ECB Inaction

Contagion could fracture the eurozone: "The second is that the 'real economy' effects took time to have an impact but are now intensifying. In this respect, the actions - or rather inactions - of the European Central Bank are curious. Unlike the Federal Reserve or the Bank of England, the ECB decided that the rise in inflation this year caused by higher oil and food prices merited raising interest rates.

Inflation is now falling and, judging by the comments of Jean-Claude Trichet, its president, the ECB is moving towards easing policy by early 2009. By which time there will be abundant evidence that Europe, Japan and the US are in recession, and this will have a marked impact on Britain, where 50% of exports go to the rest of Europe. Trichet is doing a fair impression of the emperor Nero; perhaps Mervyn King would run him closest among central bank governors."