Europe is resisting… Will it avoid recession?

As expected, the European Central Bank raised rates for the sixth time in a row, in the context of its relentless move to curb inflation in the euro area, and within the European Union in general. What is interesting about the issue of European interest is that the president of the European Central Bank was at the top of the list of lawmakers calling for maintaining the monetary easing policy, that is, for interest to remain at its minimum limits. Indeed, it struggled at the beginning of the “battle” against inflation, but, like the rest of the rulers of the main central banks, it did not withstand the continuous rise in the cost of living, which deepened in the past months, affected by a series of global problems, including the disruption of supply chains, and the war in Ukraine, the most dangerous of all. Since World War II, and some procedural problems that are still pending with Britain, due to the latter’s exit from the European bloc, Brexit.
It seems clear through the determination of European lawmakers that they are going to raise rates in the near future at least, they have publicly admitted that “they have not yet reached the end line of interest.” This seems logical in light of a really stubborn inflationary wave, which lasted for quite some time, and will continue in the next stage, despite some recent progress. The battle against inflation will not end, of course, by stopping its rise, whether in Europe or abroad, but will continue until the legislative bodies succeed in achieving the minimum increase in the cost of living at 2 percent. This percentage is far from attainable, at least before the middle of the current decade, and it was not even achieved even before the start of the aforementioned inflationary wave.
Of course, the interest rate, which recently reached 3.5 per cent after being raised by half a percentage point, negatively affects the pace of growth. The eurozone economy is suffering (like others) from an economic slowdown, which usually precedes a recession. Also, high interest rates have negative effects on the banking sector in general. It was a major element (for example) in the recent collapse of the American Silicon Valley Bank, along with other elements related to lax financial oversight of the institutions that own banks in general. But the “banking health” in the eurozone is still strong, despite being affected in one way or another by the recent turmoil in several US and Swiss banks. Regardless of what is currently going on in the banking arena, this European sector is really resilient, and the solvency of the region’s banks is strong and in line with the regulations set by the legislators.
It is clear that the European Central Bank will continue its policy of monetary tightening in its next revisions, especially those expected after about two months from now, which will contribute in one way or another to restricting inflation within certain limits. Consumer prices rose in the eurozone at 5.6 per cent excluding volatile components, and risks are still hovering around prices this year at least. From here, it is possible to look at the fiscal policy of the eurozone, which is no different from that followed in the United States and Britain, by resorting to the only “weapon” available, which is interest. As for growth, it will be very low this year, after it recorded 0.1 percent in the last quarter of last year. And if the pressures continue in the current manner, avoiding this region entering the cycle of recession will be a great victory indeed.