The Government must take action to bring the Republic's high rate of inflation more closely into line with the European average, the president of the European Central Bank (ECB), Mr Wim Duisenberg, warned yesterday.
Speaking in Madrid following a meeting of the ECB's governing council, Mr Duisenberg acknowledged that it was not unusual for consumer prices to vary throughout a large currency area. But he dismissed the contention by the Minister for Finance, Mr McCreevy, that the Republic's inflation rate was not a cause for concern.
"I think the Irish Finance Minister cannot say anything other than what he said. Still, I do maintain that the problem that Ireland faces in having a substantially higher rate of inflation than the euro area average is a problem that has to be addressed - and will be addressed, I'm sure - by the Irish Government and the Irish Government alone," he said.
The governing council left interest rates unchanged yesterday at 3.5 per cent, but Mr Duisenberg indicated strongly that the ECB is preparing for another rate hike soon, possibly as early as next month. Ignoring the decision by OPEC to increase oil production - a move that should reduce fuel prices - Mr Duisenberg said that interest rates were still on their way upwards.
Yesterday's governing council meeting in Madrid was the first to be held outside Frankfurt since the euro's launch 15 months ago. The governor of the Banco de Espana, Spain's central bank, Mr Angel Rojo, said the decision to meet outside Frankfurt was part of an effort to "polish up the image" of the ECB among Europe's citizens. The governing council will meet in Paris on October 19th and in Dublin on March 15th next year.
Mr Duisenberg claimed that the first 15 months of the euro had been a success and that the central bankers from 11 member-states who sit on the governing council had risen to the challenge of making decisions for the euro area as a whole. But he warned that, because Europe now had a single monetary policy, governments must find other means to keep inflation under control.
"As differences in national or regional developments cannot be addressed by the euro system, they require, whenever necessary, country-specific responses. This means, in particular, responsible national wage settlements and appropriate national fiscal policies aimed at counteracting specific national problems," he said.
The ECB will launch an extensive information campaign next year to familiarise European citizens with the euro bank notes and coins due to be launched on January 1st, 2002. During the first half of next year, the ECB will work with banks, shops and retail associations as well as national governments to develop training and information programmes. In the months preceding the launch of the new notes and coins, a massive campaign of television and radio commercials, newspaper and billboard advertisements will prepare the public in each member-state for the changeover.
The biggest obstacle in the way of popular acceptance of the euro has been its poor performance on foreign exchange markets and Mr Duisenberg admitted that he had no idea why the currency remained so weak. But he said the ECB would not intervene to boost the euro's value simply to improve the currency's popular image.
"We will only do something about it if it continues to undermine our monetary policy strategy. I don't think we can do very much else," he said.
The euro appreciated slightly following Mr Duisenberg's remarks, closing at $0.9603 from $0.95509 a day earlier and at 60.21p against sterling from 59.92p.
