"Adopting this philosophy is a huge gamble for Duisenberg," said Kevin Gaynor, co-head of European research at Warburg Dillon Read. Economists say a number of "new economy" forces are already in play in Europe, although they differ in their perception of how widespread or advanced these changes are. Competition, market liberalization and price transparency have lead to lower prices; corporate restructuring has improved capital efficiency; low inflation expectations and reduced job security have made wages more responsive to employment levels; and plant and machinery investment has boosted productivity.

Ignoring these factors could needlessly curb what some say will in any case be a short, shallow economic expansion in the euro-zone. Or it may not matter, because ECB rates are still low and the "new economy" will itself generate faster growth.

Michael Saunders, head of European research at Salomon Smith Barney/Citibank, believes that new-economy "supply-side" changes will help bring about a 3.5 per cent growth spurt next year, validating the ECB's recent interest-rate increase.

"By getting faster growth than you would expect for a given level of inflation, the risk that interest rates choke off growth is reduced," he said. But why raise interest rates at all, if inflation is under control? One reason is to keep pace with debt markets, where faster growth will lift the price of capital. Another is that maintaining a loose monetary policy until capacity pressures emerge would make the subsequent tightening all the more severe. "The whole example of 1990s central banking, the Greenspan example, is that you don't leave the punchbowl there and then snatch it away in the middle of the party," he said.

The Wall Street Journal