France and Germany launched a blistering attack on the European Central Bank yesterday, accusing its president Jean-Claude Trichet of suffocating growth in Europe's largest economies by declining to cut interest rates.
Exposing the huge rift between Europe's politicians and central bankers, Hans Eichel, the German finance minister, and Nicolas Sarkozy, his French counterpart, said it was "shameful" that they had to fly to the meeting of the Group of Seven finance ministers in Washington to apply pressure on their central bank to take action.
The row could destabilise the monetary union and trigger a fall in the euro.
In an ill-tempered exchange, that took other G7 members by surprise, the German and French ministers accused Mr Trichet of taking interest rate decisions for the eurozone average rather than the largest economies, which are suffering from sluggish growth.
According to EU sources, Mr Sarkozy said it was impossible for him to deliver economic growth in France when he did not have his hands on all the policy levers. He said he respected the independence of the ECB but did not want to be "virtuous but dead".
Mr Trichet launched a strident defence of the bank, saying it was his job to control inflation and that growth could not be higher in the eurozone without triggering inflation because of the structural problems in the French and German economies.
Mr Eichel said all the member states of the euro had pledged to make economic reforms but that was hard to do when the ECB was refusing to cut rates. The source said the Mr Sarkozy had planned to go public in a press conference but either changed his mind or backed down after other G7 ministers said it would shatter the unity they had managed to achieve on other issues. An American source confirmed there had been a row.
Germany said the reports were a "nasty suggestion" and a French spokesman declined to comment The communiqué at the end of their two-day meeting, which was chaired by the US treasury secretary John Snow, did not mention monetary policy after the French and Germans failed to persuade their colleagues to endorse a public statement calling for rate cuts.
Away from the European spat, finance ministers agreed that the global economic outlook had brightened significantly, although the threat of further rises in oil prices was one of the few clouds on the horizon.
Meanwhile, Gordon Brown, the Chancellor, appeared to have won US backing for a plan to deliver fresh debt relief to the world's poorest countries. He said the highly indebted poorer countries (HIPC) initiative, which has so far seen $70bn of debt written off, would be extended past its planned winding-up date at the end of the year. He said he believed the rich nations would agree to review the HIPC process in the light of the collapse in commodity prices and moves in exchange rates that have hit several of the candidate countries.
It is understood the US has accepted it cannot write off $90bn of debts owed by Iraq without handing out similar help to other countries that have been ravaged by war.
However, Mr Brown refused to commit the Government to meting the target of spending 0.7 per cent of GDP on overseas aid. Sir Bob Geldof, the rock star behind the lobby group Debt Aids Trade Africa, said: "It would be excellent if Gordon Brown and Tony Blair agreed to meet 0.7 by '07."Reuse content