Sarkozy Takes Aim At European Central Bank

Forbes ^ | 7/7/2008 | Lionel Laurent

[bruinbirdman]

Europe is on the brink of an economic slowdown. Its citizens are being choked by record inflation. Plans to reform its political institutions have hit their second major stumbling block in three years. Now is not exactly a great time for France to take up the rotating six-month presidency of the European Union, but it does give a good excuse for Nicolas Sarkozy to take a pop at the European Central Bank.

The French president has made no secret of his contempt for the euro zone's central bank in the past, which he has publicly slammed for refusing to bring interest rates down from 4.0% over the past year. But with the central bank expected to hike rates higher this week, to 4.25%, Sarkozy took another opportunity to remind the ECB that sparks will fly over the next six months.

"The ECB, whose independence should be preserved, should ask itself some questions about economic growth in Europe and not just inflation," said Sarkozy on Monday, as part of a French television interview to mark the beginning of France's presidency of the European Union on July 1.

Inflation is at a record 4.0% in the euro zone, a motivating factor behind the ECB's likely plan to raise interest rates. But the bank has been criticized for its focus on price stability at a time when Western Europe and the U.S. are threatened by the specter of recession.

Sarkozy also said that the euro was overvalued by 30% relative to the dollar, and that no amount of rate hikes would change the root cause of today's inflation problem: the record price of oil.

According to Jacques Cailloux, chief European economist at Royal Bank of Scotland, Sarkozy's comments were blustery but would have little impact on the central bank.

[Paperdoll]

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