The European Central Bank (ECB) has given the euro-zone's flagging economy a boost by cutting interest rates by half a percentage point to 2.75 per cent. But ECB president Mr Wim Duisenberg indicated that yesterday's rate cut will be the last for some time, writes Denis Staunton, European Correspondent.
And the ECB agreed a reform of voting procedures that would cost Ireland its permanent right to vote on interest rate changes.
Speaking after the ECB's Governing Council met in Frankfurt, Mr Duisenberg said events in the past month had reinforced the view that growth in the euro zone remained sluggish.
"Recent euro area-wide survey data suggest that overall sentiment in the economy remains lacklustre, with business confidence improving somewhat but consumer confidence falling further. It is expected, therefore, that economic growth will also remain subdued in the coming months," he said.
Mr Duisenberg blamed geopolitical tensions with potential consequences for oil prices, developments in financial markets, the sluggish growth of the world economy and the persistence of global imbalances for the downturn. But he warned that the ECB would remain alert to any threat of inflation.
"The key ECB interest rates have reached a very low level by historical standards. The Governing Council will continue to monitor closely all factors that may affect the prospects for inflation in the euro area," he said.
At its last meeting on November 7th, the Governing Council was divided over whether to cut interest rates but decided to leave them unchanged. Mr Duisenberg said yesterday that the argument for cutting rates had been strengthened since then.
"Since November 7th, there has not been any abatement of the uncertainty. I would say, rather on the contrary, more uncertainty than ever. There has been increasing evidence of this. Also we now have available not only our forecast, which by the way we will publish next week, but also others. And these have also increased our concerns about the sluggishness of the economic growth performance," he said.
Mr Duisenberg said the Governing Council had agreed the details of a reform of its decision-making procedures after the EU admits 10 new member-states. The new system would leave the six-member executive council with permanent voting rights and would create a rotating system to allow 15 out of a possible 25 member-states to vote.
"We wanted the reform in case the Governing Council becomes too large and unwieldy to take decisions effectively and efficiently. We wanted to start from a few principles; we wanted at all costs to preserve the principle of one man, one vote, which we have at the moment in the Governing Council. We wanted the reform to be transparent, we wanted it to be robust. We did not want to have to change the rules every time a new country enters the European Union."
But Mr Duisenberg added it was important that small countries should not be able to dominate the setting of interest rates at the expense of countries with a bigger share of the euro-zone's GDP. The new system will mean that Ireland will lose its permanent voting rights in the Governing Council.
"We will divide the total number of Governing Council members into three groups: one comprising the largest countries, a second group comprising one half of the total number of countries and the third group comprising the remainder. And the voting rights assigned to each group would differ. And the last principle which we happily maintained is that there is only one group that has a permanent voting right, and that is the Executive Board. So no country, or no other person or member of the Governing Council will have a permanent voting right, but no country will be out of the vote forever."
