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Friday, November 08, 2002

Always Time For Some Euro-follies!

OK, the Fed cut their benchmark rate by 50 basis points on Wednesday. If you are just learning this now, you really don't care. But you will find the follow up out of Europe to be riveting!

FRANKFURT, Germany - Bucking both the Federal Reserve and the increasingly plaintive calls of European politicians, Europe’s central bank said on Thursday that it would leave interest rates unchanged.

A day after an unexpectedly large cut in rates in the United States, the European Central Bank (ECB) said it would wait for more evidence that Europe’s economy was faltering before it lowered its key rate.

This is a search for evidence that only Inspector Clouseau could admire. Sort of "Eyes Wide Shut", dubbed into German.

With new statistics showing rising unemployment in Germany, Europe’s largest economy, economists say a cut in the benchmark rate, which now stands at 3.25 percent, is long overdue. Germany, they say, needs a looser monetary policy to revive an economy on the brink of a double-dip recession....

Huefner and other critics said that in holding the line on Thursday, the European bank seemed motivated less by economic calculations than by the desire to avoid looking like a handmaiden of the Fed.

The bank also does not like the appearance of capitulating to pressure from the leaders of the 12 countries in the euro zone, for which it sets monetary policy. Chancellor Gerhard Schroeder of Germany and other officials have urged the bank to lower rates, as have major companies like Siemens.

Appearances must be preserved!

However, this story suggests that the ECB has a little Christmas treat for the market. Whatever is left of it.

UPDATE: We are totally jealous of this headline, which links to a gloomy Economist piece.

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