With the increase in the European Central Bank's key interest rate to 4.0% from 3.75% a foregone conclusion, investors were far more attentive to the degree of hawkishness in comments by Jean-Claude Trichet, the ECB president.

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This could encourage workers to pass up potential job opportunities. (It could also encourage people to register as unemployed, without affecting underlying labour supply.) Most studies suggest that the extensions can be blamed for an increase in the unemployment rate of about a percentage point, although a new report from the Federal Reserve Bank of San Francisco says the effect is much smaller, just 0.4 percentage points.

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Despite the tougher language on inflation in the last statement, investors and economists are unconvinced that the bank is seriously considering a rate increase.

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It was shoved back into recession partly by its own policies: an ill-timed tax increase in 1997 and the (temporary) ending of the Bank of Japan's zero-interest-rate policy in 2000.

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Jean-Claude Trichet, the ECB chief, had suggested at the bank's previous rate-setting meeting, in June, that an increase was likely.

ECONOMIST: The euro-area economy

While no increase in interest rates is expected, there is little doubt among investors that the future direction for the central bank s target rate will be up.

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For example, you didn't mention that the recent interest-rate rise on January 31st followed both an unexpected increase in the cash reserve ratio by the central bank and cuts to import duty on several items by the government in order to check inflation.

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