The Minister for Finance, Mr McCreevy, yesterday welcomed the news that inflation had remained stable for the third month in succession. He warned, however, that high oil prices and recent increases in mortgage interest rates could drive inflation higher next month.
"There's a fairly heavy weighting for mortgage repayments in the consumer price index. There's a lot of volatility in the price of oil and the situation in the Middle East is not helping that," Mr McCreevy said after a meeting of EU finance ministers in Luxembourg.
Mr McCreevy said that an anti-inflation package would be at the heart of December's Budget, but he indicated that he will press ahead with tax cuts. Mr McCreevy offered his full support to the president of the European Central Bank (ECB), Mr Wim Duisenberg, who is being blamed for a sharp fall in the value of the euro this week. Mr Duisenberg unsettled the markets by hinting that the world's biggest central banks were not planning to intervene in support of the euro in the near future.
The euro hovered slightly above its all-time low against the dollar yesterday as traders continued to reflect on comments earlier in the week by Mr Duisenberg which appeared to play down the threat of intervention.
Yesterday the currency was trapped in a narrow range around $0.85 against the US dollar. Meanwhile, policy makers sought to revive the threat of intervention in the market.
Mr McCreevy's expression of support was in sharp contrast to the chilly refusal of his French and German counterparts, Mr Laurent Fabius and Mr Hans Eichel, to back the beleaguered central banker.
"I will not comment. It is useless to add new elements. The elements are well known. They were analysed a few weeks ago and I have nothing more to add," Mr Fabius said. Mr Eichel said simply that he would "not participate in the discussion".
But amid the general baying for blood in financial markets some were keen to put Mr Duisenberg's comments in perspective.
"What he has done is no more than bring forward the time at which the euro would test new lows," said Paul Meggyesi, senior economist at Deutsche Bank in London. "But this was inevitable anyway."
The finance ministers agreed to take tougher action against money laundering and other financial crimes, improving cross-border intelligence on fraud and setting stiffer penalties. "It won't present any difficulties for our national legislation. We've made a lot of progress here in the past few years," Mr McCreevy said.
