Faced with the anxiety about the inflation that may be incurred by ECB`s purchase of government bond, the head of ECB Trichet announced on May 14th that the bank hadn`t changed its monetary policy standpoint and it wouldn`t tolerate inflation, the superfluous fluidity would be recovered via fixed deposit. How I Use Evernote to Organize Everything (25) Due to the euro zone countries` announcement of dramatic budget reductions, investors remained rather worried about the European debt crisis, on the 14th the European stock indexes declined broadly. Gisele Bundchen’s Reason for UGG Boots Bailey Button The Pan-European Dow Jones Stoxx 600 dropped by 3.5%, Paris CAC40 stock index downed 4.6% while UK FTSE 100 index and Frankfurt DAX Index both decreased by 3.1%. Because of worrying about the further economy recession caused by Spain government retrenchment policy, Spanish stock Iberia index fell sharply 6.64% that very day. At the same time, euro/ US dollar dropped large and created the new low since 18 months. Since this year, euro/US dollar has dropped amount to 13%.
The maintenance of stable price is the first priority: Trichet said on 14th, the ECB didn`t plan to set about enforcing quantitative easing and it wouldn`t appease inflation, the fluidity engendered from government bond purchase would be recovered in time. [Maintain price stability is the first task, the extra liquidity will be retrieved and interest accrual fixed deposit is a proper way." Constancio, a member of the ECB governing council remarked on the same day that although the ECB had decided to buy government bond, the inflation target formulated by the bank didn`t take risk into consideration. He said the ECB would disclose the details of the bought government bond in near future. In order to support their member states that sank into financial difficulties, EU launched an European sovereign debt crisis aid plan which amounted to 750 billion euros (about 1 trillion US dollars). ECB announced the same day that they would step in the debt market and purchased government bond from member states.
Even so, Weber, a member of Eurpean Central Bank Governing Council, the president of German Central Bank, criticized ECB buying government bond and said this action would confront European economy with great inflation risk. Webber pointed out that, "Although the market shifts the focus to the public financial status of the high indebted country recently, we should not underestimate the risk still existing in the financial system." Data from the EU Statistics Bureau shows that the inflation level in the euro zone in April converted to an annual rate has risen to 1.5%, gradually approaching the inflation target of 2% set by the European Central Bank. Eurozone roads will not be easy: the president of European Commission Barroso said on 14, EU would put their focus on pursuing to make advances in five major issues on the coming G20 Toronto summit. The stock issue is making overall guidline for European economy being out of debt crisis. Geithner, the treasury secretary of US, said on 14th that Europe has formulated a set of vigorous reforming plan and he is confident in the solving of European debt crisis.
The Janpanese finance minister Kan Naoto disclosed that the finance minister of seven groups of member states (G7) had a special telephone call meeting on European debt crisis on the 14th and listened the report of concerning of the stability of euro-zones' economy and the euro market,but they wouldn't put on new measures of help. The German government spokesman said the same day that German government believed that the plan of cutting down debts in Greece would succeed and Greece wouldn't meet difficulty when paying the debts. While, Josef Ackerman, the CEO of Deutsche Bank quried about Greece debt paying ability. He thought, [Whether Greece can make it (cut down deficit successfully and repay debt on time) is hard to say." Rolf Langhammer, Deputy director of Kiel institute of world economics, a major economic think tank in Germany, suggested that to ensure the stability of Euro-area economy, EU should still see to the binding agreement over debt ceiling after formulating a 750-billion Euro recue plan.
Langhammer expressed that the aid systme must accompanying with binding agreement, focus the executive limit of intermediate debt formulated by each country, and accept the overall audition by the special institution similar to "debt problem committee". To largely decrease the fiscal defict, another "the harder-hit area" of European crisis, Portugal staged strict fiscal deflation policy last week. The main measure is to raise the income tax and cut down the income of officials in government or other public departments. The specific measures includes the salaries of all government departments and other senior servants of the country reducing 5%. Besides, levy [crisis tax" from these staffs and corporation whoes income has reached certain limitation and the value-added tax increaes one percentage to 21%. 1% of the salary will be taxed after it reaches certain standard while those exceed will be levied at 1.5%. Income tax rate of companies with a profit over 2 million Euros will be raised from 2.5% to 27.5%. The foregoing measures will be valid until the end of 2011. De La Vega, the vice premier of Spain said on 14th that will consider to cut deficit by raising tax rate besides austerity measures.