Not much is ever truly new in the world economy. In the late 1980s, the US (and most of Europe) was raging at Germany’s Bundesbank for keeping interest rates high, consumption down, and the dollar unstable. Twenty years on and US determination to support growth is once again in conflict with European determination to crush inflation. The battleground, then as now, will be the exchange rate.

The name of one protagonist may be different this time, but while the European Central Bank has taken over the power to set rates, it is the Bundesbank’s intellectual child. Its sole mandate is to control inflation and, credit squeeze or not, it takes that goal seriously. Last week Jean-Claude Trichet, the ECB’s president, signalled that, barring the unexpected, its base rate will rise to 4.25 per cent in July.