ECB interest rates hike likely as German growth hits 10-year high
However, this is increasing the likelihood that the ECB will have to raise interest rates, increasing problems for Ireland and the other weak euro-area countries.
It is also adding urgency to the debate on reducing the interest rate charged on the EU’s loan to Ireland and on the need to agree a mechanism for allowing Greece, especially, to default.
Germany’s growth in 2010 was confirmed to be 3.6%. The country’s economy minister Rainer Bruderle said the economy would grow by 2.3% this year — a half point more than the autumn forecast and would slow to 1.8% next year.
However, economists have said with increased investment and greater job creation than expected so far, they expect stronger growth.
“Economists should no longer exclude annual growth edging to 3%”, andreas Rees of Unicredit in Munich said. He warned inflation could restrict this to 2.5%. The ECB’s chief economist Jurgen Stark in an interview with Italy’s Corriere della Sera, said there were risks in keeping interest rates low for too long as it could delay the necessary adjustments in the banking sector and the economy as a whole.
In yet another sign Germans are increasingly prepared to become more flexible with the other euro area countries, Munich-based fund manager at Pacific Investment Management Co, Andrew Bosomworth told Bloomberg some high-deficit countries would probably need to default or restructure their debt.
He said the triple A countries, taxpayers and governments were all participating in the solution, but senior bondholders were not part of it at present. “Ultimately they’re going to have to join the table”, he said.
Despite the health of the German and French economies, the yield on German 10-year bonds has climbed 42 basis points since Ireland’s rescue package was agreed in November and French yields have risen 30 points according to Bloomberg.
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