ECB Cuts Benchmark Rate Down to 1.25%

With Greece holding a bailout referendum, downside risk is growing among continental European nations. European leaders made it clear that Greece will give up all European aid if it votes against the agreed bailout package from last week.

The European Central Bank (ECB) is doing everything it can to prevent another recession. In addition, the ECB is also trying to contain an economic contagion that stems from the sovereign debt crisis. To combat this, under the command of new ECB President Mario Draghi, the ECB unexpectedly cut interest rates by 25 basis points to 1.25%. This was a reactionary move since Spanish and Italian borrowing costs climbed after the realization of a scenario of a Greek exodus of the European monetary union.

The ECB is under tremendous pressure to allocate more funds to purchase bonds of distressed European countries.

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