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To: dennis michael patterson who wrote (38636)	1/30/2000 6:07:00 PM
From: John Madarasz	Respond to of 99985

ECB: Are They Worried Yet in Frankfurt? Daily Economic Commentary International January 27, 2000 With the euro trading somewhere between 98 and 99 US cents and Germany inflation indicators edging up, surely the pressure to push the interest rate hike panic button must be building. Not withstanding either official central bank disclaimers about the currency's exchange rate being only one part of a much larger total picture, or the plethora of knowledgeable analysts arguing that a narrowing of the growth gap between the US and the euro-zone will cause the euro to strengthen vis-à-vis the greenback over the course of the current year, the mood in Frankfurt can hardly be lighthearted. The German Finance Minister has euphorically forecast GDP growth of 2.5% this year, after only a 1.4% expansion in 1999, but cautioned his listeners that the economy could easily outperform this benchmark. Investors could be forgiven for thinking that in light of provisional January German CPI figures showing a year-over-year gain of 1.7%, and of an 8.2% surge in December import prices, which remained a 3.0% year-over-year gain even when oil prices were excluded, the government's prediction of average consumer price inflation between 1.0% and 1.5% this year also risks being missed on the high side. But these developments in the euro-zone's largest economy seem unlikely to stampede the monetary council members in the direction of tightening just yet. Yesterday, the European Central Bank's Chief Economist, Otmar Issing, dismissed the expected increases in headline inflation due to higher oil prices as a cause for concern, but he did speculate aloud about the possibility that such temporary increases could trigger inflationary wage trends, exacerbating the effects of certain labor shortages in the euro-zone's relatively rigid labor markets. If, as he indicated, those are the developments the ECB will be monitoring, it will take a while longer for the worry level to rise to a critical rate-raising level. Thus, recent data seem to leave the consensus scenario, which calls for action by the ECB late in the first quarter, intact. It could, however, help weigh the decision toward a larger rate increase than the quarter percentage point currently expected by most, a prospect that will have to be continuously reevaluated in light of other information becoming available in the intervening weeks. Austria: Far Right Party on the Verge of Joining Government After the Social Democratic Party (SPOe) declined to form a minority coalition, following the collapse of talks between it and the People's Party (OeVP) aiming to reconstitute their 13 year-old "red-black" coalition, the baton was passed to the OeVP, which began negotiations on Tuesday with the far-right Freedom party (FPOe). The FPOe is headed by the controversial Jorge Haider, who may be best known for inflammatory remarks that complemented WWII Nazi "employment policies" among other insensitive comments. Progress towards forming a so-called "black-blue" coalition of the OeVP and the FPOe, which tied for second in the October general election, is reportedly moving forward. The possibility that the FPOe may join the government has drawn a rash of international criticism, as expected, but lost among this furor is the notable development that the "red-black" coalition that has dominated Austrian politics since WWII is about to come to an end. The demise of the SPOe - OeVP alliance had been considered a possibility even before last fall's poll. The parties had grown weary of each other and the Austrian people had tired of their close knit power-sharing arrangement. A brief reprieve from each other may be what the constituents of the "red-black" coalition and Austria need. The problem is that the only workable option to govern Austria includes Haider's FPOe. Haider, who is governor of the state of Carinthia, has said that he will not join the new government, but given his hyper-active management of the FPOe, he is likely to wield influence in some way. And that may present the SPOe and the OeVP with an opportunity to reform their traditionally highly successful partnership down the line. Given Haider's sometimes combative style, a "black-blue" coalition may turn into a "black and blue" brawl. Only time will tell, but time, it appears, is exactly what Austria needs to recover from the suffocating effects of the so-called grand coalition of center-left and center-right parties. Even if Haider comes to power, the EU and the international community will work hard to police him. Tom O'Brien International Research Associate Elizabeth Hart Chief International Economist ntrs.com