European economist： Federal Reserve’s aggressive interest rate hike has made the European economy worse.

　　Xinhua News Agency, Brussels, October 3 (Reporter Kang Yi) In response to the continuous aggressive interest rate hike measures taken by the Federal Reserve this year, a number of European economists said in an interview with Xinhua News Agency a few days ago that the tight energy supply and high inflation level have put pressure on the European economy, and the Fed’s aggressive interest rate hike policy will aggravate the European predicament from three aspects: capital flow, exchange rate and inflation.

　　James Knightley, chief international economist of ING, told reporters that the Federal Reserve continued to raise interest rates aggressively to control inflation at any cost, which led to an increase in the risk of economic recession in the United States. However, compared with the United States, the economic prospects of Europe, which is mired in energy crisis and high inflation, are even bleaker.

　　Knightley said that due to the soaring cost of energy imports, the EU, which had maintained a trade surplus for many years before, has continued to experience a trade deficit this year. Under the combined effect of many factors, such as the continuous sharp interest rate increase by the Federal Reserve, greater downward pressure on the European economy, and changes in the trade structure of the European Union, the exchange rate of the US dollar has been boosted, which has a significant impact on the capital flow between Europe and the United States.

　　Jacques Parko Mance, a researcher at the Center for European Policy Studies, pointed out that as the Fed continues to raise interest rates, the European Central Bank will be forced to follow suit. But in the short term, funds seeking short-term interest returns will sell euros and buy dollars, putting pressure on the euro exchange rate.

　　Philip Lausberg, a policy analyst at the European Policy Center, another think tank, believes that the Fed’s interest rate hike is much greater than that of the European Central Bank, which may lead to a further decline in the exchange rate of the euro against the US dollar. The widening spread between the United States and Europe has made dollar assets more attractive, which will continue to push investors to sell euro assets and increase their holdings of dollar assets, thus leading to further depreciation of the euro.

　　Lausberg also said that with the strengthening of the US dollar, the prices of goods imported by the EU, especially key raw materials with huge imports and denominated in US dollars, will become higher, which may further push up the inflation level in the EU. As a response, the European Central Bank may be forced to further raise interest rates, which will lead to tighter financing conditions. Although the anti-risk ability of the EU banking system is still strong, the whole financial system will face great risks if corporate bankruptcy and debt default increase substantially.

　　Daniel Gross, director of the Center for European Policy Studies, said that if the European Central Bank further adopts austerity policies and the Ukrainian crisis further escalates, it will bring more financial turmoil to Europe.