The European Central Bank has decided to cut interest rates by 0.25% but president of the bank, Mario Draghi, has warned that this should not be a sign for governments in the hard hit eurozone countries should step away from their already in place austerity policies.
The governing council of the ECB announced this week that they would be reducing the costs associated with borrowing down to the historical low of 0.5%. The policy meeting was the result of weak economic data and the fact that the unemployment rate in 17 different member countries has now reached a stunning 12%. After the comments were made, the euro fell by almost a whole percent against the dollar.
Draghi also stated that the ECB might have to place a negative interest rate on all deposits that are still held at the central bank in order to stop banks from parking their money instead of choosing to lend it out to companies that need it for growth. At the moment the deposit rate is already zero. The idea is that if it were more profitable to lend then to save more banks could be encouraged to do so.
He also stated that the DGP in the eurozone has continued to fall over the last five quarters and that it was time for them to do something in order to try to break the pattern. Despite the measures Draghi told policymakers across the EU that they need to keep to their austerity plans and that if they do not unravel then plans to get the debt ratios back on track can be achieved. He added that there are ways to help reinforce economic growth and fiscal sustainability.