The European Central Bank (ECB) is today hosting a birthday party to celebrate ten years of its monetary control over the single currency area, but the bash is overshadowed by pressures from rising inflation and forecasts of sluggish economic growth forecasts.
A number of European political heavyweights are gathering in Frankfurt on Monday (2 June) for a ceremony to mark the founding of the ECB and the European System of Central Banks on 1 June 1998.
The heads of all three top EU institutions – the commission, parliament and Slovenian presidency are set to participate - along with German Chancellor Angela Merkel and eurozone finance ministers who will kick off their regular meeting in Germany before meeting up with their other EU counterparts in Luxembourg.
As with several other earlier events celebrating the tenth anniversary of the euro, it is expected that party attendees will praise the ECB's monetary policy while noting the future challenges for the common currency, which covers 15 of the 27 member states.
Securing price stability
The theme most likely to be repeated in the speeches is the importance of the bank's role in securing price stability – its main goal according to the EU treaties - which was also historically the raison d'etre of the bank's model, Germany's Bundesbank.
But there are two wrinkles in such a positive assessment. A majority of citizens in eurozone countries still associate the euro with rising prices, and monetary union is currently struggling with historic levels of inflation, although mainly for external reasons.
Despite a drop in the eurozone's annual inflation rate in April to 3.3 percent, down slightly from a record 3.6 percent in March, early figures for May released on Friday pointed to yet another bounce back to 3.6 percent, mainly due to rising oil prices. Frankfurt's goal is to keep annual inflation "below but close" to two percent.
Refusing to cap oil taxes
The issue is set to dominate today's eurogroup gathering. Eurozone chairperson, Luxembourg premier and finance minister Jean Claude Juncker, expressed worries over these trends in several media interviews over the weekend.
"That worries me a lot because it is those with the least resources who are the most heavily penalised by inflation which remains, in relative terms, at a very high level," he told France Inter radio.
But he rejected a proposal suggested by French President Nicolas Sarkozy for the EU to cap oil taxes in response to the rise in oil prices, arguing "the idea goes against the general spirit [of the EU]."
Mr Juncker was referring to a principle agreed by the bloc's finance ministers in 2005 that states that the EU should not introduce fiscal measures to counteract oil price hikes.
Still, he added, "I don't want to kill the debate. We will undoubtedly discuss France's proposals. That is what economic co-ordination in the euro zone is about."
Due to the remaining risks of further inflation increases and despite concerns over a slowing economy in the euro area, the ECB's governing council is expected to leave its main interest rates at four percent on Thursday (5 June).
http://euobserver.com/9/26254
JPTF 2008/06/03
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