The first signs of tension in the Eurozone as ECB hikes interest rates and warns of more rises

Member countries of the Eurozone are reeling after the European Central Bank raised interest rates to 3.5%, as Joel Hills reports

Speaking from his office, which overlooks the Prado Museum in Madrid, Spain's Secretary of State for Social Rights told me that "higher interest rates, at this moment, is like killing flies with cannon balls".

Nacho Alvarez's Podemos Party is the junior partner in a coalition government with the Socialists.

Billions of pounds of taxpayer support has been extended to households and businesses, in the last three years, to cushion them from the economic impact of the pandemic and Russia's invasion of Ukraine.

Energy bills have been capped, transport has been subsidised, the minimum wage has risen by 50%, pension income has been made more generous, but the government has seen its popularity slide nonetheless.

Both Podemos and the Socialist Party suffered heavy losses in regional elections last month.

The Prime Minister, Pedro Sanchez, subsequently decided to gamble. He has called a snap general election for July. The polls suggest the coalition he leads will lose power.

Higher interest rates are not an ideal backdrop to an election campaign.

Alvarez says that they are also unnecessary. The headline rate of inflation in Spain has fallen below 3%.

"I think the worst is over," Alvarez told ITV News. "We have been able to tackle inflation in Spain rapidly during the last year. Increasing interest rates is killing GDP growth [and] is killing employment in the eurozone."

Nacho Alvarez, social rights secretary for Spain's Podemos Party, believes the ECB's actions are causing greater hardship

On Wednesday, the European Central Bank raised the cost of borrowing to 3.5% across the twenty countries which use the Euro.

Alvarez argues that while higher interest rates may be appropriate for Latvia, Lithuania and Slovakia - where inflation is still running above 10% - in Spain they are simply causing additional hardship.

Spain's economy has ridden out the shock of lockdowns and Russia's invasion of Ukraine better than most.

Companies are recruiting, food inflation has peaked, energy bills are falling, but no one here is feeling better off yet.

One of Spain's vulnerabilities, not for the first time, is its housing market.

The last crash, fifteen years ago, sent the economy into a tailspin. Spain's banks collapsed into the arms of the taxpayer and its government ended up being bailed out.

As it stands, higher interest rates have slowed property sales, but prices are currently flat-lining rather than falling.

In the UK, the majority of homeowners have fixed-rate mortgages. In Spain, 75% are on variable deals, so when interest rates rise they bite more quickly.

Maria Vindell lives in a one-bedroom flat in Madrid. Her monthly repayments have risen by 180 Euros in the last year and are set to rise again by a similar amount in November.

At the moment, she says she is managing, but, inevitably, she is concerned.

'Barring a material change it's very likely we will continue to tighten in July,' European Central Bank President, Christine Lagarde, says

"I don't go to the gym," she told ITV News. "I am not going out at the weekend as much as I used to and I check the offers in the supermarket when I never used to."

On Wednesday, the European Central Bank (ECB) increased interest rates to the highest level since 2001. The President, Christine Lagarde, said inflation across the Eurozone is set to "remain too high for too long" and made it clear that the ECB is "very likely" to tighten at its next meeting, in July.

The one-size-fits-all system of interest rates is never going to be ideal for every country, but Andrew Kenningham of Capital Economics says, until now, there has been broad agreement between Eurozone countries about the need to tighten.

"There's always tension," he told ITV News. "But the ECB initially misjudged how serious the inflation problem was. Disagreement has been quite modest so far, but there are early signs that the consensus is fraying."

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