By Alexandra Sharp
Welcome back to World Brief, where we’re looking at the European Central Bank’s interest rate increase, Britain’s scathing rebuke of former Prime Minister Boris Johnson, and North Korea’s latest missile tests.
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European Central Bank President Christine Lagarde speaks at a news conference in Germany on June 15.Boris Roessler/Picture Alliance via Getty Images
The European Central Bank raised interest rates on Thursday to 3.5 percent—its highest level since 2001, the euro’s first year in markets—in another bid to rein in high inflation. The move marks the bank’s eighth consecutive increase, and economists predict it is far from the last. Josh Lipsky, the senior director of the Atlantic Council’s GeoEconomics Center, said the European Union has “a summer of hiking in front of them.”
Since global inflation skyrocketed in the wake of the COVID-19 pandemic, the EU has struggled to tamp down climbing consumer prices. The continent’s ongoing energy crisis is not helping matters, with spiking natural gas prices turbocharging inflation. The bloc’s statistical office estimates that euro annual inflation hit 6.1 percent in May, a decrease from April’s 7 percent but still far above the EU’s goal of 2 percent inflation by 2025.
By raising the eurozone bank’s interest rates, European economists hope to further cut inflation, especially as protests over high costs of living spread throughout the West. “What could happen over the next five years is you see the European economy and European interest rates essentially falling into a more predictable pattern of getting inflation back to 2 percent,” Lipsky said. “But I think it’s unlikely to go back to the way it was before the pandemic.”
The European Central Bank’s decision comes less than 24 hours after the U.S. Federal Reserve announced it would decline to raise domestic interest rates for the first time since January 2022. That means the U.S. policy rate will stand at around 5 percent—but it is likely to increase again during the Fed’s next meeting in July, as Washington continues to battle high inflation. In the past few years, inflation in the United States has been on a general downward trend year on year, which some economists say is likely due to the Fed’s actions.
“Usually, everybody looks at what the Fed does and says, OK, we should do what they do because they’re smarter than us,” the Brookings Institution’s David Wessel told FP’s Christina Lu. “This one might be playing the other way around.”
Despite both central bank decisions coming within hours of each other, the two financial powers, as well as the world’s other two major central banks—the Bank of Japan and the Bank of England—must maintain different mindsets going forward to best support their own economies, most notably in the number of individual government entities they must appease.
“What the eurozone has to deal with is a unique challenge almost compared to any other economic unit in the entire world,” Lipsky said. “You’re dealing with 19 different economies,” whereas the United States, Britain, and Japan can solely consider their own individual needs.
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As conflicts escalate from Ukraine to Taiwan and U.S.-China relations deteriorate, how prepared are we for a disruption of the international order? Join Foreign Policy and the Wilfried Martens Centre for European Studies as we dive into the debate on America’s economic pressure tactics against China, Europe’s intertwined interests, and the impact of Macron’s “sovereign Europe” stance on transatlantic alliances. Register here to join the conversation on June 21.
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The U.K. Partygate report. Former British Prime Minister Boris Johnson is back in hot water. Parliament’s Committee of Privileges, the United Kingdom’s main body for disciplining lawmakers, published a report on Thursday detailing how Johnson deliberately misled Parliament while it investigated parties that his office hosted during the country’s COVID-19 lockdown. At the time, Johnson assured the House of Commons that COVID-19 protocols were followed.
Evidence now shows that was a lie. The 108-page report also accused Johnson of complicity in a “campaign of abuse and attempted intimidation” toward committee members. Johnson has pushed back on the so-called Partygate witch hunt, calling it a “charade.” But many members of his Conservative Party have broken ranks to condemn Johnson’s actions, forcing him to resign from the House of Commons last week and triggering a special election for his seat.
Now, lawmakers are saying Johnson should be immediately stripped of his access to Parliament. And Labour Party members are calling for financial restitution of around $310,000 as well as terminating his annual allowance of roughly $147,000, which is paid to former prime ministers.
North Korean provocations. After two months of quiet, North Korea fired two ballistic missiles during a test on Thursday. A Japanese government spokesperson said the weapons landed within Japan’s exclusive economic zone, calling the act “an outrage which accelerates provocations against the international community.” It is just the latest in a series of nuclear provocations from North Korea as Pyongyang expands its arsenal.
North Korea’s missile test occurred just hours after South Korea and the United States held a joint military live-fire drill north of Seoul, with 2,500 troops participating. The drill marked the 70th anniversary of the two countries’ alliance and aimed to further strengthen troop readiness in the face of aggression from Pyongyang. North Korea condemned the drill as “provocative and irresponsible.”
Deteriorating press freedom. Guatemalan officials sentenced journalist José Rubén Zamora to up to six years in prison for money laundering and fined him around $40,000 in what many locals are calling a politically motivated case. Zamora founded El Periódico, a daily newspaper that regularly investigated Guatemala’s government, publishing corruption allegations against President Alejandro Giammattei. Prior to his indictment, regular persecution of Zamora forced El Periódico to lay off staff members and terminate its print edition.
According to prosecutors, Zamora’s charges focused on his business dealings, not his journalism. But rights activists have denounced the trial, calling it another sign of deteriorating free speech in Guatemala. The country currently ranks 127th out of 180 countries in Reporters Without Borders’ 2023 World Press Freedom Index, a decline from last year.
While the European Central Bank battles inflation, some Swedish economists are pointing fingers at Beyoncé. The pop icon’s May appearance in Stockholm led to a surge in hotel prices that pushed the Nordic nation’s inflation above expectations. Imagine being so popular that you alone caused a rise of 0.2 percentage points. Alright, economists, let’s get in formation.
