EURO-ZONE FINANCE ministers have expressed strong concern about the record rate of inflation in the 15-nation region, with the issue - and the interest rate rise - expected to take centre stage at talks in Brussels last night.
"Inflation is a serious concern both for the ECB and the euro-zone governments," said Jean-Claude Juncker, Luxembourg finance minister and chairman of the meeting, ahead of the discussions.
German finance minister Peer Steinbrueck called the annual inflation rate - at 4 per cent in June, up from 3.7 per cent in May - "one of the biggest challenges", while Brian Lenihan, Minister for Finance, said: "We are all concerned about high inflation."
Mr Lenihan, who faces the prospect of Ireland breaching the Stability and Growth Pact - the rules underpinning the euro zone - next year, left the meeting early to prepare today's Cabinet meeting on savings plans for the remainder of this year as well as 2009.
The ministers' monthly meeting comes amid fresh divisions over the effects of ECB interest rate policy. Last week, the bank raised its main interest rate from 4 per cent to 4.25 per cent in a bid to counter inflation - the bank's main duty is to keep inflation at close to "but below" 2 per cent.
The move sparked immediate condemnation from European trade unions, who warned it would be "dangerous" to economic growth, with major economies such as France, Italy and Spain starting to experience a downturn.
In addition, a report yesterday showed industrial production in Germany, the bloc's powerhouse, fell unexpectedly in May.
While finance ministers attending the meeting were careful not to criticise the bank's move as they arrived in Brussels, there had been several comments prior to the meeting that reflected concern among major exporters that the interest rate hike will make the economic situation worse.
French finance minister Christine Lagarde, whose country has just taken on the six-month EU presidency, told French daily Le Figaro that she was only "half-satisfied" with the ECB move.
"With rates at 4.25 per cent in Europe against 2 per cent in the United States, we will stay with an overvalued euro and a weak dollar," she said.
