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With more investors and consumers concerned over the Recession 2013 threat, Europe and China today (Thursday) took action to motivate their sluggish economies and prevent a drastic global slowdown.
It hasn't even been a week since a crucial European summit provided a blueprint for the 17-member Eurozone to pull out of its debt crisis. But already the rally that immediately followed has fizzled. At issue is how European leaders will work out the tricky details for a central banking authority and the expanded use of bailout funds.
Now the European Central Bank (ECB) doesn't have much left in its arsenal to calm fears of a broad economic slowdown in the region. It used one of its last tools Thursday when it slashed its benchmark lending rate by 0.25 percentage points to 0.75%, the lowest level since 1999, when the euro was created.
At this level, the ECB hopes that bankers be more willing to lend and also that investors will open their wallets wider.
ECB President Mario Draghi noted in a press conference following the group's decision that the move was made independently of China's decision to cut rates.
"There wasn't any co-ordination that went beyond the normal exchange of views on the state of the business cycle…economy…or global demand," said Draghi.
Draghi stressed that the cut wasn't aimed to help an individual country, but to assist the entire struggling region.
"We can genuinely say that this measure is addressed to the whole of the euro area, and not only to specific countries," he said.
Reiterating that markets haven't felt the full effect of the ECB's recent moves to increase liquidity, Draghi also cautioned that the bank could only do so much. Draghi said the central bank couldn't do more than it already had to encourage people to borrow or invest.
"Credit is now led predominantly by demand, and if demand is weak, you wouldn't expect string credit growth," Draghi added.
China's Rate Decision
China's central bank cut rates Thursday for the second time in just a month.
China's move comes on the heels of fresh data that shows a significant slowdown in the Asian nation, currently the world's second-largest economy.
For three years, the People's Bank of China left rates untouched. But since June 8, the central bank moved twice to lower rates. Thursday's cut took the one-year lending rate down 31 basis points to 6% and the deposit rate down 25 basis points to 3%.
Royal Bank of Canada (NYSE: RY) analysts wrote in a note that China's cut was "an important step in the government's recent efforts at supporting growth and is likely a direct response to the recent deterioration in domestic data since mid-May."
Global trading was volatile and mixed following the rate cuts, while U.S. markets were choppy heading into the afternoon. The Dow Jones Industrial Average was down 14 points, or 0.11%, with just an hour left in trading.
Recent moves over the years have shown that rate cuts and record low rates have done little to boost growth. The problems plaguing Europe, China and the United States cannot be fixed by interest rate cuts, and with rates already near zero, central banks worldwide have little wiggle room.
Draghi admitted that the ECB move was unlikely to trigger much in the way of new loan activity, which means the dangers of looming Recession 2013 remain powerful.
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