Friday, April 30, 2010
Recovery Could Create Headaches for Europe’s Central Bank
The central bank "can not take the risk of inflation in the euro area for the benefit of the three countries," said Zsolt Darvas, an economist at Breugel, a research organization in Brussels. "They will face higher interest rates, and it will be very difficult for them to solve their fiscal problems."This view was generally held in Germany and nearby countries. The other view is that the suffering of liberating southern Europe should trump trying to combat future inflation with a heavy hand.
For central banks, fortunately, the day of reckoning may not come until early next year. With no sign yet that inflation is a danger, most economists do not expect the increase in its benchmark interest rate - now 1 percent - until March 2011, according to the Reuters poll.
But Jean-Claude Trichet, the central bank president, and board members who organize many other companies face difficult choices in the weeks and months ahead.
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