We have been talking about decoupling for a long time. Now it is happening. No, I do not mean that the European or Asian economies are decoupling from the US. The world economy is too interlinked for real economic decoupling to take place. But there is a form of decoupling we are seeing now that we did not see before: monetary policy decoupling.

In the past, European central bankers tended to follow the US Federal Reserve, often with delay, never perfectly, but generally in the same direction. When the Fed cut the funds rate in successive steps to 1 per cent as a result of the 2001 recession, the Europeans followed suit by cutting short-term rates to 2 per cent. The policy response to our most recent financial crisis has been different. While the Fed cut by an accumulated 325 basis points, the Europeans first refused to follow, and they are now moving in the opposite direction. As Jean-Claude Trichet, president of the European Central Bank, indicated last week, the ECB is now likely to raise interest rates by 25 basis points next month, and I suspect this could be followed by another rate increase later this year. It would be a logical response.