An interest rate increase by the European Central Bank is unnecessary, a top European politician complained, while another finance minister said today the important thing was that there would be no spiral of rate hikes.
Jean-Claude Juncker, prime minister of Luxembourg
Jean-Claude Juncker, prime minister of Luxembourg, renewed his attack on an ECB rate hike, expected at its policy meeting on Thursday, saying that pulling the monetary policy alarm when inflation poses no serious threat to the 12-nation euro zone could damage consumer confidence.
"Inside the Eurogroup, we think that this rate increase is not necessary," said Mr Juncker, who heads the Eurogroup of euro zone finance ministers.
Three weeks ago he said hasty rate action risked damaging a fragile economy. "We don't see any resurgence in inflation, or any second-round effects, in other words wage moderation prevails and salary levels are not affected by the increase in oil prices," he told the French daily newspaper Le Figaro.
ECB President Jean-Claude Trichet today side-stepped the fresh assault on his plans to deliver the first euro-zone credit tightening in five years when the ECB Governing Council meets later this week.
Delivering a speech before a fixed-income conference in Paris, the ECB president urged faster progress toward building a financial market in Europe that defies national boundaries as one way to promote growth and lower costs. Addressing the same conference, French Finance Minister Thierry Breton said he expects the ECB to raise rates by 0.25 percentage points at its Thursday meeting.
But this would not kick off a string of steady rate hikes, and the economy could tolerate a rate increase, he said.
"What is important is it is not the starting point of a cycle," Mr Breton told the fixed income conference. The Bank of France, meanwhile, said in its monthly report that dangers have risen of a spillover of high oil and commodity prices into broader inflationary pressures - the argument the ECB uses for beginning tightening the credit strings.
Markets are convinced the ECB on Thursday will draw to a close 2-1/2 years of record low interest rates of 2 per cent after Mr Trichet said earlier this month that the Governing Council was ready for a moderate tightening to ensure inflation stays under control.