The euro zone’s economy rebounded less strongly than previously thought in the first quarter of this year. The European Union statistics office Eurostat said gross domestic product in the 15 countries using the euro rose at an annual rate of 2.1%. Its previous estimate was 2.2%. The downward revision adds to worries about the region’s economic health.
Against that background, the head of the European Central Bank Jean-Claude Trichet warned we’re already seeing the first signs of an inflation price spiral – that is wage hikes that could fuel further price rises. He said: “The Governing Council is strongly concerned that price and wage-setting behaviour could add to inflationary pressures through broadly-based second-round effects.”
Trichet was addressing the European Parliament where some lawmakers criticised last week’s ECB interest rate rise which is designed to counter inflation.
Eurogroup President Jean Claude Juncker, defended Trichet: “The independence of the ECB is an important pillar in terms of the European Economic and Monetary Union and this has been upheld in the draft Constitutional Treaty, the Lisbon Treaty, not even minor changes have been made to the mandate of the ECB.”
The criticism from members of the European Parliament was relatively muted and Trichet responded that growth fundamentals for the euro zone remain strong although this would be a volatile year.