BELL BOTTOM BANKERS:

ECB making a risky bet (Carter Dougherty, 11/21/05, International Herald Tribune)

Nearing year's end, the ECB found itself in a dilemma of its own making, one that threatens the credibility it needs to exert influence on markets and policy makers, economists said.

For months, the ECB has urged "vigilance" against inflation, an approach that eventually forces it to follow words with deeds and raise rates. But it also needed a convincing narrative to explain to the European public why acting against the threat of higher prices was worth the potential risk to economic activity - especially in the midst of high unemployment.

"They had to extract themselves from that corner," said Jean-Michel Six, chief Europe economist for Standard & Poor's. [...]

But the ECB has given scant sign of how far it will go after that, reflecting widespread worries - no doubt shared by the ECB itself - that the weak euro-zone economy cannot handle dramatically more expensive credit, economists said.

People pay a dang high price for the credibility of central bankers who aren't even aware disco is dead.

Posted by Orrin Judd at November 21, 2005 8:05 AM