Welcome to reality

In other times, I suppose, catastrophe in the eurozone might have got front page headline treatment. But, somehow, the heat has gone out of the issue and quite startling headlines are confined to the business news pages.

Such is the fate of the story penned by Ambrose Evans-Pritchard, himself released from eternal bondage as the Telegraph's Brussels-based EU correspondent, re-emerging as the paper's European economics correspondent, driving a desk in Canary Wharf.

Even then his story does not make it into all the print editions and it is to the online edition that one must resort for details.

There, the headline reads: "ECB holds rates and cuts growth forecast on poor figures", with the news that the European Central Bank has held interest rates steady at two percent while slashing its eurozone growth forecast for 2005 to 1.6 percent in the face of dismal figures from Germany and Italy.

The story also retails the obligatory fluff from Jean-Claude Trichet, the ECB's president, who "swept aside concerns that a continued policy of negative or zero real interest rates could stoke future inflation, predicting that price rises would ease back below the bank's two percent ceiling in coming months."

It is not so much a brush that Trichet needs as a shovel - in the manner of following behind horses - but the same news invokes a headline from The Times which proclaims: "ECB remains defiant as recovery falters".

Necessarily, it takes city editor Neil Collins to put the news in perspective – a luxury not afforded to Ambrose. His (Collins's that is) piece in the City comment section is headed: "It's all coming apart in the eurozone".

According to Collins, it's hard to blame the ECBank for leaving eurozone interest rates unchanged for the 22nd month in a row. If Germany desperately needs easy money to tackle the worst slump since the 1930s, France and Spain certainly don't.

Negative real interest rates, he tells us, have fuelled a housing boom in both countries. Neither can use the interest rate lever to slow things down and the ECB's downward revision of growth yesterday for the eurozone only masks the pain of one-size-fits-all monetarism. While German property prices fell by 1.6 percent last year, French and Spanish property were up by 16 and 17 percent respectively.

And so the woes continue. Writes Collins:

Consumer credit is on fire in the southern eurozone; liquidity is swimming around searching for a home and the money supply is rising fast. Jean-Claude Trichet, the ECB's president, may have done Germany a favour yesterday by insisting that he sees no threat from inflation but his own economists are warning that holding rates at "very low levels" poses a major medium term risk.

With wonderful understatement, Collins then adds: "This decoupling of the French and German economies was not supposed to happen." Well, whaddaya know!

The architects of the euro always assumed that the ECB could set interest rates to suit the "Franco-German core", leaving peripheral economies to manage as best they could. Now France and Germany are behaving as two separate economies, the central bank is stuck. Far from converging, the eurozone states are diverging, with simultaneous overheating and recession.

"Welcome to the reality of monetary union," Collins concludes. Welcome indeed. Aren't we glad we didn't join!