January 25, 2008 | posted by Michael Baxter in Eurozone |

You may have noticed. A split has emerged in the central banks. While the Fed slashes interest like it was the January sales in banking land, the ECB and Bank of England fret over inflation. At Davos, Jean-Claude Trichet – top man at the European Central bank, said, “There is one needle in our compass, which is price stability.” Earlier in the week, Bank of England governor Mervyn King warned inflation was on the rise.

At the same time, Europeans have been saying the key to solving the global economic problem lies in US consumers saving more and spending less.

Well, yes, that may be true up to a point, but if the US consumer was more frugal, the rest of the world would be a lot worse off. And that’s the problem. Can the world really afford for the US to behave in a more-financially responsible way?

As for Europe, with 3.1 per cent inflation in December, now at the highest level in six years, with German unions growing increasingly restless, with a Spanish consumer boom creating its own property bubble, not to mention an even-higher balance of payments deficit than the one we are afflicted with in the UK, the prospects for Europe are not so good.

Mind you, there is no talk of a European recession, yet. Capital Economics reckons Germany will grow at 1.7 per cent this year and, curiously enough, thinks the Eurozone will grow at exactly the same pace. The star of the Eurozone is expected to be Slovenia, which is expected to expand by 4.5 per cent, but France too is expected to grow at above the recent average, at 2 per cent.

Mind you, a growth of 1.7 per cent in a year when the US and UK are expected to slow sharply may mark the best economic prospects for the developed world this year, but it’s pretty anaemic. If this is Europe helping the global economy avoid recession, and running with the baton, then we had better hope China and India can take the baton on pretty quickly.