The president of the European Central Bank indicated a series of interest rate increases probably won't be necessary for the 12-nation euro zone, as he came under fire from European politicians who oppose the bank's intention to raise rates next week for the first time in five years.
Jean-Claude Trichet staunchly defended the ECB's need to stave off inflation in the face of skeptical questioning by members of the European Parliament committee that oversees the bank. The combative testimony underscored the tensions in Europe over the region's fragile economic growth and the threats to it. Trichet and the bank believe inflation is the current threat, while many governments argue that raising rates will do more harm than good.
Asked repeatedly to prove that inflation was threatening to move beyond high oil prices, Trichet at times waved his fist as he warned that the bank has to move when it sees the risk arise. Waiting for hard evidence would mean the bank would wait too long and destroy the inflation-fighting credibility that has helped the bank keep rates so low for so long, he said.
"Prevention is always better than the cure," Trichet said. "Losing credibility is the recipe for interest rates to increase massively."
The central bank has flagged the possibility of higher rates for several months, but the idea has been controversial because the euro-zone economy is just picking up pace after a slump that has lasted much of the past five years.
Since Trichet disclosed Friday that the central bank was ready to "moderately augment" its key rate from its historic low of 2 percent, economists have been debating to what extent the bank would emulate the U.S. Federal Reserve, which has raised its key rate in 12 consecutive moves. The European Central Bank has left its rate on hold since June 2003. It is expected to increase its key rate a quarter point Dec. 1.
"It would not be a good working assumption . . . to consider that we are at the start of a series of interest-rate increases," Trichet said.
The remark didn't quell criticism across Europe. European Parliament member John Purvis of Britain asked Trichet if he was "at war" with E.U. member countries by raising rates while calling for the countries to reduce their debt and reform their economies.
Pervenche Beres of France, chair of the economic and monetary-affairs committee before which Trichet testified, called the prospect of higher rates "extremely worrying."
The central bank is taking a "major risk of inducing a major recession," said Parliament member Antonis Samaras of Greece.
The bank's intended move is angering Europe's finance ministers, who will have to pay higher rates to finance their swelling national debts and who fear any steps that could strangle Europe's budding recovery. Jean-Claude Juncker, Luxembourg's prime minister and the president of euro-zone finance ministers, told reporters in Berlin that he doesn't "regard interest-rate moves as compulsory."
Inflation, stripped of energy prices, is under control, and wage policy is moderate, Juncker said, adding that the International Monetary Fund has reached the same conclusions.
Andrea Thomas in Berlin contributed to this report.