Frankfurt - The Federal Reserve may give clearer hints this week on when it will raise the cost of borrowing in the US, as struggling Europe braces for a tight vote in Scotland on whether to leave the UK.
As the US economy picks up pace, its central bank is inching closer towards raising interest rates.
In the euro zone, the European Central Bank (ECB) is moving in the opposite direction in a desperate bid to rekindle growth and inflation.
Further hints as to when the first US rate hike in more than eight years will happen could come on Wednesday after the bank’s governors meet.
For some, the eventual move in Washington will be good news for Europe.
“This will help to weaken the euro and a weaker euro will help countries like Ireland, Portugal and Spain to sell more to the rest of the world,” Philip Lane, an economist at Trinity College Dublin, said.
For others, the contrast underscores Europe’s weakness.
“America is so much further than Europe,” Joerg Kraemer, the chief economist of Commerzbank, said.
“Any hope of economic improvement here has disappeared over the [northern] summer.”
On the same day as central bankers gather in Washington, the euro zone will give further insight into why price inflation, an important yardstick of the recovery, plumbed new lows last month.
The ECB recently cut the cost of borrowing to near zero and pledged to buy repackaged debt in a bid to kick-start lending to small companies.
On Thursday the ECB will reveal how much of its first offer of four-year loans banks have taken up on condition that they lend on to businesses.
Reuters polling shows that economists expect banks to take up e275 billion (R3.8 trillion) of the e400bn the ECB will offer over time and that they will buy about e400bn of asset-backed securities and covered bonds over the next two years under a separate scheme.
Adding to Europe’s woes, the conflict in Ukraine is making investors and companies nervous.
The conflict has also hit business confidence in continental Europe, including industrial powerhouse Germany, which will publish the closely watched ZEW survey of investor sentiment tomorrow.
Europe’s patchwork of nations and languages hampers efforts to co-ordinate economic policy, leaving much of the burden on the ECB.
Even within nations there are divisions. On Thursday, Scotland will vote on whether or not to stay part of the UK. Should it choose independence, it would send shockwaves around Europe.
Britain and Scotland would have to start dividing up their $2.5 trillion economy, North Sea oil and the national debt, while British Prime Minister David Cameron would face calls to resign. – John O’Donnell for Reuters