By Chris Jones - 3rd August 2006
The European central bank has lifted eurozone interest rates to three per cent in a bid to keep spiralling EU inflation under control.
ECB president Jean-Claude Trichet said that the 0.25 per cent increase, which had been widely expected, was warranted because of continued inflation, driven primarily by increased oil costs.
Inflation within the EU’s single currency zone has been above the limit set by the ECB for the past 18 months.
The Frenchman also hinted that further rate rises could come in the future if consumer prices continued to grow.
Rates could rise as high as 3.5 per cent by the end of the year, according to some analysts.
But Trichet said that it was still unclear whether the current crisis in the Middle East would have an impact on global economic growth.
“On the particular impact of geopolitical risks, I do not see, at this very moment, that these have contributed in any significant fashion to hampering growth,” he told journalists.
“But it is clearly a risk that has to be taken into consideration. Fortunately, I have not seen, and I hope strongly not to see, an impact of these events on global growth.”
Some EU member states are concerned that increasing euro interest rates will lead to a slow down in economic growth, but Trichet dismissed these suggestions.
“Our mandate is clear. We have to deliver price stability. It is not only the mandate given to us by the Treaty but also our responsibility vis-à-vis the households of Europe…who expect us to deliver price stability.”
“It is also the working assumption of the social partners. And this is the reason why we tell them: be responsible yourself, because we will take care of price stability.”
“In the euro area we have long-term rates that are favourable to sustainable growth and sustainable job creation…we see no contradiction between our mandate and sustainable growth and sustainable job creation.”
But he warned that the addition of Slovenia to the eurozone from January 1 next year would throw up new challenges.
“We are very happy to be enlarging the euro area…but allow me to stress that we have an important message in relation with Slovenia.”
“We consider that it would be very opportune for labour mobility between Slovenia and the rest of the EU, and in particular with all the members of the euro area, to be totally free.”
“Without barriers within a single market area with a single currency, full labour mobility is absolutely necessary.”
Workers from eight of the ‘new’ member states in central and eastern Europe have restricted access to labour markets in several EU15 countries.
Only Ireland, Sweden, the UK, Greece, Spain, Portugal, Finland and Italy have allowed unrestricted access to their labour markets.
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