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ECB may lift Interest rates by close of 2011

Mon 7th Feb 2011

The ECB may consider raising interest rates by the end of the year, if inflation isn't brought under control by that time, Jose Manuel Gonzalez-Paramo, an ECB executive, commented in an interview with the Spanish Press.

"We cannot let it get beyond our control," he told Spain's ABC newspaper which published an article this morning. However, this step would be a last resort as the ECB believs that the rise in inflation is temporary, linked to raw materials prices, and that it will begin to drop by the end of the year, Gonzalez-Paramo said.

The ECB's President, Jean-Claude Trichet, commented last week that its benchmark rate at a record low of 1%, remains "appropriate" and despite "short-term upward pressure," inflation risks are balanced.

The newspaper report describes Gonzalez as saying how the sovereign debt problem is being resolved. "What is clear is that if a country wants to benefit from the benefits of a supranational currency, it has to take on the fact that the rules are going to be very strict," he told ABC.

He went on to state how there is no reason why Europe as a whole cannot grow at rates close to its potential of about 2% in 2011.

Spain has made a good start towards rectifying the problems that have made it the subject of market attacks and the key issue for the country is the reform of wage negotiation because linking salary to inflation is a "defect" in the modern world, he told the newspaper. The country has to tackle youth unemployment as a priority, current,y standing at 40% and is a "true drama," he was quoted as saying.

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