Jean-Claude Trichet, European Central Bank president, on Friday delivered a stiff warning to eurozone finance ministers to back off in an escalating dispute over the bankâ€™s independence.
Mr Trichet pointed out that it was his signature on euro banknotes and that it was unlawful under the EU treaty for finance ministers to give instructions or try to influence the bank.
His comments came at a strained news conference in Helsinki with Jean-Claude Juncker, Luxembourg prime minister, who was on Friday given a second two-year term as political head of the eurozone.
Mr Juncker said he had only agreed to carry on chairing the eurogroup â€“ the political arm of the single currency â€“ after finance ministers supported his plan to have an â€œintensified dialogueâ€ with the ECB.
As I say in a comment on Daniela’s post. This is about the only topic I am currently in agreement with Trichet on: I simply don’t see what he and Trichet have to talk about.
Our next anniversary guest post is from the estimable Mark Thoma.
The Fed and the ECB have different economic outlooks for the U.S. and European economies. For instance, the Financial Times reports:
Fed and ECB diverge on economic outlook, by Chris Giles and Ralph Atkins, Financial Times: The Federal Reserve and the European Central Bank painted contrasting pictures of the US and European economies… Together, the statement by Jean-Claude Trichet, ECB president, and the speech by Mr Bernanke indicated that European interest rates were likely to rise while there was no urgency for further US rate rises.
Mr Bernanke gave an optimistic assessment of the US economyâ€™s ability to continue rapid economic growth without triggering further inflationary pressures. … Across the Atlantic, Mr Trichet announced big upward revisions to the ECBâ€™s inflation forecasts … and called for â€œstrong vigilanceâ€ to defend price stability â€“ code words used to signal an interest rate increase in early October. … Mr Trichetâ€™s comments followed the unexpected strength of the eurozone recovery in the second quarter, and ECB fears about the impact on inflation
in 2007… Eurozone consumersâ€™ fears about inflation increased in August to the highest level since the introduction of euro notes and coins in 2002…
The FT made clear yesterday that the decision to raise just now was not going down well in Berlin, where the incoming government now faces the prospects of introducing a strict fiscal policy at a time of monetary tightening, and when the impact of the recent oil price rise is likely to be pinching the already pinched pocket of the German consumer.
Sometimes, just sometimes, being a journalist is hard. War correspondants, political columnists pressured to ‘firm-up’ an elusive source‘, BBC reporters, the list of those who could rightly complain is probably endless. But amongst the most challanging of the many missions which may occasion their way into the in-tray must, undoubtedly, be that of interpreting the intentionally elusive language of the central banker. Yesterday was there was a good case in point. ECB President Trichet actually said:
?I am not telling you anything that could be interpreted as preparing a rate cut,?
Now buried deep within the lexicon of obscurantism which governs central bank policy interpretation must be one which reads: when they say ‘a’ they mean ‘b’, since today we find this: Trichet signals ECB could cut rates
So, just to help you out, I’ll explain how this particular journalist probably reached this particular reading: by a process called backward reading. The FT’s Ralph Atkins must be convinced, just as I am, that the ECB will be forced (by both political pressure and by economic realities) to cut rates later in the year. So reading backwards, Trichet, who must himself be aware that the arguments for a rate cut may become compelling, was, of course, preparing the ground. What he couldn’t do yesterday, not under any circumstances,was give any indication whatsoever that he was ceding to the impact of the recent votes. Strange world, that of the banker, and that of the journalist come to think of it.