Foreign Affairs

European Central Bank Takes Action As EU Teeters On Brink Of Recession

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The European Central Bank (ECB) raised interest rates by 0.75 percentage points, bumping its policy rate to 1.5%, the highest level in over a decade as the European Union (EU) stares down a possible recession heading into winter, The Wall Street Journal reported Thursday.

Inflation in the EU was higher than in the U.S. in September, with consumer prices rising 9.9% in the EU compared to 8.2% in the U.S., the WSJ reported. Despite this, the ECB has been less aggressive than the U.S. Federal Reserve in increasing interest rates, considering that the eurozone has struggled more directly with the consequences of Russia’s invasion of Ukraine, and has made an effort to minimize the damage to some of the more fragile and debt-laden EU economies.

FRANKFURT, Germany (AP) — European Central Bank makes another large interest rate hike to tackle record inflation even as risk of recession looms.

— Steve McCarron KOMO (@SteveTVNews) October 27, 2022

While the ECB is expected to raise interest rates from their current levels to roughly 2.8% before the halfway point of next year, the Fed is expected to increase rates from the current range between 3.0% to 3.25% up to roughly 5%, the WSJ reported. European leaders, such as those in France and Italy, have criticized the interest rate hikes for potentially hampering economic activity as they roll out spending programs intending to reduce the burden on their constituents over the winter.

As winter looms, so too do fears of a recession, driven by high inflation and spiking energy costs, both exacerbated by the ongoing war in Ukraine, the WSJ reported. With a bailout of U.S.-based energy unlikely to fill the gap, EU countries have been forced to take action to cut back on fuel consumption, with Switzerland recommending that citizens shower together to save on energy costs and Germany opting to keep its nuclear power facilities open through April 23 in a stark reversal of previous policy.