Robust eurozone by Lenka Filipova

It was assumed by market analysts that European Central Bank will follow exactly the same steps made by the Federal Reserve last week. However, this is not going to be the case. As the original idea of European monetary union was to be as independent as possible from the US, the ECB is not planning any cuts until it will be the necessity of a domestic inflation. The ECB's decision is based upon two major judgments, respectively. Firstly, it is determined by a staff forecast for inflation and growth every four months. The inflation range from December's staff projection was from 1.2 to 2.4 percent for 2009, which is a result of optimistic predictions like a decrease in raw material and energy prices this year. Thus, there is no reason for a rate cut in this year when looking at the nowadays staff predictions. ECB considers another important aspect that is confidence survey. Despite the managerial surveys that were noticing the downturn, the rise in German's Ifo index showed the tough German economy last week. Secondly, the decision is determined by the monetary analysis done every four months. It is provided by a compound of judgmental analysis and statistical methods. From this monetary analysis it has become well know that the credit generation in the eurozone is significantly ascending till the end of November. Even though, the assessment from December is still not noted, the financial crisis has no visible impact on credit flows. In addition to the analysis of monetary and financial balance, it has been proclaimed that the eurozone banking sector is not only vital but is enriching the economy with ample funds. All in all, there are huge differences among eurozone and the US and the UK. Eurozone brought no reduction in house prices, no subprime crisis, and no monocline insurers. What is more, am unsustainable tightening in lending was not only essential but it was also highly welcome. Eurozone is strong enough to bear any downturn and there should be no expectations to make eurozone do any rate cuts.

by Lenka Filipova for PocketNews (http://pocketnews.tv)

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