Erneute Zinssenkung nach Verschärfung der Krise erwartet[en] 

Financial markets across the globe went into a tailspin following the US sub-prime mortgage crisis in early August 2007, forcing central banks to make massive cash injections to keep the system rolling and fend off a possible liquidity crisis.

The crisis stormed into mainland Europe at the end of September 2008, forcing governments to rush to salvage a number of financial institutions and set out massive recovery plans. 

For their part, central banks have coordinated their response by slashing interest rates to record lows, rocking currency markets across the world. Last December, the European Central Bank (ECB) cut its interest rates by 75 basis points to 2.50%. The Bank of England and the Bank of Sweden reduced theirs to 2% (EurActiv 05/12/08).

Eurostat yesterday (6 January) estimated that eurozone inflation dropped to 1.6% in December, the fifth consecutive downward adjustment since July, when the inflation figure peaked at 4%. 

This confirms deflationary fears, a problem which is almost unknown to the European Central Bank (ECB), which has been busy fighting upward inflationary trends and trying not to overly exceed the official 2% target since its establishment in June 1998 (EurActiv 28/11/08).

Another indication of Europe's slide into recession is the fact that unemployment is expected to increase sharply. Last weekend (4 January), Employment Commissioner Vladimir Špidla told Czech television that unemployment in the EU would rise by 2% in 2009, bringing the rate close to 10%. 

Among the countries hit worst by the crisis is Spain, where the unemployment rate has soared to 12.8%. Some analysts expect it to increase further to a massive 20%  by 2010. In the UK, unemployment figures hit 1.825 million, their highest level since 1997. Experts expect it to reach two million this year and peak at three million in 2010, leaving one in 10 British workers unemployed (EurActiv 14/11/08).

While governments across Europe are busy deciding upon the size and the priorities of their national recovery plans, the ECB may also offer a helping hand by further decreasing interest rates to help oil Europe's economic engine.

Under normal conditions, an inflation rate under 2% would be enough to trigger an ECB cut. However, doubts abound amid extraordinarily negative economic propects, because the Bank fears that further cuts may reduce its room for manoeuvre after having reduced interest rates three times in the last three months: from 4.25% to the current 2.5%.

Nevertheless, speculators are already predicting that the ECB will cut rates further at its next board meeting on 15 January . After an impressive recent appreciation, the euro has in fact begun to steadily lose value against the dollar and the pound.

Danish MEP Poul Nyrup Rasmussen, president of the Party of European Socialists,  criticised the much-hyped 200 billion euro recovery package adopted by EU leaders last month. "A lot more still needs to be done if we are going to prevent recession turning into mass unemployment," he said, stressing that the plan would not be enough to maintain employment levels.

Other critics underlined that in GDP terms, the EU recovery plan is only a quarter of what the US had already put forward and represents a tiny fraction of the $700-800bn plan that President-elect Barack Obama is proposing to create or save another 500,000 jobs.