Business, Economics and Jobs

Europe's Central Bank boosts rates


A huge symbol of the euro is placed in front of the European Central Bank (ECB) late on June 1, 2008 in Frankfurt.


Dominique Faget

What do you do if three member states are hurting so badly that they require giant bailouts?

If you're the European Central Bank, of course, you raise interest rates.

That's what happened today, anyway, as Europe boosted its benchmark interest rate for the first time since 2008.

The benchmark rate was raised to 1.25 percent, from an economic-crisis-induced low of 1 percent.

The move was defended by ECB Chairman Jean-Claude Trichet:

“There is no contradiction, but full complementarity in doing what is our prime mandate, which is to deliver price stability,” he said following a meeting of the E.C.B. governing council in Frankfurt. “We do what we have to do even when it is difficult, even when it is not necessarily pleasing everyone.”

The rate increase comes at a particularly bad time for Portugal, Greece and Ireland — all three have needed bailouts from the EU. Higher rates will hurt mortgage owners in these countries, of course.

Spain and Italy, too, are hurting economically and today's ECB rate move quickly brought out the critics:

“Tighter monetary policy will only add to the burden of reeling peripheral countries and increase the risk of a much worse debt crisis,” Marie Diron, an economist who advises the consulting firm Ernst & Young said in a note published in the New York Times.

“We hope that this rate hike is not the start of a series of rate increases that would seriously endanger the fragile recovery,” he added.