Barroso defends ECB's decision to raise rates in face of inflation threat

EUROPE’S DIVISIONS over how to fight inflation were put on full display yesterday when European Commission president José Manuel Barroso leapt to the European Central Bank’s (ECB) defence against its political critics.

“Basically, when it comes to inflation, I have more confidence in the position of central bankers than in politicians,” said Mr Barroso. “I’m saying that with all respect, because I myself am a politician. I say it because central bankers are not moved by short-term political pressures.”

Mr Barroso’s remarks put him at odds with French president Nicolas Sarkozy, who berated the ECB for putting price stability ahead of economic growth and raising the bank’s main interest rate on Thursday to 4.25 per cent from 4 per cent.

The two leaders’ difference of views has taken on extra significance as France assumed the EU’s rotating presidency on Tuesday.

Mr Barroso and the commission have full responsibility for EU policies such as world trade negotiations – another area where Mr Sarkozy has made clear his dis-agreement with Brussels.

Mr Sarkozy says higher interest rates will be of little use against inflation because they will not contain the surge in world oil prices, which has helped push up annual euro-zone inflation to a record 4 per cent – double the ECB’s target rate of just under 2 per cent.

But Mr Barroso said yesterday: “Let’s trust the ECB when it comes to monetary policy and interest rates. We have to respect the independence of the ECB. It would have been difficult in the face of the threat from inflation for the ECB not to take the decision it took yesterday. Inflation is really a threat and can really put in danger not only the European but the global economy.”

The dispute appears unlikely to fade away because Mr Sarkozy, far from being isolated in his campaign against the ECB’s strict anti-inflationary stance, can count on the support of Italian prime minister Silvio Berlusconi and Spanish prime minister José Luis Rodríguez Zapatero. – (Financial Times service)