Italy yesterday slashed interest rates to their lowest level since 1972 in a bid to finally bring borrowing costs more in line with other founding members of the European single currency. With only 10 weeks to go before the euro becomes reality, the Bank of Italy cut its discount rate by a full percentage point to 4.0 per cent.

The Italian Treasury Minister, Mr Carlo Azeglio Ciampi, hailed the cut, saying the new currency would help spur economic growth and that the euro region had proved to be a haven of stability.

Economists said the cut was more than the market expected at this juncture but showed how much countries such as Italy needed to do before January 1st, 1999 when the euro starts trading.