ECB chief says Nice No will not hurt euro

The President of the European Central Bank (ECB) has suggested that a second rejection of the Nice treaty would place the Republic outside the European mainstream. But he acknowledged that a No vote was unlikely to have a significant impact on the euro.

"On the euro, I think any impact would be negligible. But the Irish referendum, from a constitutional and institutional point of view, is extremely important. I do hope that the Irish this time will join forces with the mainstream of Europe," he said.

Mr Wim Duisenberg was speaking in Frankfurt after a meeting of the ECB's governing council left interest rates unchanged at 3.25 per cent. Mr Duisenberg defended the decision not to cut rates on the basis that the risks to price stability were balanced.

He said that money supply figures suggested that access to credit in the euro zone was more than adequate.

Mr Duisenberg acknowledged, however, that economic growth was more subdued than the ECB had expected and described the outlook as uncertain.

"This delay in the acceleration of economic activity in the euro area broadly corresponds with the world economic outlook, given that the expected pace of the recovery has been scaled down over recent months. Sharp declines in stock prices are having negative effects on consumer and investor confidence.

"Consequently, the strength of the upturn in economic activity has become more uncertain, both inside and outside the euro area," he said.

"At the same time, however, the conditions for a stronger economic recovery in the euro area remain in place."

Euro-zone interest rates have been unchanged for 10 months and European business groups are becoming impatient for a rate cut. Mr Christoph Leitl, president of Eurocommerce, the association of European chambers of commerce and industry, said yesterday that he saw no reason to hold back from cutting rates.

"I want lower interest rates now. It does not matter how much as it would be more to give a signal. The forecasts for growth are being lowered and I don't see any upswing," he said.

The ECB president admitted that many euro-zone citizens blamed the introduction of the euro for higher prices, especially in restaurants, hotels and for services such as hairdressing. But he claimed that real inflation was lower than the public realises.

"There is a general resentment among the public against the perceived inflation, which is distinctly higher in the eyes of the public than the measured inflation. It is not against the euro but the euro may be a scapegoat," he said.

Consumers in the Republic, Italy and Portugal have threatened to boycott shops because of euro-related price rises.

Italy's finance minister, Mr Giulio Tremonti, has called for the introduction of €1 and €2 banknotes to dampen inflation. Mr Duisenberg said that the ECB was considering the implications of introducing such notes.

Yesterday's meeting came amid mounting pressure to relax the Stability and Growth Pact that limits budget deficits in member-states.

A number of larger member-states appear unlikely to meet a 2004 deadline for achieving balanced budgets but Mr Duisenberg rejected calls for any change in the rules.

"I hear the voices here and there that call for the rules of the game to be changed. The ECB sticks to its policy, which says don't change the rules of the game when you have just started playing," he said.