European Central Bank (ECB) president Mr Wim Duisenberg has dashed hopes of further interest rate cuts and chided euro-zone governments for not doing more to boost growth.
Mr Duisenberg's remarks at the European Parliament yesterday were seen as a clear rebuff to pleas by government heads, including German Chancellor Mr Gerhard Schröder earlier this week, for the ECB to cut rates further to stimulate growth.
"We have done our part. And it's now the case that governments - maybe I sound a little bit sharp - can no longer hide behind the ECB in order to try and cover up for their failure to enact the structural reforms which are so urgently required," said Mr Duisenberg in Strasbourg yesterday.
"Let me be crystal clear, the current monetary policy stance in the eyes of the governing council with interest rates at 2 per cent is regarded as being appropriate in the light of the developments we foresee for the medium-term future," he said.
The ECB cut interest rates by half a percentage point to 2 per cent last month.
Mr Duisenberg said the ECB expects inflation to slow "significantly" below 2 per cent next year. Inflation would rise close to 2 per cent by the end of next year as the euro-zone economy begins to perk up, he said, adding that he saw no risk of deflation.
"We expect no deflation, not in Europe and not in individual component parts of the euro area," he said. "Deflation is not around the corner."
Across the Atlantic, the US unemployment rate jumped to a new nine-year high last month, further dimming hopes for a strong economic upturn following the Iraq war.
But market reaction to the worse-than-expected jobless figures was tempered by other reports showing a surprisingly sharp improvement in service sector sentiment, a slowdown in job losses and significant increases in the number of new job-seekers.
These were taken as encouraging signs of an eventual turnaround. The unemployment rate jumped from 6.1 per cent to 6.4 per cent, taking it to its highest level since April 1994. Payrolls outside the agricultural sector shrank by 30,000 in June after a drop in May of 70,000 that was worse than initially reported.
The seasonally adjusted figures show an economy still struggling to recover. Demand for US goods and services is growing but at a rate that is both too slow and uncertain to keep pace with productivity or coax US businesses to expand their operations.
Mr Duisenberg's visit to the European Parliament to present the ECB's 2002 report was likely to be his last appearance in Strasbourg as ECB president before he retires in the autumn.
His parting shot is likely to silence recent critics, including Mr Schröder, who suggested earlier this week that the ECB consider "whether they have done enough to stimulate growth".
Mr Schröder yesterday defended plans to bring forward multi-billion euro tax cuts in an attempt to breathe life into the German economy, calling it Germany's responsibility to Europe.
"All of Europe is looking to Germany at this time. Our economy, which creates around a third of the added value in all of Europe, carries a particular responsibility," he said, adding that "without a strong Germany there is no strong Europe".
He appealed for constructive contribution from the opposition conservatives, whose support he needs to push his tax cut plans through the upper house of parliament, the Bundesrat. - (Additional reporting, Financial Times Service);
