EU finance ministers have expressed concern about slowing growth in the euro-zone economy caused by high oil prices, a strong euro and the ongoing credit crunch.
At a Eurogroup meeting last night, Portuguese finance minister Fernando Teixeira dos Santos said he was more concerned about slow growth rates than rising inflation, which climbed to 3 per cent in November due to high energy and food prices.
Mr Teixeira dos Santos, whose country holds the six-month rotating presidency of the EU, said it was not yet clear if inflation had peaked or if higher inflation rates were more permanent. "I am more concerned with the slowdown in our economies," he added.
German finance minister Peer Steinbrück also said he was not concerned by the inflation rate and the euro-zone economy was holding up. However, he added that there were risks to growth caused by high oil prices and the strength of the euro's exchange rate.
The combination of high inflation, a strong euro and a global credit crunch that is increasing the cost of borrowing poses a challenge for the European Central Bank (ECB), which meets on Thursday to decide interest rates.
The bank would normally raise interest rates to curb inflation but the credit crunch has driven interest rates above the ECB reference rate of 4 per cent and has so far forced the bank not to hike rates for fear of hurting growth.
Luxembourg prime minister Jean-Claude Juncker, who chaired the Eurogroup talks, said all were aware of the difficulty facing the EU in striking the right balance between containing inflation and supporting growth.
"We cannot ignore the increasing inflation risks we are facing, but we have to have in mind that the economy, although deemed robust, is slowing down. We have to face these two risks," he said.
Most economists believe the ECB will leave interest rates on hold this week and study how the economy and inflation progress over the following month.
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