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Tuesday, March 07, 2006

Conflicting Opinions

Two Frenchmen seem to have different opinions about short term interest rate policy for the ECB. Jean-Philippe Cotis, chief economist of the Organisation for Economic Cooperation and Development seems to feel that "the European Central Bank must avoid rushing to raise interest rates as eurozone growth picks up", while Jean-Claude Trichet, the ECB president, who is more worried about inflationary pressures, continued yesterday to voice concerns over historically low interest rates and upside risks to price stability.

The FT notes, vis-a-vis Cotis's comments that:

The criticism of the ECB, which came amid an optimistic interim assessment of the world economy, is bound to create irritation in Frankfurt. The bank has been at odds with the OECD since it called for a half-point cut in rates last spring.

Many economists and the OECD are sceptical about the need for further rates rises, although recent improvements in eurozone business and consumer sentiment have muted criticism of the latest ECB rate increases.

Personally I am inclined much more towards the Cotis view (although I do not entertain an especially high regard for either of them when it comes to economic analysis). I do tend to worry, however, about the extent to which Cotis himself may be subject to local political influences, a charge which, btw, and against all expectation, it is hard to lay at Trichet's door, at least to date it is.

New Economist has more coverage of the OECD view here, as does Claus Vistesen here.