Europe's central banks in quandary as Fed tightening nears

Brussels

EUROPE's central banks are struggling with divergent quandaries over how to revive inflation and sustain economic growth as the US Federal Reserve prepares to start raising interest rates for the first time since the collapse of Lehman Brothers.

The world's major economies are recovering at varying paces from seven years of economic and financial crisis, with Japan tipping back into recession and China trying to surmount a severe wobble this year.

While the Fed is widely expected to pull the trigger on a slow but steady tightening from December in response to solid US growth and employment figures, the European Central Bank is likely to ease monetary policy further on Dec 3.

"It (the ECB) cannot run the risk of disappointing markets, having raised expectations of action," said Ken Wattret at BNP Paribas in London, reflecting the view of a big majority of economists polled by Reuters. That is because headline inflation remains close to zero in the 19-nation euro area, and core inflation stripped of energy prices and seasonal factors is barely one per cent, just half the ECB's target of close to but below …