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2008年7月 7日 (月)


2008/7/7 --The Asahi Shimbun, July 5(IHT/Asahi: July 7,2008)

EDITORIAL: Europe's rate hike


The European Central Bank (ECB) on Thursday raised its benchmark interest rate by a quarter percentage point to 4.25 percent.

Inflation in the euro zone spiked to 4 percent in June, far above the ECB's target of below 2 percent. The rate hike was a widely expected move that indicated the ECB's current policy priority is on preventing soaring raw materials prices from triggering a serious bout of inflation.



Market players around the world, however, had feared that monetary tightening by the ECB could send the dollar plunging by further widening the interest rate gap between the United States and Europe. Their concerns reflected the serious erosion of confidence in the dollar caused by continued turmoil in capital and currency markets across the world since the collapse of the U.S. subprime mortgage market last summer.


Fortunately, the dollar rose slightly after the ECB's action. Stock markets also took the move in stride. ECB President Jean-Claude Trichet helped sooth markets by not suggesting any additional rate increase.


Yet inflationary pressures are clearly building up. If this modest raise of the cost of borrowing fails to rein in inflation, the ECB will be forced to tighten credit further.



To stem the downward slide of the greenback, it is essential for the United States, the epicenter of the subprime credit crisis, to demonstrate a strong commitment to solving the underlying problems.


That is not to say the United States has done nothing to tackle the situation.

Immediately before the ECB's rate hike, U.S. Treasury Secretary Henry M. Paulson traveled from Russia to Europe and held talks with Trichet.

Their meeting was choreographed to highlight solid policy coordination between the United States and Europe.

U.S. President George W. Bush is also trying to dampen expectations of a weaker U.S. currency. In a recent speech, he stressed Europe, too, is supporting a strong dollar.

These efforts of top U.S. officials clearly suggest that allaying the current anxiety about the health of the dollar has emerged as a major policy challenge for the Bush administration.



But all these efforts can achieve is to buy some time. With only several months left for the Bush presidency, the U.S. government is unable to take bold measures to tackle the problem. This political situation is making things harder.


The priority for the United States should be to deal with the financial turmoil stemming from the subprime crisis, which is the root cause of the waning confidence in the dollar.


For a while, it seemed the financial storm had died down. But it is now resurfacing. Instead of bottoming out, the U.S. real estate market has kept declining at an accelerating pace. Exacerbating the anxiety are growing signs of an economic downturn due to soaring costs of natural resources.



When Bear Stearns came to the brink of collapse this spring, the Federal Reserve Bank of New York pledged to provide $29 billion in financing to rescue the investment bank. It was effectively an injection of taxpayer money to save the Wall Street firm. In a speech during his recent Europe tour, Paulson called for a new regulatory system that would temporarily give the Federal Reserve Board stronger power to intervene in the workings of Wall Street firms to prevent a chain of bankruptcies and protect the financial system.



The Bush administration should act swiftly to turn this idea into realty. In addition to emergency steps to deal with the collapse of a major financial institution, the United States should also put together and implement a package of measures to fix the financial problems fundamentally, including the creation of a framework for injecting taxpayer money into the system.


After allaying the financial anxiety, the U.S. government should then take effective steps to absorb the dollars that flooded world markets during the years of the housing bubble. Without such efforts by the United States, the dollar will remain under downward pressures.



--The Asahi Shimbun, July 5(IHT/Asahi: July 7,2008)

朝日新聞 7月05日号(英語版 2008年7月07日発行)


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