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After years in slow motion, European economies are showing signs of a modest revival: business confidence is buoyant, investment is rising and the Continent's thrifty consumers are even loosening their purse strings a little. But the European Central Bank (ECB) is not cheering. Last week, ECB president Jean-Claude Trichet confirmed to the European Parliament that the bank is planning to raise interest rates in the near future to combat what it sees as growing inflationary pressures.

The first hike could come as early as this week. Trichet insisted that rate rises will be limited in scope and that the bank won't follow the lead of the U.S. Federal Reserve, which has ratcheted up rates 12 times since June 2004. Trichet's comments calmed financial markets, but they didn't satisfy Continental politicians who accused the bank of jeopardizing Europe's nascent recovery. "I regard this interest rate move as too early," said Jean-Claude Juncker, chairman of the group of euro-zone finance ministers. He disputes one of the bank's key arguments: that the current abnormally high inflation rate of 2.5%, driven in part by oil prices of over $60 bbl., will spark demands for higher wages that will set off a cycle of price increases.

ECB officials point out that their benchmark interest rate of 2% is less than inflation and that high oil prices are probably here to stay. They're also keen to fire a shot at governments in France, Germany and elsewhere that have allowed budget deficits to soar. "I won't lean out of the window and shout that this will wreck the recovery," says Stefan Schneider at Deutsche Bank Research in Frankfurt. If he's right — and if Trichet is telling the truth about a limited increase — then the ECB decision may be the clearest sign yet that Europe's long-awaited upturn has arrived.

• PETER GUMBEL
• Europe disagrees over plans for 'inflation-busting' rate hikes