ECB rate hikes help Russia, harm European economy: Italy minister

The European Central Bank has been criticized by Italian cabinet ministers for its aggressive monetary tightening, reflecting growing concern in Rome about the impact of higher interest rates on Italy’s finances.

The ECB on Thursday raised its benchmark interest rate by 50 basis points as widely expected but dashed hopes that such hikes were heading downhill, warning instead of further increases in the months ahead.

A senior member of Prime Minister Giorgia Meloni’s Brothers of Italy party, Guido Crosetto, told Reuters that the threat of further tightening was driving up borrowing costs and harming an already weak economy.

“We are creating a situation from an economic and social point of view that is Russia’s best ally right now,” he said. “That is why it is even more absurd what (ECB President Christine) Lagarde did,” he added.

Crosetto believes that Russia was hoping to “take advantage” of the continent’s economic crisis and put pressure on Europe to stop supporting Ukraine in an effort to end the war and ease the energy crisis triggered by the Western sanctions on Russia. 

“The Russia war is also a psychological war that is being fought in the squares of Europe besides in Ukraine. They have the advantage, from their viewpoint, of dealing with democracies,” he added.

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Policymakers from across the eurozone have backed the bank’s decision, claiming that tough action was required to return the eurozone inflation, which is currently at 10%, to the ECB’s 2% target. However, Crosetto said the ECB was failing to see the bigger picture and was just following economic theory. He urged Lagarde to address the concerns of businesses hit by her policies.

“You have to justify this politically to your European citizens. You are not a Martian,” he said, adding that the economic landscape for Europe was worse now than it was during the COVID-19 pandemic.

“They behaved one way with COVID, and in a completely different way now, as if we had economic growth, as if everything was fine, as if there was no war,” Crosetto said.

Such high-level political criticism of the independent ECB is unprecedented, and it was echoed by other members of Italy’s conservative government, which came to power in October.

Deputy Prime Minister Matteo Salvini branded the ECB’s conduct “unbelievable, baffling, worrying.”

Higher interest rates mean higher borrowing costs for Italy, which has the second-largest debt mountain in Europe after Greece, limiting the government’s ability to increase spending and meet the plethora of promises made ahead of the September general election.