European Central Bank (ECB) president Wim Duisenberg has virtually confirmed that future euro interest rates will be set at 3.3 per cent.
Mr Duisenberg told a European Parliament round table discussion that he expected euro short-term rates to converge "much closer" to those in a core group of countries - assumed to mean the 3.3 per cent repo rate prevailing in France and Germany - rather than an average for all those participating.
It is one of the most definitive statements yet by Europe's most senior central banker and confirms significant rate cuts here, in Spain, Portugal and Italy. All have rates much higher than 3.3 per cent and markets are waiting to see when they will make the necessary cuts.
Italy's discount rate is at 5 per cent, while the Irish rate is the highest at 6.19 per cent, with Spain at 4.3 per cent.
Mr Duisenberg and other officials at the ECB have made it clear there could be no justification for German rate rises in the cause of convergence.
But they have also repeatedly insisted they will not back global co-ordinated interest rate cuts in the name of market stability. This course could prove politically damaging when at least four euro countries would favour higher rates but cannot have them. But in reality a rate of 3.3 per cent is an effective cut. The average euro interest rate is closer to 3.8 per cent on a GDP weighted basis.
Mr Duisenberg also refused to give a definition of price stability yet for fear of giving the impression that the ECB had opted for inflation targeting as its key economic indicator in deciding whether to move interest rates.
The ECB president also said that this weekend's Ecofin meeting in Vienna should produce news on both the Danish krona and the Greek drachma, two so-called "pre-in" euro currencies.
Market speculation was that ministers might decide to fix the drachma and krona within 2.25 per cent bands to the euro in ERM-2 at the start in January, or at least at tighter bands than the current 15 per cent.
A Greek central bank official later confirmed the drachma would participate in ERM-2, retaining its present 15 per cent fluctuation band and present central rates against other currencies.
Danish Economy Minister Ms Marianne Jelved and EU sources said an agreement allowing the krona to move 2.25 per cent above and below a central parity rate against the euro in the coming ERM-2 exchange rate mechanism would be reached.
The Danish discount rate was raised by a half percentage point to 4.25 per cent and the repo rate was increased by one point to 5 per cent on September 18th.
