A European Union Central Bank has raised interest rates for the first time in 11 years as they work to control soaring inflation.
The ECB is continuing their plans to raise interest rates this year, increasing the rate by 0.5 percentage points to 0.0%.
The rate has been negative since 2014. This was due to years of economic weakness.
Consumer prices have been increasing at a record rate, specifically in the food, fuel, and energy sectors.
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The Bank of England and US Federal Reserve have also lifted their rates to rein in rising prices.
Milk prices are rising by about 5%, so if the price of milk is €1, that could mean with inflation, it costs €1.05.
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Ukraine and Covid supply chain issues have caused everyday costs to increase, putting pressure on households.
This week, the EU urged member states to ration supplies of oil and gas from Russia after worries that Moscow will halt deliveries this year.
We are increasing rates because economic activity is slowing and Russia’s aggression towards Ukraine is stunting growth.
The manager believes inflation will remain high for some time, due to energy and food prices as well as pipeline pressures in the economic system.
If the rate hikes go well, the bank will shift from a “meeting-by-meeting” approach to raising rates.
High borrowing costs in Europe will add to the already high debt in Italy and Greece.
Many people who have lived half or nearly all of their lives in crisis mode say they are not optimistic about their futures in the country.
Some have multiple jobs to make ends meet and pay their way through school.
While in previous years that might have barely got them by, the red-hot surge in food and energy prices – exacerbated by the war in Ukraine – has only made matters worse.
Thousands have just given up trying.
One estimate from the London School of Economics suggests roughly 400,000 degree holders have left Greece since 2010. A pattern described as brain drain – when highly-skilled workers are taking their expertise to other shores.
But not all hope is lost, and not all are pessimistic.
Though the youth unemployment rate came in above 36% in April – the highest in the eurozone, the rate is considerably lower than where it peaked in 2013 – at 58.2% – during the height of the Greek debt crisis.
More broadly, the European Commission expects the country’s economy will grow about 4% this year.
That’s likely to be helped by a boom in tourism – an industry that makes up about 25% of economic output – following two years of tough pandemic pain.
The nation’s deputy finance minister, Theodore Skylakakis, told me that although it’s hard for those who grew up in a crisis era to see it, progress is there.
“When people have experienced this, especially young people, all their lives or their working lives, hardship, because they have lived since 2010, the biggest crisis ever.
“And then they had two years of the pandemic, huge crisis. And now they’re seeing the energy crisis. So they’re absolutely right to be worried,” he said.
“On the other hand, this time, instead of the previous years, we have jobs for them. The wages are increasing in Greece.
“And there are a lot of jobs available and a lot more going to become available. As the huge investments that I’m describing are actually happening. It’s difficult for them to imagine what will happen after all these investments happen because people don’t look into things like that. When they happen, they will just live through it.”
He also pointed to progress on structural economic reforms including reducing a still-high unemployment rate to 12.5% and increasing the cash cushion the country can use for a rainy day.
Based on that, he said he’s confident his country will avoid recession.
The idea is to make borrowing less attractive, so people buy fewer expensive items, which decreases the demand for goods.
This could result in a recession for the European bloc, which is defined as two quarters of economic growth followed by two quarters of economic decline.
The euro has dropped to a 20-year low against the dollar recently due to a fear of financial collapse.
The ECB typically lowers interest rates during times of crisis to stimulate growth and has gone as low as -0.5% during times of an economic pandemic.
The idea was to encourage banks to lend money rather than deposit it.
A bank signalled an intention to raise their interest rates. Economists only expected a 0.25% rate increase as well, but the bank believes they will increase by more than expected.
Economists have criticised the ECB for moving too slowly, pointing out that the UK and US began raising rates months ago.
Carsten Brzeski, chief eurozone economist at ING bank, said that after the financial crisis the european Central Bank (ECB) was too cautious in raising rates last year.
