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Eurozone base rates cut to historic low

The European Central Bank (ECB) has cut base rates to 0.75pc, the lowest level on record for the Eurozone.

In the 10 years since the Euro was introduced Eurozone base rates have never been cut to below 1pc, until now.

The ECB, presided over by the Italian Mario Draghi, cut base rates to 0.75pc earlier this week, in response to international pressure to do something to ease the Eurozone’s woes.

Base rates are now too low for Germany but too high for Southern-European countries like Spain and Greece, illustrating a fundamental flaw in the Eurozone’s monetary architecture. European economies are too different for a one-size-fits-all monetary policy.

Germany has been resisting cutting interest rates, and despite the latest cut Eurozone base rates are still higher than in the US, UK, or Japan, as you can see from the chart above.

Though it was to some extent expected, the base rate cut is likely to push Euribor down further, which is good news for existing borrowers, but is unlikely to mean cheaper mortgages for new borrowers, as lenders are increasing their spreads over Euribor. Euribor is the interest rate most often used to calculate mortgage repayments in Spain.

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