RATE MOVE UNDERLINES POLICY DILEMMAS WITHIN EURO ZONE - Until yesterday euro zone interest rates had been on hold at 1% since May 2009, and yesterday's was the first rise by the European Central Bank since July 2008. The ECB's president Jean-Claude Trichet said the decision to put rates up was unanimous, but it was not decided yesterday whether this was the first in a series of rate rises.
Charles Davis, managing economist at the Centre for Economics and Business Research in London, says that the rates increase, following so soon after Portugal's request for aid illustrate how big the internal strains and policy dilemmas within the euro zone are. Mr Davies describes some countries - including Portugal and Ireland - as being particularly 'sick', while countries like Spain continue to suffer badly. But on the other hand Germany is seeing its strongest growth since reunification and the economist points out that if the Bundesbank still set German interest rates, it would have raised them long before this.
Mr Davies says the strength of economies like Germany make it more difficult for the rest of the struggling euro zone states. In these countries, retail sales continue to fall, unemployment has moved up to double digits while most have also experienced a housing bubble followed by a collapse. There is a real risk that households' income will be hit hard this year, he adds.
He says the growing inflationary pressures due to higher oil and food prices pose difficult questions for policy makers at this fragile stage of world recovery. He says that there is nothing we can do about rising tensions in the Middle East, which are pushing oil prices to two-and-a-half-year highs. He says a slowing euro zone economy will have a negative effect on the UK economy because of their close links.
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MORNING BRIEFS - Oil has climbed to its highest level in two and a half years, after attacks on Libyan oil fields and a major aftershock in Japan. Brent crude hit £123 a barrel, the highest since August 2008. Surging oil, gold and food prices have led to concerns about inflation for for governments across the world, because of its impact on economic growth.
*** The Reykjavik District Court yesterday sentenced the first case by the special prosecutor into the banking crash. Baldur Gudlaugsson was sentenced to two years in prison for insider trading. He is the former permanent secretary at the Ministry of Finance. The judge said he committed serious crimes and he said that his sentence is particularly harsh because he abused his position as a civil servant. He sold his shares in one of Iceland's big banks - Landsbanki - on September 17 and 18 2008, immediately before the bank's fall - apparently based on inside knowledge. The court has seized the €1.2m profit from the share sale. It is the first case brought by special prosecutor to get to the sentencing stage.
*** Co Kerry based Monex says it is creating 20 jobs at its Killarney headquarters to deal with new business and overseas growth. The financial services company processes credit cards transactions in various currencies, handling 100 million payments worth more than €17 billion a year. The jobs are senior positions in software engineering, quality assurance and project management.
*** On the currency markets this morning the euro is trading at $1.4390 cents and 87.85 pence sterling.
