Eurozone officials yesterday stopped bickering over monetary and other policy goals to unpack some better-than-usual economic indicators in Singapore. The high priest of anti-inflationary measures, European Central Bank president Jean-Claude Trichet, said eurozone growth was running at 2.4-2.5%, while inflation remained under control despite high oil prices.
The improved European performance is behind the US’s 3.5% growth by the “meagre gap” of only one percentage point, and is contributing to a significant “rebalancing of growth” within the G7, the ECB chief said.
The eurozone grouping’s recently re-elected head, Luxembourg prime minister Jean-Claude Juncker – who has admitted to sporadic “disagreements” with the ECB president while insisting he maintains “good human relations” with the Frenchman – pointed to growth “that is the highest for six years.” It is coming in “above expectations – and we expect it to remain so… [especially as] growth is increasingly driven by domestic demand.”
Job creation is up, by 2% in 2005, and unemployment is down, to 7.8% – “the lowest in Europe for a long time,” said Juncker, who is widely regarded as one of Europe’s more savvy political insiders. His push for growth, supported by other ministers, is seen as a point of tension with Trichet, who on Saturday again insisted that “our job is to stop inflation materialising”.
Inflationary pressures remain a threat, driven by high oil prices. European Commissioner Joaquin Almunia observed that crude prices had risen by 80% since January 2005, but this was partly offset by the eurozone’s “trend towards productivity”, with labour market reforms “paying off”.
Costly oil “is having no immediate impact on consumer price inflation,” Juncker observed. Rather, “structural reforms are paying off, which is [a trend] often unremarked in the Euro area.”
Trichet used the Singapore platform to reiterate his determination to show “strong vigilance” on inflation. His earlier use of this phrase has persuaded markets that the ECB would continue to raise interest rates, which have been lifted rates four times since December. Consequently, the euro has continued strengthening against the dollar, up around 7.5% against the US currency this year. Trichet declined to comment on whether declarations by Iran, Arab and other central bank governors that they would increase their euro holdings at the expense of the dollar were adding to upwards pressures on the currency. Barclays Capital chairman and chief executive Asia Pacific Robert Morrice yesterday commented: “We’ve continued to see over the last five or six years continued interest in the euro, both on the investor side and from issuers. But the markets are very transparent – everyone can work out the value of euro assets versus dollar assets, and as we know Asian investors are very value-oriented: when euro assets become cheap versus dollar assets they are very willing to participate in them.”