Rates cut
December 8, 2011
The European Central Bank (ECB) cut its key interest rates to one percent on Thursday, hours before EU leaders met in Brussels to hammer out a deal to save the euro.
Under intense pressure, the ECB's governing council acted to lower eurozone borrowing costs by a quarter of one percent.
The bank cut rates to the historic low of one percent in May 2009. They remained at that level until the end of 2010.
But the new ECB president, Mario Draghi, said there were no plans to deal to step up government bond purchases.
Draghi said he was "surprised" at the interpretation of remarks he made last week, when he said that "other elements" could follow a new eurozone debt deal.
The comments doused hopes that the ECB would take more agressive action, by ramping up its bond-buying program.
Draghi added that new forecasts from the ECB showed the eurozone's GDP could contract by as much as 0.4 percent next year, although it could also grow by as much as one percent.
All eyes on the ECB
The European Central Bank is the central bank responsible for monetary policy in the eurozone. Its mandate is to ensure price stability - which is interpreted as an inflation rate of no more than 2 percent per year.
Many see the ECB as one of the few bodies able to contain the eurozone debt crisis, which is threatening the very future of the single currency.
This move to cut interest rates was widely expected by investors, but there is pressure for the bank to print enough money to buy up the debts of eurozone countries. But the bank, strongly backed by Germany, is vehemently opposed to this. The ECB has already been buying up government bonds from troubled eurozone nations.
The announcement by credit rating agency Standard & Poor's that it has put the entire 27-nation European Union on downgrade watch has ramped up the pressure on Europe's leaders to act at a the summit in Brussels on Thursday and Friday.
French President Nicolas Sarkozy said there would be no "second chance" if the summit failed to agree a convincing solution.
Author: Joanna Impey (AFP, AP, Reuters)
Editor: Andreas Illmer