After 10 years, ECB vigilant over Europe
Saturday May 31, 2:16 am ET
By George Frey, AP Business Writer
After 10 years, ECB stands as vigilant as ever over world's second largest economic area
FRANKFURT, Germany (AP) -- The European Central Bank celebrates its 10th birthday Monday with its reputation burnished by a steadfast stance on interest rates and quick action to supply banks with cash during the credit crisis over mortgage-backed securities
But the ECB now faces some of its biggest challenges as the euro economy faces an uncertain outlook this year. A recent economic boom appears to be trickling away and inflation -- usually low in euro nations -- has surged to recent record highs.
By refusing to slash interest rates, the bank and its president, Jean-Claude Trichet, have steered a different course from that chosen by the U.S. Federal Reserve and the Bank of England, following its mandate from the Maastricht Treaty, which paved the way for the single euro currency and the bank itself.
The treaty mandates fighting inflation as the ECB's main priority, and Trichet and the other members of the rate-setting governing council have stayed firmly with that message despite criticism their stance has pushed up the strong euro, potentially hurting European exporters.
"Stable prices are essential," Trichet wrote in the foreword of a special 10th anniversary edition of the ECB's May monthly bulletin, released this week.
"Not only because they protect the value of the incomes of all and particularly of the most vulnerable and the poorest of our fellow citizens, but also because delivering price stability and being credible in its delivery over the medium term is one of the preconditions for sustainable growth and job creation," he said.
The bank has kept its key rate at 4 percent since June 2007 to fight inflation that hit a record high of 3.6 percent in March and again in May, well above its stated goal of around 2 percent.
Holger Schmieding, an analyst at Bank of America in London, said the bank faces a "severe challenge" from high oil prices and signs that growth may slow. But he praised the bank for showing its moves to make large amounts of short-term credit available to banks worried about liquidity -- while clearly separating that policy from its strict, inflation-fighting stance on interest rates.
"They haven't been panicked to cut rates, and the current data indicates that that was the right response. Right now they're at a roughly neutral level of rates and they can probably stay there for quite a while," Schmieding said. |
