The European Central Bank’s (ECB) decision to increase interest rates by 0.25% brings the rate to its highest level in 22 years at 3.5%. While this move was expected, it puts further pressure on the governments of member states. In contrast, the Federal Reserve in the US decided against raising rates this week.
The ECB’s role is to direct the economy of the European Union (EU), but member states must handle the repercussions for households already facing the burden of rising living costs.
Although the bank prioritizes controlling inflation, its strict approach is impacting the daily lives of many individuals struggling to meet their expenses.
The EU’s inflation rate remains relatively high at 6.1%, even though it has decreased from a peak of 10.6% in October last year.
Frankfurt, the location of the ECB, is concerned that prolonged high inflation could lead to a surge in wage claims and costs, ultimately keeping prices high indefinitely. As families face more financial strain, Sinn Féin has urged the government to reintroduce mortgage relief to provide some relief.
Housing Minister Darragh O’Brien has stated that the Government will consider this possibility during budget discussions, but he also acknowledges that finding a simple solution is challenging. The last time mortgage tax relief was allowed was in 2008, costing €700 million annually.
Fairness must also be a consideration. Currently, tracker mortgages are receiving most of the attention, but they have fared better in the past and are now more aligned with other borrowers.
Determining who should receive relief and at what rate will require careful consideration.
It is worth noting that just a year ago, borrowers could secure a home loan at around 2% interest, which is nearly double the current rate.
Unfortunately, there seems to be no end in sight to the immediate financial hardship.
ECB President Christine Lagarde indicated that the journey to economic stability is far from over, emphasizing the bank’s responsibility to slow down the Eurozone economy.
However, for families enduring financial strain, it feels more like an abrupt halt.
The reality of increasing arrears and concerns about homeowners’ ability to retain their properties must also be taken into account in Dublin and Frankfurt.
If interest rate hikes continue, a clash between the ECB and governments seems inevitable.
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