Belfast Telegraph

Panic averted, but Bank decision to hold interest rates no cause for party

At last! After a week when the world's economy looks to have suffered some sort of crisis of confidence, the European Central Bank shows up.

Its president, Jean-Claude Trichet, seems to have arrived on the scene in the manner of Lance Corporal Jack Jones in Dad's Army crying 'Don't panic!'

Of course, JCT, as I'm sure he's known in the ECB mess room, has more than a rusty bayonet in his armoury, carrying as he does the wallet of the bank which overseas the banks of every other eurozone country.

The bankers' bank, if you will.

On this particular occasion he's rushing to stop the debt crisis which seems to be taking hold again in Europe - one which was thought to have been sorted after Greece was forced to go to the International Monetary Fund for more pocket money. European Commission President Jose Manuel Barroso confirmed the worst yesterday and said the sovereign debt crisis is spreading.

In response, JCT has launched what the Wall Street Journal described as his most potent anti-crisis measures which include a program of buying government bonds. You don't need to be an economist to know that such a move will help boost the struggling economies of affected countries, but you also don't need to be an economist to know that artificially supported markets produce distorted conditions and are rarely a long-term solution.

But with confidence in international markets seemingly being eroded faster than the stock market indexes which they represent, the ECB had to do something. In fact, its actions reveal the true extent of the problem and should be a warning to us all.

Don't think for a minute the Bank of England's decision yesterday to keep interest rates at a half of one per cent is reason to cheer. Quite the opposite in fact, as the Monetary Policy Committee won't raise rates until it's sure our economy can handle it - and at the moment it's a long way off that point.

This, combined with the events of the last couple of weeks in the Eurozone and the US, not to mention the Japanese government feeling it needs to step in to protect its currency, mean the global economy is on a knife-edge and could fall prey to the dreaded double-dip recession.

It's not looking good, but whatever you do, don't panic.

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