The German Chancellor promised yesterday to push through a massive package of public spending cuts in full, despite a hammering received by his Social Democratic Party (SPD) in two state elections on Sunday. Mr Gerhard Schroder ruled out making any changes to the plan, which will save the government more than 30 billion deutschmarks (€15.3 billion) next year, and said he was confident it would receive the Bundestag's backing.

"The level of savings and the fundamentals of this programme are not negotiable, as far as I am concerned. We need this programme to remain internationally competitive and to create jobs," Mr Schroder told the mass-circulation Bild newspaper. He faces a succession of regional elections in the coming weeks. Most opinion polls predict further losses for the SPD and its coalition partners in the Greens. Mr Schroder's best hope of survival as Chancellor is in Germany's modest economic recovery, which has yet to have any impact on the country's dole queues.

Yesterday's surprise interest rate rise in Britain raised fears that the European Central Bank may follow suit when its governing council meets in Frankfurt today. But most analysts expect Mr Wim Duisenberg and his colleagues will leave rates unchanged for fear of derailing the economic upturn in the euro zone's biggest economies. An interest rate rise could cripple Germany's recovery, especially if it is followed by a surge in the euro's value, which would rob exporters of their competitive edge.