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Help thy neighbour
by Tony Butcher
Issue 9
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Having a look back at October, it has been an eventful month with plenty of developments both within the European Union and on the wider international stage. Mother Nature continues to bring havoc, death and destruction to all corners of the globe and Pakistan has been left crippled by a 7.6 magnitude earthquake, which has taken the lives of over 73,000 people.

Although there is no direct effect on the economies of Europe, I feel there is a significant deficiency in aid from the major economic nations. Back in January, when the full carnage of the Indian Ocean Tsunami was being realised, there was a huge aid and relief response that evoked compassion and humanity in Europe and millions upon millions of Pounds, Euros and Dollars were sent to the areas affected.

In response to the earthquake, the UK has made some aid available, but not to the extent of the Tsunami appeal. In fact, France has contributed 8.5 million euros, which is the equivalent to about 116 Euros per victim, without accounting for the hundreds of thousands of families that are being left helpless without help or support.

In Ovi this month, there is an outstanding debate on the question of religion and I wonder whether charity and ‘help thy neighbour’ is being displayed within the EU at present.

Interest rates were left on hold by the European Central Bank (ECB) again this month for the 29th meeting in a row. Currently held at 2%, financial markets are expecting a good chance of an interest rate hike in the first quarter of 2006. This could come as early as December 2005 but the ECB have never raised rates in the Christmas run-up. This would be an attempt to dampen second round inflationary effects from the huge rise in Oil prices in recent years.

These second round effects are more damaging to the Global Economies and include wage price rises and increases in the costs of manufacturing. Head of the ECB, Jean Claude Trichet, did not give a clear signal to the markets that such a hike was likely before Christmas but simply stated they were ready to act when necessary.

UK rates are also due to be left unchanged as the Bank of England awaits further Economic data. The more anticlimactic news of the month was the announcement of Ben Bernanke as the successor to Federal Reserve Governor Chairman Alan Greenspan.

Mr Greenspan’s 18-year reign is ending in January at the age of 79. He has masterfully guided the United States economy through the atrocities of the 9/11 attacks, the resulting stock market crash and his policies and decision-making have averted a much deeper recession in the US that would have had massive repercussions for the rest of the world.

Ben Bernanke was the choice of President George W. Bush and his advisors, and they will be hoping the US economy continues to move in the right direction. His appointment was by no means a surprise and he was the favourite among the preferred front-runners. The market reaction was one of indifference once the early indications were that he plans to continue the Federal Reserve’s current ‘measured approach’ policy of interest rate rises.

He is respected for his inflation targeting approach and his unique methods for containing price rises. The Fed raised their interest rates by another quarter point for the 12th month in a row, although by the time he takes his position at the end of January the current cycle of rate increases may be nearing an end.


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