A Wake-Up Call for the ECB

While Fed Chairman Ben Bernanke has announced a whopping 75-basis-point interest-rate cut, European Central Bank President Jean-Claude Trichet continues to threaten to hike interest rates. But, with the US downturn threatening the global economy – including Europe – Trichet's fear of a wage-price spiral triggered by rapid public-sector wage gains is misplaced.

Federal Reserve Chairman Ben Bernanke has allowed global stock markets to railroad him into a whopping 75-basis-point cut in interest rates just one week before the regularly scheduled meeting of the Fed’s decision-making Open Market Committee. European Central Bank President Jean-Claude Trichet would never allow this to happen to the ECB – he manipulates markets; markets don’t manipulate him.

Indeed, with America’s economy in apparent freefall, Trichet is threatening euro-zone trade unions with pre-emptive interest-rate hikes unless they behave as he sees fit.

These threats may be proving counter-productive to the achievement of price stability in the euro-zone economy, the central bank’s primary objective.