Spain, Italy shares slump on ECB plan - Gayo Lues

“Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged, following the decrease of 25 basis points in July,” said Mario Draghi, the President of the ECB at a press conference on Thursday.

According to the announcement, the ECB’s crucial rate will now remain at 0.75 percent. The move was expected to bring down borrowing costs and ease Europe’s debt crisis.

However, the reaction has been negative from major European markets including Italy and Spain in which shares plunged more than 3 percent.

Milan’s FTSE Mib index dropped 3.27 percent in afternoon trading and the market in Spain slumped by more than 5 percent.

Investors believe the negative reaction is the result of a lack of trust in ECB’s ability to resolve the bloc’s debt crisis.

Draghi also mentioned that the economic growth in the euro area remains weak “with the ongoing tensions in financial markets and heightened uncertainty weighing on confidence and sentiment.”

The ECB chief also noted that, the risks surrounding the economic outlook for the euro area continue to be on the downside.

“They [the risks] relate, in particular, to the tensions in several euro area financial markets and their potential spillover to the euro area real economy. Downside risks also relate to possible renewed increases in energy prices over the medium term,” Draghi explained.

Europe plunged into financial crisis in early 2008. Insolvency now threatens heavily debt-ridden countries such as Greece, Portugal, Italy, Ireland and Spain.

TNP/SS