations for a further weakening of the dollar, and the Euribor interest rate on which most mortgage payments are calculated surged to a new record high.

Rising inflation

Spain, where households are heavily indebted following a 10-year house price boom, would be particularly badly hit by an ECB rate hike. Trichet, however, is keen to stop spiralling inflation caused by rocketing oil and fresh food prices across the euro zone.

Zapatero said his government has so far adopted 20 measures to respond to the economic crisis, although he urged the public and businesses to be patient because the effects of some of them, such as tax rebates and infrastructure investments, will "take a while to become apparent".

[El Pais / Expatica]

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