Italian Prime Minister Giorgia Meloni and her government are on the warpath against the European Central Bank, with the Italian leader claiming that the bank’s string of interest rate hikes have done more harm to the Italian economy than the good they did in reducing inflation.
“The medicine is worse than the disease,” said Meloni regarding the increase in rates.
The European Central Bank (ECB) and European financial experts have been arguing for months about the ongoing interest rate hikes. ECB President Christine Lagarde says there are encouraging signs, but until they reach the EU’s 2 percent inflation threshold, the ECB sees justification for further rate hikes and will do no differently in July, for the ninth consecutive month.
“It is unlikely that the central bank will reach a peak rate in the near future. In July, we will raise interest rates further,” said Lagarde, whose words have further angered the Meloni cabinet.
The biggest loser from the ECB’s decisions in the euro area is undoubtedly Italy, which featured public finances that were already in poor shape before the rate increases. Italy, which relies heavily on borrowing to stay afloat, is forced to pay more to service its debt when interest rates are higher. Analysts estimate that the Italian government’s borrowing needs this year could reach €250 billion, but the question is how to cover that amount under the ECB’s tightening policy and what Italy’s unstable public finances will mean for the eurozone.
Meloni and her government have been raging about interest rate increases since January. The prime minister, her deputy Matteo Salvini, and members of the government have been calling the ECB’s rate policy “crazy,” “unbelievable” and “shocking.”
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The Italian prime minister and her government have only grown more furious after Lagarde’s recent announcement. The row was opened by Salvini, who called the decision nonsense and dangerous, saying: “The European Central Bank, contrary to common sense, is signaling further interest rate increases which will only harm families and businesses.”
Foreign Minister Antonio Tajani called the bank’s hike incomprehensible and asked the rhetorical question: “Does Lagarde have a variable interest rate loan? Do you know how much the repayments are going up? Who is it that comes up with these stupid decisions?”
Meloni also sharply criticized the ECB’s monetary policy. “You cannot ignore that constantly rising interest rates are doing more harm to our economies than to inflation, so this is a remedy that does more harm than good,” she said, agreeing with Tajani, who said the ECB was now flirting with slamming economies with inflation.
Italian inflation fell from 8 percent to 6.7 percent in June, which may appear substantial, but the ECB is watching the eurozone as a whole for a target close to 2 percent, so the Frankurt-based institution is showing no signs of slowing down its rate hikes. It has already raised rates by 400 basis points since July of last year from -0.5 percent to the current 3.5 percent, and although it will take a summer break after July, the ECB will likely resume raising rates in September.