Senior ministers from Germany, Spain and France cautioned the European Central Bank at the weekend against stifling growth, days before a meeting at which the ECB is expected to raise its main interest rate.
Following unusually explicit indications from ECB President Jean-Claude Trichet, the central bank is set to raise its key rate by 25 basis points to 4.25 percent on Thursday to battle inflation that hit a eurozone record of 3.7 percent in May.
German Finance Minister Peer Steinbrueck dropped his normal reluctance to comment on monetary policy in an interview where he said higher rates risked worsening a slowdown in growth. "The ECB has to consider that they could possibly send the wrong signal with an interest rate increase because it could have a pro-cyclical impact at a point when the economy is slowing down," he told the weekly Der Spiegel.
The comment came as central bankers meeting in Basel warned against the dangers of inflation, highlighting the uncertainty facing policy makers confronting the twin threats of surging prices and shaky growth, which have raised the spectre of a return to 1970s-style "stagflation."
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