The ECB’s decision yesterday to end long-term emergency loans and tighten the terms of its final 12-month tender will give greater traction to any rate increases in 2010 should policy makers deem them necessary....this will happen when the ECB had no other choice but to raise interest rates. It is not because the Finnish economy will do better associated with a risk of overheating, but it is because that the old economy (i.e France) seem to get out of this recession faster than thought. It is as well because states/governments are pilling up debt at alarming rate, thus one has to stop them before you get a situation where countries will not be able to service their debt and destabilize the European monetary system as a whole.
“The ECB chose a quicker exit path,” said Laurent Bilke, a former ECB economist now at Nomura International Plc in London. “It’s very difficult not to think it’s the beginning of a tightening process.”
Nethertheless get ready for more shocks sometime in 2010 and see a dramatic correction in the housing and stock markets.