A rise in interest rates may be authorised by the European Central Bank (ECB) in an effort to dampen economic growth in Ireland, Spain and Portugal, a leading adviser to the German government has said.
Even a moderate increase in interest rates would be welcomed by the authorities here and would serve to slow the rate at which house prices are increasing.
The comments from the so-called German "wise man", Mr Herbert Hax, who leads the five-member council of economic advisers to the government, came amid expectations that rates in the US could be increased before the end of the month.
However, Mr Hax said he did not believe the ECB will be forced to imitate an expected interest rate increase by the US Federal Reserve.
"There is no danger of inflation in Europe currently," he told the Welt am Sonntag newspaper. "However in Spain, Portugal and Ireland there are signs of economic overheating. In this respect, the ECB could want to send a signal. That will be a moderate interest rate hike that most certainly will not stall economic growth."
Mr Hax did not specify what he meant by a moderate interest rate hike, or when he thought such an increase might occur. Expectations for an interest rate increase by the ECB have been increasing ever since ECB president, Mr Wim Duisenberg, said on July 15th that a tightening bias was gradually creeping into the central bank's monetary considerations.
With economists believing there is an upturn in the core euro economies, the possibility of a rates increase is being seen as more and more likely.
Most analysts expect the Federal Reserve to raise interest rates before the end of August as the US economy continues to grow strongly and as signs of inflation begin to emerge.
The London-based Economist Intelligence Unit (EIU), in a report published today, foresees further interest rate increases in the US this year. The US is currently in its second largest period of expansion in its history. Its economy is expected to continue to grow, albeit at a slower rate, the EIU said.
"We expect more rate rises this year, and this will lead to a slowdown in 2000 and 2001 - partly based on the likely impact of higher interest rates on equity prices," the EIU said.
The Federal Reserve raised interest rates by a quarter of a point on June 30th and the central bank's policy makers meet again on August 24th.
The report says the outlook for the world economy is improving and Asia is leading the way as the region's recovery from the crises of 1997 and 1998 accelerates.
It notes however that Asia's Tiger economies, which went into decline in a financial crisis which began with a devaluation of the Thai baht in 1997, are unlikely to resume their pre-crash growth levels any time soon.
Elsewhere, the EIU said it was wary of a nascent recovery in Japan, which has an official growth target of 0.5 percent in the 12 months to March 31th. It said the deep recession of 1998 is almost certainly over.
In Europe, including eastern Europe, growth will remain slow this year, the EIU said, with just 1.9 per cent growth this year compared with 2.8 per cent in 1998.
Germany, the euro zone's largest economy, remains vulnerable, as does Italy, the EIU said. "The weakness of the euro, the recovery in Asia, and rising employment should allow a gradual recovery in the second half of this year and into 2000, but a dramatic pickup looks unlikely, given the lack of support from fiscal policy in German and Italy," Mr Robin Bew, chief economist at the EIU, said in the report.