THE European Central Bank faces renewed pressure to think twice about raising interest rates as France took over the EU presidency for six months yesterday.
The euro currency's exchange rate was way too strong, and ECB interest rates could not fix inflation caused by soaring oil and other commodity costs, French President Nicholas Sarkozy said in a television interview.
"Today's inflation is caused by exploding commodity prices, so don't try to tell me rates must rise to fight inflation," the French leader said when discussing his plans for France's presidency of European Union affairs.
German Finance Minister Peer Steinbrueck followed up with an appeal to the central bank to take account of the threat to growth from an interest-rate rise that would bring no quick fix to inflation.
Inflation hit a record annual rate of 4 percent in the euro zone in June according to official estimates, and the ECB is widely expected to raise its key policy rate to 4.25 percent from 4 when it meets tomorrow.
"Inflation is a problem ... but there are no short-term solutions," Steinbrueck said during a stock exchange event in Frankfurt.
"The ECB should consider which effects an interest-rate rise would have on economic growth," he said.
While ECB chief Jean-Claude Trichet is no stranger to attacks from Paris, some officials suggested that Sarkozy would tone things down while France steers the 27-nation union past other hurdles.
Polish President Lech Kaczynski yesterday said he would not sign the European Union's reform treaty, a pact rejected by Irish voters in a referendum.
While soaring food and fuel prices have driven inflation to record levels across the EU, the outlook for economic growth is also darkening, making ECB rate moves ultra-sensitive.
France, Spain and Germany have all said that second-quarter economic growth in their countries will show a slowdown.
In his television interview, Sarkozy said the euro exchange rate was overvalued by 30 percent versus the dollar.
Germany's Steinbrueck appeared to take a similar line to France toward the ECB, namely that the euro zone's central bank should take account of what the US central bank is doing too.
The euro's edge on the dollar is partly explained by interest rates that are twice as high as the US rate of just 2 percent.