For Immediate Release
Dan Beeton, 202-239-1460
CEPR Co-Directors Welcome Fed’s Intervention in European Markets, But Say It is Not Enough
See More Crisis, Recession, and Contagion Unless Authorities Lower Sovereign Interest Rates
WASHINGTON - Center for Economic and Policy Research Co-Directors Dean Baker and Mark Weisbrot issued the following statement today in response to the Federal Reserve’s move to reduce emergency dollar borrowing costs for European banks:
“We welcome the Fed’s action, in conjunction with other central banks, to reduce the costs of borrowing in dollars for European banks.
“The market response shows that Fed intervention in European financial markets can work. This was an important step to avoid a potentially more severe financial crisis at this moment.
“However, this action does not come close to resolving the current financial crisis in Europe, nor its contagion to the United States. In fact, it does not even ‘kick the can down the road’ to the degree that previous moves by the European authorities during the past 18 months were temporarily able to do.
“The acute crisis remains because Italian borrowing costs remain at unsustainable levels, and can shoot further upward at any time. Until there is central bank intervention to lower these interest rates, and to keep them down, the current financial crisis in Europe will not be resolved.
“The contagion from this crisis has already slowed world economic growth, including U.S. growth. This week the OECD reported that the euro area already appears to be in a ‘mild recession’ and lowered its forecast for U.S. GDP growth for next year to 2.1 percent, from 3 percent in May. Forecasts for growth in China, India, and Brazil were also lowered significantly.
“We therefore repeat our call for the Fed to intervene directly in sovereign European bond markets, especially Italy, to lower interest rates on these bonds. Such intervention would be costless to American taxpayers, as the Fed’s quantitative easing since 2008 has been. But a U.S. recession caused by financial crisis in Europe would be very costly and could throw millions of Americans out of work. The risk of such a recession remains high.
“It is therefore within the Fed’s mandate, which includes promoting full employment in the United States, to take these further steps to help prevent a worsening financial crisis in Europe, and the resulting damage to the U.S. economy.”
FRIENDS: Now More Than Ever
Independent journalism has become the last firewall against government and corporate lies. Yet, with frightening regularity, independent media sources are losing funding, closing down or being blacked out by Google and Facebook. Never before has independent media been more endangered. If you believe in Common Dreams, if you believe in people-powered independent media, please support us now and help us fight—with truths—against the lies that would smother our democracy. Please help keep Common Dreams alive and growing. Thank you. -- Craig Brown, Co-founder
The Center for Economic and Policy Research (CEPR) was established in 1999 to promote democratic debate on the most important economic and social issues that affect people's lives. In order for citizens to effectively exercise their voices in a democracy, they should be informed about the problems and choices that they face. CEPR is committed to presenting issues in an accurate and understandable manner, so that the public is better prepared to choose among the various policy options.