Brussels, 05/12/2002 (Agence Europe) - On Thursday, the European Central bank (ECB) decided to cut interest rates by 0.5% during its Governing Council. The interest on the marginal lending facility has been reduced to 2.75% from 3.25% (as from 11 December) and the interest on the deposit facility has been reduced from 2.25% to 1.75% (as from 6 December). ECB interest rates are now at their lowest levels since November 199. This is the sixth cut in interest rates by the ECB since the introduction of the Euro in January 1999 and the first revision to interest rates since 8 November 2001. Chancellor Schröder also welcomed the decision, declaring that it would help relaunch growth in Europe. The President of Eurogroup, the Greek Minister of Finance, Nikos Christodoulakis welcomed the decision stating in Athens that it was something that would help to stimulate European growth even more.
Confirmation of sluggish economic activity in Europe (see EUROPE yesterday p 7) has clearly persuaded the ECB to stop worrying so much about the hesitant fall in inflation in the Euro-zone. President Wim Duisenberg stated that since the last meeting in November arguments in favour of a cut in interest rates had been enhanced. He also declared that there were more indications that inflationary pressures were slackening off due in particular to the slow down in the economic recovery. He also explained that the risks of economic growth contacting had not gone away and that the most recent survey demonstrated that confidence in the economy remained "lacklustre". He explained that this rather disappointing scenario was mainly due to a high degree of uncertainty: geo-political tension (their effects on oil prices), developments on the financial market and the feeble growth in the world economy but admitted that inflation would remain under 2% for some time (especially due to the rise in prices in services) and would fall below this limit next year. In the context f growth in the money supply M3 (which reached 7.1% last October), Mr Duisenberrg acknowledged that there was a lot of liquidity in the Euro-zone due to sluggish economic activity but that it was unlikely that this situation would cause prices to rise in the near future. The governing Council decided on the same day to keep their reference value for monetary growth at the same level, 4.5% of the broad monetary aggregate M3.
Agreement on the distribution of votes on the governing Council within enlargement perspective
Mr Duisenberg announced that his institution had found a way to reach an agreement on the voting methods at the Governing Council in view of enlargement. The solution consists of dividing the Governing council into three: the first will consist of representatives from the large countries, the second consisting of half the total number of countries and the third will deal with those that remain. The votes allocated to each group will be different but only the six member of the Governing Council will have a permanent vote. This new system will enter into force as soon as the Governing Council can count at least three new representatives, explained Mr Duisenberg - 21 members n all: 15 representatives from the central banks (as opposed to the current 12) plus 6 members of the governing council of the ECB. Other principles will include: the system of one country - one vote and one representative one vote will be maintained; the system must be sufficiently robust in order to avoid rule changes with every accession. A spokesman from the Belgian government added that the rotation system to be introduced risked giving too much power to the large Member States in the Euro-zone.
Mr Duisenberg outlined that the basic principles would be transposed in two or three weeks' time in a legislative proposal that the EU Council will have to approve. He explained that this reform was necessary in cases where members of the Governing Council became too numerous for taking decisions.