En (La)garde!

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What's going on?

In his final meeting on Thursday, the outgoing president of the European Central Bank (ECB) announced eurozone interest rates would be left unchanged – but the bout is just beginning for his successor. Allez!

What does this mean?

Mario Draghi has been the central bank’s head honcho since 2011. His decisions split opinion among investors and economists alike during his tenure, but they were grateful for the steps he took to parry the blows to the eurozone economy – particularly during the region’s debt crisis.

The ECB already cut eurozone interest rates last month, as well as announced plans to
purchase bonds in the region for as long as is necessary to boost the economy. And on Thursday, the central bank stuck firmly to those guns.

Why should I care?

For markets: New faces, same problems.

Most investors aren’t expecting the new ECB president – former International Monetary Fund chief Christine Lagarde – to do much different from her predecessor, so expect still-low interest rates to persist. But she will have to worry about the long-term side effects of low or negative rates – on banks and pension funds that struggle to make a profit on their investments, and on the eurozone economy at large. Some Swiss banks have already taken to charging interest on cash in their richest customers’ accounts.

The bigger picture: Europe’s at the end of the road.

Fresh survey data on Thursday showed French economic activity in October was slightly better than economists had predicted. But things are still looking weak in Germany, where services activity is declining and the all-important manufacturing industry is still shrinking. One challenge confronting the new ECB president is to convince the region’s largest economy to kick-start its economic growth by supplementing eurozone support with its own measures.

Originally posted as part of the Finimize daily email.

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