Global money, global disaster

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News analyst Jesus Torquemada. Photo: EITB

Something serious must be happening in the international financial system if the European Central Bank cuts the key interest rate despite the inflation is high.

European Central Bank’s target is to control inflation, and that is how it is reflected in its statutes. That is why it sets its monetary policy watching the inflation and not thinking about if the Eurozone needs cheaper money to stabilize the economy.

Eurozone’s inflation is around 3% so the ECB did not want to cut the key interest rate despite the fact that many governments were asking for it in order to improve their economy.

The ECB says that cutting the key interest rate can lead to a bigger waste, something that shoots up the inflation. However, president Trichet surprisingly decided to reduce it dramatically, by half a point. It is true that the governments were putting pressure on that, but it was probably Trichet’s idea to reduce the price of money.

The American Federal Reserve, the Chinese Central Bank, the ECB and four other main banks took the decision together, so the cut was even more astonishing. In spite of that, distrust keeps on growing and markets do not find the calm.

The world is living through a situation that shows how the uncontrollable financial globalization that came with Neoliberalism led us to the disaster.