ECB rate hike to hurt weak consumption, say traders

A decision by the European Central Bank (ECB) to increase its main interest rate for the first time since July 2008 will harm weak consumption in Greece and increase financial costs to businesses struggling in the recession, according to a traders group.

The National Confederation of Greek Commerce (ESEE) said that last week?s decision by the ECB to up its interest rate by 25 basis points 1.25 percent will bump up loan costs paid every year by households 293 million euros. Households owed 117.2 billion euros in February out of the total 256.6 billion euros of debt held by the private sector, ESEE said in a statement on Monday.

?The burdening of exhausted business and the reduction of household consumption due to higher monthly payments comes while there is a tragic lack of liquidity in the market, making the few loans available more expensive,? ESEE said.

ESEE figures showed that traders, who owed 25.1 billion euros out of the 139.4 billion euros of debt held by businesses, will pay an extra 63 billion euros in interest.

The group also called on the highly indebted Greek government to stamp out talk of debt restructuring that is harming market sentiment, by seeking better terms for the memorandum on the 110-billion-euro EU-IMF loan obtained last year.

?Instead of talking about debt restructuring without knowing the exact impact on the economy… let?s carefully examine how we can extend the loan and seriously think about how we can change the terms of the memorandum that is strangling the market,? said ESEE president Vasilis Korkidis in the statement.

After holding talks over the country?s medium-term future with representatives from the country?s international lenders last week, the Finance Ministry is likely to present plans for 2012-15 aimed at implementing fiscal reforms and getting the country back on a growth track by the end of the week.

Economists at Alpha Bank also pointed out in a report on Monday the damage to the business environment from lingering uncertainty, saying that continual references to the introduction of further austerity measures ?has kept economic sentiment at ?exceptionally low levels.?

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