Tuesday, December 4, 2007

European economy damaged by subprime crisis

Lets forget about inflation, its time to bail out the banks....

Dec. 4 (Bloomberg) -- Europe's economy may be more damaged than the European Union has forecast by fallout from the U.S. housing slump as banks curb lending and accelerating price gains prevent central bankers from cutting interest rates, EU finance officials said.

"There may be a question mark over our hopes that Europe could decouple'' from a U.S. slowdown, European Central Bank governing council member Christian Noyer told a conference in Paris today.

The growth slowdown comes as inflation picks up, posing a quandary for the ECB, which has refrained from following the U.S. Federal Reserve in cutting interest rates. The central bank is concerned that price gains may trigger an inflation spiral by stoking wage demands. Euro-area consumer prices jumped 3 percent in November from the year-earlier period, the biggest increase in six years, driven by higher commodity costs.

"The focus is on inflation and that is right,'' Cypriot Finance Minister Michalis Sarris, said in an interview. "For a world and a European continent that has been used to 2 percent inflation, even close to 3 percent will be unsettling.''

Inflation Risks

Factory-gate prices increased 3.3 percent in October from a year earlier, the most since December 2006, after rising 2.7 percent in September, the EU statistics office in Luxembourg said today. The rate exceeded the 3 percent median forecast in a survey of 29 economists by Bloomberg News.

Austrian central bank governor Klaus Liebscher said Nov. 29 that inflation risks are ``clearly on the upside,'' and Bundesbank President Axel Weber said Nov. 23 the ECB may still raise interest rates should ``tensions'' in money markets ``progressively ease.'' Crude-oil prices rose to close to $100 a barrel last month and were at $88.45 today.