France stands alone in criticising ECB on rate hike

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Eurozone ministers support the central bank’s decision to raise interest rates in face of an all-time high inflation of 4.0 percent, leaving France isolated in its criticism.

8 July 2008

BRUSSELS - Eurozone finance ministers threw their support on Monday behind the European Central Bank after it raised interest rates last week, leaving France isolated in its criticism of the ECB.

Eurozone finance ministers agreed at a meeting in Brussels that ECB was justified in raising the cost borrowing in the 15 nation bloc in the face of record inflation, which hit an all-time high of 4.0 percent in June.

"The fight against inflation is of the highest importance," said Luxembourg Finance Minister Jean-Claude Juncker after chairing the meeting with his eurozone counterparts.

He said that ECB "took its responsibility and the central bank's decision was not criticised".

The ministers support of the ECB's rate hike contrasted sharply with recent criticism from Paris, mindful of the move's impact on the rapidly deteriorating growth situation in Europe.

"I have the right as president of the French republic to wonder if it is reasonable to raise the European rates to 4.25 percent while the Americans have rates of 2.0 percent," French President Nicolas Sarkozy said in Paris on Saturday.

Soaring oil and food prices have driven eurozone inflation to more than double the ECB's comfort zone, which it describes as an annual rate of close to but less than 2.0 percent.

Despite the risk that inflation will remain high in the months ahead, Juncker said: "I don't believe that the decision on Thursday was the beginning of a new adjustment cycle in interest rates.

"We also considered that the European Central Bank was right to insist with vehemence on the necessity of anchoring medium-term inflation expectations," he added.

French Economy Minister Christine Lagarde toned down criticism of the ECB as she arrived for the meeting, stressing simply that boosting growth and fighting inflation were both needed under the current circumstances.

"Slowdown in growth is definitely a concern and it's one that we need to look at very seriously with a view to trying to stimulate growth, while at the same time trying to stabilise prices," Lagarde said.

"The two are clearly correlated and we need to act on both fronts," she added.
Lagarde was to chair on Tuesday the first meeting of her EU counterparts since Paris took over the rotating six-month presidency at the beginning of the month.

France faces the tough task of piloting Europe through financial market turmoil and record oil prices after taking the helm of European economic policy this week under a cloud of controversy.

The talks between finance ministers from the full 27 EU nations were to focus on what can be done to cool red-hot oil prices or at least ease their impact on consumers and tightening oversight of credit-rating agencies.

No stranger to controversy when it comes to economic policy in Europe, instead Sarkozy made waves before the start of France's EU presidency by criticising EU trade chief Peter Mandelson and floating proposals to cut sales tax on fuel.

Moreover, France is under pressure from its EU partners to ensure its public deficit will not breach European rules, putting Paris in an embarrassing position as its presidency of the bloc gets underway.

[AFP / Expatica]

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