The President of the European Central Bank (ECB) Mr Wim Duisenberg, has described Irish inflation as "worrisome" and warned the Government that there is nothing the ECB can do to tackle the problem.
But Mr Duisenberg offered some relief to mortgage holders when he indicated that interest rates were unlikely to change for months.
Addressing the European Parliament's Economic and Monetary Affairs Committee in Brussels, Mr Duisenberg said that recent interest rate rises would help to dampen rising asset prices in the Republic but he insisted that the main responsibility for dealing with the problem lay with the Government.
"There is nothing that the ECB can do about it except trying to convince the national authorities in Ireland that these developments, which are indeed somewhat worrisome...(that) it's their piece of cake to deal with," he said.
Mr Duisenberg said that he expected economic growth in the euro zone to exceed growth in the United States next year and predicted that unemployment in the euro zone will fall below 8 per cent.
"We are delighted we seem to be in for a period of sustained, sustainable growth in the future, a period in the course of which we expect to surpass US growth...some time in the course of 2001. We will do nothing to frustrate that. On the contrary, we will do everything to make it sustainable and to create a climate of stable prices in which investors and consumers can make the right choices without that being distorted by the detrimental effects of too high inflation which in the end always hits those people most who can least defend themselves against the results," he said.
This month's half a percentage point increase in interest rates is likely to be the last for "the coming months", according to the ECB President. He acknowledged that membership of the euro created a dilemma for national governments, who used to be able to see quickly if their country was becoming uncompetitive by a deterioration in the national balance of payments.
"Ireland does not have a balance of payments any more. Europe has a balance of payments. So the policeman you could say is on vacation. It's a very difficult situation to handle. But on the other hand, I am always struck by the developments Ireland has gone through: for two centuries Ireland was a country of net emigration, now it has net immigration...which is an achievement of historic proportions, not to be underestimated," he said.
Asked by a member of the parliamentary committee whether Britain was approaching a window of opportunity to adopt the euro, Mr Duisenberg suggested that British objections had more to do with politics than economics.
"It's there but there are certain obstacles to be overcome, to my feeling, mainly of a psycho-political nature," he said.
In his strongest intervention on the issue to date, Mr Duisenberg clearly sided with those members of the British cabinet who want to campaign openly for early entry to Economic and Monetary Union. Pressure on Britain to adopt the euro increased this month by an Organisation for Economic Co-operation and Development report that said the British economy was more in tune with the euro zone than some existing members of the single currency.
This week's decision to admit Greece to the euro zone has further isolated Britain.
"The economic conditions in terms of inflation, in terms of budgetary policy, in terms of interest rates more and more point in the direction of the UK joining forces with the euro area. The economic conditions are increasingly there. The exchange rate conditions are to my mind not yet optimal for the UK to be a full participant at this rate," Mr Duisenberg said.
A spokeswomen for the Minister for Finance, Mr McCreevy, said that the Cabinet did not discuss inflation at its meeting yesterday. The executive of the Irish Congress of Trade Unions is expected to consider the issue and the government's response to it when it meets today.
