Wage fears keep Trichet shadow-boxing

NOT QUITE THE '70S?

In a statement issued in response to the ECB decision, ETUC deputy secretary general Reiner Hoffmann said: "The ECB should realize that we are no longer living in the seventies."

Trichet made no attempt at a post-meeting news conference to demonstrate or quantify the danger of what he calls second-round inflation pressures from wages.

He insisted that the ECB's job was to fight inflation and to convince the euro zone's 320 million people that it could be sure the job would be done.

Big wage rises to compensate for the cost of fuel and food prices would merely plunge Europe back into the misery that such tit-for-tat rises in pay and prices inflicted on Europe after the oil-supply crisis of 1973, he said.

With oil prices at all-time highs again, the ECB chief said there were some "some similarities" between now and more than 30 years ago, notably the temptation for pay negotiators to resist a transfer of wealth from oil-buying to oil-supplying nations.

"Those who deny that are paving the way for a long period of a high level of inflation, slow growth, stagnation and unemployment at a higher and higher level," he said.

Annual inflation is running at a record 4 percent rate now, twice the ECB target level, and few question the need to ensure that the situation does not spin further out of control, just as some question if a rate rise does much to help.

The economy is slowing, perhaps hard, and unemployment is on the rise again this year for the first time in years, according to the OECD, which makes the decision to raise borrowing costs controversial by definition because it can dampen growth.

In an employment report published this week, the OECD noted that wage gains were relatively limited in recent years even as the unemployment rate declined to the lowest level since 1980, a trend that should have strengthened labor's hand in pay talks.