When the Strongest ‘Weapon’ of the Eurozone is Withdrawn… Discreetly

In the announcement text of the decisions made by the Governing Council of the ECB, which announced the 8th interest rate cut by 0.25% on Thursday, the word ‘uncertainty’ was heard ten times! Everything accompanying this word only confirmed that the ECB, the supreme monetary authority of the European Union, responsible for the Single European Currency, the Euro, is unable to make even the slightest prediction about the next day of the European economy. Consequently, it cannot choose and decide on moves that could positively affect the Eurozone’s economy. The only decision announced involved a 0.25% reduction in the main interest rate (to 2%), something that had been anticipated by everyone beforehand. And it would have been a major surprise if they hadn’t done it. In short, no action was taken that could change even slightly the current grim situation, with forecasts indicating that inflation may rise and growth could decrease further compared to the 0.9% projected for 2025. All this coincided with the meeting between the most powerful (?) European leader, Mr. Mertz (Germany), and the U.S. president, from which nothing emerged to alter the ‘uncertainty’ mentioned in the central banks’ announcements. What does this ‘uncertainty’ and inability to make decisions mean? First and foremost, the ECB admits it cannot influence the pricing of the EU’s primary economic tool, i.e., the exchange rate of the Euro against the dollar. Lagarde stated that she is closing—possibly with another 0.25% cut in September—the cycle of interest rate reductions for the Eurozone, meaning she won’t attempt to curb the Euro’s appreciation against the dollar through further monetary policy easing. This creates even bigger problems for European exports amidst a trade war with its primary economic partner, the U.S., and its second-largest trading partner, China—at least for now. Secondly, according to Lagarde’s explanations, the ECB cannot make any predictions about changes in its policy unless unforeseen events occur—which it cannot predict! These are the same institutions that literally saved the system during the 2008 crisis, the subsequent recession, and the pandemic. The truth is that the monetary policy that has brought us here relies on dangerous tools, such as funding from… nowhere, or more precisely, from the future. This ‘debt,’ representing massive future growth obligations that were prepaid and spent to close today’s gaps, is no longer sustainable, say central bankers and the IMF. To prevent it from exploding like a time bomb in our hands, someone must start paying it off today. And just as we reach this critical juncture, the war in Ukraine and Trump’s tariffs bring geopolitical redesigns where the EU decides to spend even more to rearm independently of NATO. With leaders like Mitsotakis admitting publicly how difficult it is to increase defense spending by 5%, one realizes the dead-end path we’re walking. Even with the ‘escape clause’ inspired in Brussels, the new extra debt will still need repayment. Somewhere along this line, the ECB begins raising its hands in surrender, declaring it no longer knows what’s happening. That’s essentially what the ECB said last Thursday: it no longer knows what’s going on and therefore doesn’t know what to do.