ECB leaves euro rates alone despite problems

The European Central Bank last night risked arousing fresh wrath in Germany when it ignored the mounting problems in Euroland's biggest economy and left interest rates in the single-currency zone on hold.

The ECB had hinted in advance of yesterday's interest rate-setting governing council meeting that it was likely to keep its key rate at 3 per cent while any move yesterday would have been seen as a deliberate slap in the face for the former German finance minister, Oskar Lafontaine, who had been pressing for a cut ahead of his resignation last week.

Analysts said they had not been expecting a change because any move so soon after the departure of the ECB's most vocal critic would have been viewed as overtly political and undermined the ECB's own arguments that structural reforms rather than cheaper borrowing were the key to economic growth.

However, yesterday's Ifo survey of the German business climate showed a sharper than expected decline in optimism, the ninth successive monthly fall; it is likely to strengthen the hand of those, especially in Germany, who have been calling for rate cuts.