The European Central Bank's (ECB) decision to raise its core interest rate by 50 basis points (or 0.5 percentage points) to 3% on Thursday has drawn heavy criticism from Europe's major trade union organisation, which denounced the "reckless" move and suggested that the ECB's purported "cure" for Europe's high inflation rate "is now starting to look more dangerous than the disease".
In a statement published on Thursday, General Secretary of the European Trade Union Confederation (ETUC) Esther Lynch also claimed that the rate hike would "strangle investment" and further "destroy people's living standards".
"After being hammered by a cost-of-living crisis caused by profit-driven inflation, the last thing that working people need is another recession that the ECB risks creating through [Thursday's] rate hike."
The ECB has now raised interest rates six times over the past eight months as it attempts to curb Europe's soaring inflation rate, which is driven in large part by high energy and food prices. The eurozone's current rate of inflation is 8.5% – more than four times the ECB's official 2% target rate.
'A much stronger position'
The ECB's rate hike was preceded by profound turmoil in global financial markets over much of the past week. Last Friday, Silicon Valley Bank (SVB) (America's 16th largest commercial bank) unexpectedly collapsed. On Wednesday Credit Suisse (Europe's 17th largest lender) was forced to seek 50 billion Swiss francs (€50.9 billion) in emergency loans from the Swiss central bank to "pre-emptively strengthen its liquidity".
The turbulence led many economists to reassess their expectations regarding the ECB's planned Thursday rate hike, with some suggesting that the Bank would limit its rate increase to 25 basis points rather than 50, while others predicted no rate hike at all.
At a press conference following the announced rate increase, ECB President Christine Lagarde admitted that some members of the ECB's Governing Council were sceptical of the wisdom of hiking interest rates at a time of market unrest. Nevertheless, she claimed that the Bank's decision was ultimately "adopted by a very large majority".
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In addition, Lagarde suggested that the current market turmoil bears little resemblance to the 2008 financial crisis, claiming that "the banking sector is currently in a much, much stronger position".
"We're mindful of our history and what has been done in the past, but we are all confident that the decision that we made today is a robust decision."
Lagarde also reaffirmed the ECB's commitment to reducing the eurozone's inflation rate back to the ECB's target level. "We are determined to return inflation back to 2% in the medium term, that should not be doubted, the determination is intact."
