While heads were turned towards the US for indications of an improving economy in the past week, the other side of the Atlantic furnished news of a cut in the interest rates which quickly moved up the charts as a major market mover.  The European Central Bank (ECB) has cut the interest rates by quarter points to 0.5% as a result of the extended slump that enveloped the European shores. The ECB has signaled it was prepared to go even further, if the condition in the Euro zone failed to turn for the better. In hindsight, the ECB has now finally aligned with other economies at arriving at ultra-low base rates. In the aftermath of the sub-prime crisis, the US had slashed the interest rates all the way down to 0-0.25% at the end of 2008, following which the Bank of England had cut the same to 0.5% in March 2009.

In mid-2009, the Euro zone rates were reduced to 1%, although the largest economy in the bloc, Germany, resisted the decisions following the rate-slashing actions of other leading central banks around the globe. The ECB had actually raised the rates a couple of times in 2011 under pressure from Germany. But as the European economy resumed its slide, the rates have been steadily cut since.

The real driver for the cuts is attributed towards unemployment figures from the region. In March, the region registered an unemployment total of almost 20 million, a record 12.1% of the working age population. However, this figure hides contradictory figures from the nations under the bloc. While Germany has unemployment figures of only 5.1%, Portugal has a 17.5% figure of the labor force not working. In other debt-ridden nations including Spain and Greece, the figures stand at a mindboggling rate of 26.7% and 29.1% respectively.

While the global financial markets have pointed inadvertently to a recovery, with investment bank economists’ repeatedly issuing forecasts of a convincing growth, such confidence is yet to extend to business leaders beyond the financial sector- which includes a vast majority in the region. Since early 2011, the Euro zone industrial production has declined rapidly while rising elsewhere, including the Western countries. In the preceding two months, the manufacturing PMI survey moved southwards, as did the EU’s Economic Sentiment Indicator, which covered not only manufacturing, but also retail trade, construction and other services. For all the hype surrounding the rate cut, the Euro zone-with this new easing- has moved a step closer to sovereign defaults once again.