Duisenberg said after the weekend Group of Seven finance ministers meeting in Washington. Data released Monday showing an unexpected expansion in money supply confirmed the bank's concerns about inflation risks in the 12 EU countries using the euro currency. Traders blamed the news for sending the euro below 89 cents against the dollar, as whatever faint hopes financial markets may have harbored for quick ECB action were dashed. The euro was trading at 88.79 late Monday in New York. Lower interest rates can spur economic growth by encouraging companies and consumers to borrow and spend.
Recent history helps explain the difference.
The ECB was modeled on the German Bundesbank, which became one of the world's most respected central banks by pursuing an unwaveringly hawkish anti-inflation policy. That experience is not replicated in the States,'' notes Norman Williams, European economist at Barclays Capital in London. Instead, Americans, remembering the mass unemployment and bread lines of the Great Depression, steered the Fed's postwar policy with such laws as the Employment Act of 1946 and the Full Employment and Balanced Growth Act of 1978. Should the recovery stall, making inflation less of a danger, the ECB might reconsider its stance this summer, Schubert says. But that looks doubtful.