Duisenberg's Dilemma

Dr Duisenberg is a six foot five multi-lingual Dutchman with a mop of curly grey hair, who heads the European Central Bank.

Before taking on that post, Duisenberg was president of the Netherlands Bank for nearly 16 years and was the longest-serving central bank head in the world. In that respect he seemed like the right man for the job when he was chosen as president of the ECB in June 1998.

But since the ECB took over running the 12-nation eurozone's interest rates and currency, the challenges have piled up.

First came the slump in the euro's value against the dollar - from around $1.17 to little more than 82 cents. It has since recovered a bit, but it still stands well below parity with the US currency.

And then, unemployment started rising. Germany, the zone's biggest economy, is close to stagnation. Even France, one of euroland's star performers, is being hit by declining confidence. Growth forecasts are being cut sharply.

But what the ECB has really come under fire for is its reluctance to cut interest rates at a time of economic slowdown. Rates have come down this year but the ECB's trimming has looked timid by comparison with the actions of the US Federal Reserve - both before and after the terrorist attacks on September 11.

Backward looking

Duisenberg has cut interest rates three times this year and his policy has been noticeably less aggressive than that of his American counterpart, Alan Greenspan, who has cut rates 11 times this year.

"The ECB is firmly backward-looking and is not moving until inflation comes down, and so there is room to criticise the policy of the ECB," George Soros, the billionaire financial expert said about him.

"The ECB has to take economic activity into account and not merely price stability, that's an old fashioned doctrine."

Unsurprisingly, the ECB has come under heavy fire for its conduct of monetary policy: for doing too little too late; for giving anti-inflationary policies too high a priority. Quite simply, say critics, it is fighting the wrong battle.

The snag is that the ECB's mandate insists that it has to maintain price stability, and only once that is achieved can it consider doing anything about growth.

In pursuing these goals, Duisenberg has rarely been out of the spotlight. And it is not surprising that he has been cautious in view of the momentous changes taking place with the introduction of the euro.

It is the biggest single operation of its kind ever seen. The scope for things to go wrong is correspondingly large. Though the mechanics are down to national central banks, the blame, if anything goes wrong, will inevitably fall on the ECB.