ECB leaves rates at 3.25%

The European Central Bank (ECB) this afternoon left interest rates unchanged as it
refused to bow to intense political pressure to stimulate growth in the
eurozone.

Like the Bank of England earlier, the ECB declined to join the US Federal
Reserve (Fed) when it slashed rates by an unexpected half-point to reignite faltering
growth.

Rates in the eurozone have stayed on 3.25% since last November, despite sluggish
growth in Germany. Europe's largest economy is teetering on the brink of
recession, with inflation rates well below the ECB's 2% ceiling and could do
with economic stimulus in the form of lower rates from the ECB.

Economic data released today highlighted Germany's feeble economy. Numbers of those without jobs rose 22,000 last month - more than expected - to total unemployment of
4.1m.

"German economic growth is very weak, too weak to create jobs," said the federal
labour office president, Florian Gerster, adding that he did not expect the the
labour market to improve before the second half of 2003.

Both German and French officials have criticised the ECB for being overly
preoccupied with inflation. They believe there is room for lower rates to boost
growth.

The Austrian finance minister, Karl-Heinz Grasser, joined the anti-ECB chorus
when he implicitly criticised the ECB's decision by arguing that the difference
between the Fed's key interest rate and the ECB's was now too wide.

"Frankly, I think the gap between the Fed and Europe is too big now," he said.
"We are all responsible for a pro-growth strategy. That is concerning the
finance ministers, that must also concern the ECB."

But there was some defence of the ECB's reluctance to take its eye off
inflation.

"It seems to us that the lack of growth in the region has much more to do with
structural rigidities and the impact of the euro changeover (which should prove
temporary) than the ECB's monetary policy - Germany the big but only exception
to this," HSBC said in a research note. "Having said that, [ECB president Wim]
Duisenberg's press conference comments suggest the Bank is inching towards a
rate reduction."