The European Central Bank (ECB) will not take charge of Europe's monetary policy until the euro is launched on January 1st, 1999, but its governing council is already gearing up for the role. The council's fortnightly meetings, which are attended by central bankers from each EMU member state, report on financial developments in Europe and beyond and pronounce on their significance for the euro area.

Until now, these reports have been relatively uncontroversial and upbeat, even if the ECB president, Mr Wim Duisemberg, occasionally adds his own, more robust gloss to the agreed text.

However, when the council meets in Frankfurt tomorrow, it will be in a dramatically changed atmosphere which left the central bankers looking increasingly isolated.

The victory of the Social Democrats in Germany's federal election on September 27th means that the overwhelming majority of Europeans have voted for governments that want a more relaxed monetary policy.

Mr Oskar Lafontaine, who is almost certain to become Germany's next Finance Minister, wants German interest rates to fall below their current level of 3.3 per cent. Moreover, he believes that monetary policy should be used to boost economic growth and create jobs as well as to keep inflation low and currencies stable.

The German Social Democrats are drafting a joint paper with members of the French government, aimed at creating a "political counterbalance" to the ECB. In addition, Mr Lafontaine responded sympathetically to a proposal by Italy's prime minister, Mr Romano Prodi, to use Europe's currency reserves, worth $120 billion, to fund a massive programme for growth and jobs.

The pressure to cut interest rates in the face of the world economic crisis is such that even the Bundesbank president, Mr Hans Tietmeyer, has not ruled out a further cut in German rates.

Mr Duisemberg has left little doubt that, when the ECB sets a single interest rate for the entire euro zone on January 1st, it will be close to the German level. If German rates fall during the next two months, the euro zone rate could be below 3 per cent, creating potential problems for member states with currently high rates, such as Ireland and Portugal.

Most of Europe's central bankers will be relaxed about the prospect of a low interest rate in view of the almost total absence of inflation in the euro area. However, they will be deeply unnerved by comments by Mr Lafontaine implying that the ECB should be subject to greater political influence.

He insists that he is a firm believer in the independence of the ECB but it is a fair bet that his concept of independence is a far cry from Mr Duisemberg's.

The new German government has made no secret of its intention to replace Mr Tietmeyer with a more pliable Social Democrat when the Bundesbank president retires next year. Mr Tietmeyer has been closely associated with the defeated chancellor, Dr Helmut Kohl. He is also an adherent to the orthodoxy according to which the sole purpose of monetary policy is to keep down inflation and keep the currency stable.

Central bankers insist that there is no trade-off between inflation and unemployment but this is a view that is shared by few political leaders in today's Europe.

Even some of Dr Kohl's supporters blame the Bundesbank for their recent election defeat, arguing that its strict monetary policy drove unemployment to record levels.

Mr Lafontaine, who follows Mr Helmut Schmidt's motto "better 5 per cent inflation than 5 per cent unemployment", is determined that his plans to cut the dole queues should not be stymied by a deflationary policy on the part of the ECB. He can rely on the support of France and Italy in any battle with Mr Duisemberg, whose austerity is as legendary as that of Mr Tietmeyer.

For his part, Mr Duisemberg can argue that the ECB has a statutory obligation to protect the new currency and that the institution's independence is protected by law.

However, as the world loses faith in financial institutions and calls for political leadership become louder, Mr Duisemberg's Frankfurt fortress could soon look a little less unassailable.