Political backing for the European Central Bank's tight anti-inflation policy was shaken on last night when the European parliament rejected the bank's tough rate policy and Italy looked set to cut its growth forecast to zero this year.
The parliament's vote against a report on the ECB by its monetary affairs committee was a snub to Jean-Claude Trichet, the bank's president, who had defended his policy before the assembly on Monday.
Mr Trichet's position was strongly endorsed in a report by the committee, but socialist MEPs on Tuesday led the way in voting down the report by 296 votes to 287.
"This vote sends a clear message that the bank's responsibilities are much wider than Mr Trichet appears to think," said Ieke van den Burg, leader of the socialist rebellion. "We have told the ECB that it was focusing too narrowly on stability and was ignoring the need for growth."
Yesterday evening the ECB made no comment on the vote, saying that it was a parliamentary matter.
In the past the central bank has stressed its independence, and expectations in financial markets have moved away from any ECB interest rate cut from the current 2 per cent level.
The ECB appeared set to keep eurozone interest rates on hold when it meets this week. At the beginning of last month when the growth outlook for the eurozone had deteriorated markedly Mr Trichet signalled that a rate cut might become a possibility.
But the euro has since weakened significantly, reducing the pressure for a cut. Higher oil prices have also sounded inflationary alarm bells.
Financial Times Service