Speaking to reporters in Vienna, Austria on Friday, European Central Bank Governing Council member Klaus Liebscher said the ECB has to "do everything" to ensure price stability. Liebscher emphasized that economic fundamentals in the euro zone are "healthy" and that the ECB's rate increase will not harm growth in the monetary union.

With oil and food prices contributing to upside inflation pressures and expected to remain at high levels over the long-term, Liebscher refused to rule out even further inflation increases.

Referring to the ECB's decision to raise its main refinancing rate 25 basis points to 4.25% on July 3, Governing Council member Axel Weber was quoted by the German newspaper Südkurier as saying the rate hike was not preventive, but was in response to materializing medium-term inflation risks.

Speaking with the Luxembourg newspaper Tageblatt on Friday, European Central Bank Governing Council member Yves Mersch stressed that the ECB "takes seriously" the task of ensuring price stability. Referring to the ECB's rate increase on July 3, Mersch it would dampen inflation expectations. He called rising inflation expectations "dangerous". "Better to suffer a little pain today," Mersch was quoted as saying, suggesting that, if nothing was done now, the cost to bring down inflation later on would be even greater.

In another interview with Luxembourg newspaper d'Wort on Friday, Mersch dismissed the notion that the euro area was entering into a period of stagflation and called use to the term "hype".

Speaking with Dutch television channel RTLZ, ECB President Jean-Claude Trichet said inflation risks were seen "at the present moment" and that the rate increase would help to counter them. Weber stressed that the ECB had no exchange rate target. He added that the central bank is focused on price stability and said the increase in the interest rate would help ensure stable prices in the medium term.

In an interview with German economic newspaper Handelsblatt published on Friday, German Finance Minister Peer Steinbrueck said that despite higher interest rates possibly leading to an even stronger economic downturn, he would defend the independence of the European Central Bank to his "last drop of blood".

The Bundesbank reported that in seasonally adjusted terms, German factory orders declined further by 0.9% month-over-month in May, deepening the 1.7% fall recorded in April. Economists had expected a slight recovery of a 0.8% gain for the month. Meanwhile, April's figure was revised up from -1.8%. Without adjusting for calendar effects, factory orders fell 2.0% in June. Economists had expected orders to rise 2.0% following April's 15.2% gain, revised up from 15.0%.

The National Institute of Statistics (INE) reported that, adjusting for working days, Spanish industrial output declined by 5.5% year-over-year in May. Economists had expected a more modest drop of 1.0% following April's 0.2% rise, revised up from a decline of 0.2%. Without adjusting for seasonal trends, the drop in industrial production was even more pronounced. Output fell 7.3% in annualized terms, down significantly from April's 11.8% increase.

According to data from the French Finance Ministry, the central government deficit increased further to €50.0 billion for the year up to May, up from the €45 billion recorded in April. However, May 2008's deficit is lower than the level recorded in the first five months in 2007, when the central government deficit had reached €50.5 billion. The ministry also reported that the general budget balance saw a deficit of €31.0 billion, with expenditures in the year to May at €117.2 billion and revenues at €86.1 billion over the same period.

According to the Central Statistics Office (CSO), the Irish unemployment rate rose to 5.7% in June, reflecting an increase of 10,100 unemployed individuals who consider Ireland their primary place of residence. "By comparison, the average monthly increase in the seasonally adjusted Live Register during 2008 was 7,100 up to May," CSO said in a press release.

Statistics Denmark reported that Danish industrial output, excluding the production of ships, fell 3.9% on a monthly basis in May, down significantly from the 11.6% increase recorded in the previous month. April's reading was revised up from 9.6%. Year-over-year, industrial production growth slowed to 6.5% following April's 9.0% rebound.

Industrial orders, meanwhile, rose 14.9% in monthly terms in May, overshadowing the 1.5% rebound observed in April. In annualized terms, orders rose 36.7% following the 19.1% growth rate seen in April.

According to the Japanese Cabinet office on Friday, the leading economic index for May came in short of forecasts, scoring a reading of 92.6% compared to the consensus for an increase from 92.8% in April to 93.0%. The coincident index rose to 103.0% from 101.7%, however short of the expected rise to 103.5%.

JN Leading Index CI May Preliminary 92.6% vs. Exp: 93.0% Prior: 92.8%

JN Coincident Index CI May Preliminary 103.0% vs. Exp: 103.5% Prior:+101.7%

FR Central Gov't. Balance May -€50.1B vs. Prior: -€45.0B

DE Factory Orders (M/M) (SA) May -0.9% vs. Exp: +0.8% Revised: -1.7% Prior: -1.8%

DE Factory Orders (Y/Y) (NSA) May -2.0% Exp: +2.0% Revised: +15.2% Prior: +15.0%

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