MEPs and trade unions are calling for interest-rate cuts and increased regulation of financial markets at EU level in order to avert a crisis similar to that of the US subprime mortgage, ahead of a debate with European Central Bank President Jean-Claude Trichet in Parliament.
The ECB must take the ongoing turmoil on global financial markets caused by the US subprime mortgage crisis (EURACTIV 22/08/07) into full account when deciding on monetary policy and interest rates, the European Trade Union Confederation (ETUC) announced on 30 August.
Financial markets are already squeezing both the cost and the availability of credit for new investment, dragging down overall investor and consumer confidence and damaging growth and job prospects, said the group, adding that the Bank should restore confidence by cutting interest rates if necessary.
ETUC Deputy General Secretary Reiner Hoffmann said: “Three-month interest rates are now as high as 4.75%, exactly the same level which managed to throw the European economy into a five-year slump back in 2000. To maintain robust growth and job prospects, the ECB needs to consider a timely cut in interest rates.”
Before the crisis, the ECB was widely expected to raise eurozone borrowing costs by a quarter point to a six-year high of 4.25% at a 6 September board meeting, but it is now unsure that it will go ahead with the move as the credit crisis threatens to damage economic growth in the EU (EURACTIV 28/08/07).
Jean-Claude Trichet has been summoned for an extraordinary hearing, on 11 September 2007, by the chair of Parliament’s Economic and Monetary Affairs Committee, the socialist Prevenche Bères, to discuss the recent developments.
Martin Schulz, leader of the EP’s Socialist Group, explained said the meeting had been called because the impact of the US mortgage crisis on the EU was “a matter of deep concern”: “The pensions and investments of many European citizens were directly affected – and we are concerned, too, about the risk of lay-offs for people working in European banks,” he said, adding that the whole issue of system risks needed to be re-examined to determine “the need for more regulation so that Europe can give its citizens greater protection in future”.
Spanish EPP-ED deputy José Manuel Garcia-Margallo echoed this view: “We must take a closer look at the effectiveness of these systems. Would they have been sufficently efficient if such a crisis had occured in Europe?”
Trade unions are insisting that policymakers should rethink and adapt the European and global model of economic and financial policymaking, which they claim “has produced four to five major crises in 15 years…and will continue to do so unless the role of the public sector as an economic actor and regulator is re-introduced”.
But Finnish EPP-ED MEP Alexander Stubb was more cautious, saying: “It is now rather up to the surveillance authorities to remain alert and to prevent any harmful consequences of the crisis by working within the framework of their existing competences and structures.”