Duisenberg rules out imminent interest rate cut

The president of the European Central Bank, Mr Wim Duisenberg, has ruled out any imminent cut in interest rates to accelerate economic growth across the euro zone.

Mr Duisenberg was speaking after attending the informal meeting of Europe's finance ministers where there was broad agreement that Europe's economic growth prospects have worsened and that it is likely to be 2003 before a recovery may materialise.

Downward revisions in growth estimates had prompted speculation that the ECB would consider cutting interest rates to stimulate the euro-zone economies, but this was dismissed by the Central Bank president.

"We regard the present monetary policy stance, including the level of rates, to be appropriate," he said.

The ECB president said that sticking to sound fiscal policies would also help lift the European economy out of the doldrums.

"If the authorities stick to the stability-orientated policies with determination, that would be the best way for confidence to be restored and the recovery to get under way."

At the meeting the ministers conceded that growth across the euro zone was unlikely to exceed one per cent this year, below the modest growth forecasts of 1.4 per cent. Mr Duisenberg said the much hoped for recovery will be "delayed" until the first half of 2003.

Europe's woes are largely due to a high level of uncertainty in markets, particularly the fall in stock prices, which has undermined the confidence of consumers and investors, he said.

The grim economic realities have put pressure on the euro-zone states to maintain control over the public finances and ensure that they do not incur deficits that would breach the stability pact.

Officials insisted there had been no talk of relaxing the terms of the pact, under which states that fail to comply with the rules can be fined up to 0.5 of a percentage point of their gross domestic product and have restrictions placed on their access to European funding.

There were indications that the cost of reconstruction incurred in Germany as a result of the floods this summer may be ringfenced, and so ease the pressure it is under to control its deficit. France joined Italy in urging a more flexible interpretation of the rules, with French finance minister, Mr Francis Mer, stating that any worsening in the tension over Iraq could cause a spike in oil prices that would present a further threat to the ailing European economy.

"You cannot be attached to a letter of an agreement, you have to be attached to the spirit of the agreement," Mr Mer told reporters in response to questions about his country's ability to meet deficit-cutting pledges. "To reduce economic policy to a single figure, it seems to be somewhat simplistic. You have to be pragmatic, to adapt to a world that is changing."

However, others within the bloc, including the Finnish, Dutch and Spanish ministers, stressed the pact remained essential to prevent undermining confidence in the euro. Portugal's finance minister, Ms Manuela Ferreira Leite, assured the meeting that her centre-right government would stick to a strict regime aimed at bringing its deficit within the required 3 per cent limit. It is currently at 4.1 per cent of GDP.