France's Sarkozy Questions If ECB Rate Increase `Reasonable'

By Simon Kennedy

July 5 (Bloomberg) -- French President Nicolas Sarkozy recommenced his criticism of the European Central Bank today, asking it was ``reasonable'' for it to have raised the region's key interest rate this past week.

The ECB lifted its benchmark rate to 4.25 percent, its highest in seven years, on July 3 after inflation accelerated to a 16 year high in the 15 nations that use the euro.

Sarkozy, who has repeatedly attacked the Frankfurt-based bank for focusing too much on inflation and not enough on growth, asked delegates at a Paris meeting of his Union for a Popular Movement party ``if it was reasonable to raise rates, while the Americans have rates at 2 percent.''

The U.S. Federal Reserve has cut its key rate seven times since September to 2 percent in a bid to avert recession, while the ECB left its unchanged until the past week amid surging consumer prices.

Sarkozy's comments carry greater weight after France on July 1 became the president of the 27-nation European Union, meaning it will help shape the EU's agenda and policies for the rest of this year. ECB President Jean-Claude Trichet has brushed aside the criticism, telling reporters on July 3 that his central bank is ``an independent institution.''

The French president repeated his call for the Group of Eight nations to increase its ranks to include China and India. He and other leaders from the group are scheduled to meet in the coming week for their annual summit, this year in Japan.

``It's not reasonable to continue to meet as eight to solve the big questions of the world,'' he said.

To contact the reporter on this story: Simon Kennedy in Paris at Skennedy4@bloomberg.net.
Last Updated: July 5, 2008 14:01 EDT