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To: Little Joe who wrote (23664)	12/2/1998 8:07:00 PM
From: goldsnow	Read Replies (1) \| Respond to of 116798

Business: The Economy Between a rock and a hard place The European Central Bank's opening ceremony The BBC's Rodney Smith examines the dilemma facing the European Central Bank as the introduction of the euro approaches. The European Central Bank (ECB) has found itself between a rock and a hard place. Or at least locked between one stone and another. The new ECB will possibly make its first significant monetary move within weeks. But it could have wished for a less stressful climate in which to emerge into the white light of independence. When early plans were being laid for the ECB's agenda it seemed that it's biggest problem was to look manly alongside Germany's Bundesbank. There did not seem much danger that it could be under serious political pressure, right from its inception. Under pressure But Europe's new breed of socialist politicians are pushing from all sides to persuade the ECB and its president that its main enemy, inflation, is dead, and that there is a case for easing interest rates to stimulate investment, cut unemployment and improve social conditions. The pressure is particularly tough on a new executive board, still finding its feet. There is daily evidence that the European Union economy is slowing. So the ECB could be damned if it fails to ease monetary policy early in the year, and end up exacerbating weak economic conditions, and damned for giving in to politicians if it does cut interest rates. Hard, isn't it? There is growing belief that the ECB will try something slightly different - a sort of rounding down, lowering rates from 3.3% to 3% by the end of the year. Gerard Lyons, chief economist at Deutsche Kleinwort Benson in London says the ECB could go for a 3% repo rate (its money market rate) as soon as December 22, to come into effect on January 4. That is the first day of trading in 1999. Currency clash If so, it would give the currency markets an almost unprecedented two week window to settle before the advent of the euro as a new currency to challenge the dollar and the yen. Because when it does happen, the clash between the currencies could still be as loud as the jousting knights of old. Central to the debate Centralisation, whereby the ECB takes responsibility away from individual central banks, is also proving a hot topic of debate. One of the ECB's six executive board members, the former Finnish central banker, Ms Sirkka Hamalainen believes centralisation is probably inevitable. Her opinion is not to be treated lightly. Back when France and Germany locked themselves in their unseemly squabble about who should be the first European central banker and for how long, this unusually appealing-looking central banker was widely held to be the best alternative candidate. She was blocked only by the inability of the big European Union (EU) countries to countenance the possibility of putting a central banker from a small EU state in such an important post - no matter how well qualified Bitterness and anguish However, like so many European Monetary Union decisions at the moment, the sense that centralisation could soak even more power from the independent central banks is provoking bitterness and anguish. At the moment it is clear from recent remarks by the European central bank chief, Wim Duisenberg, that in his mind, the fate of EU interest rates is in the hands of the politicians. "Let the ECB deal with monetary policy," he says, "and the politicians stick to the firm rules of the Stability Pact." Quite the correct sentiments for a central banker. But what will he and his executive board do if they are faced with the alternative; socialist European governments determined to relax those rules, and determined, too, that central bank independence should be seen as a variable and more flexible condition than Mr Duisenberg may have thought when he signed up for his probably-to-be-attenuated stint. news.bbc.co.uk