EURO-ZONE DECISION:THE EUROPEAN Central Bank (ECB) has cut interest rates for the first time in five years as part of a co-ordinated action by global central bankers to address the financial crisis.
The bank cut its benchmark rate by 50 basis points to 3.75 per cent yesterday in a move designed to ease the cost of borrowing and stem the loss of confidence on global markets.
"The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability," said the ECB when announcing the cut, which matched similar action in the US, Britain, Canada, Sweden and Switzerland.
China also announced a rate cut of 0.27 percentage points.
Last week the ECB governing council decided to keep interest rates on hold, but the deepening financial crisis and turmoil on global stock markets prompted the emergency action by central bankers.
There are growing fears that the euro zone may already be in recession as banks cut back sharply on lending, and companies and consumers tighten their belts as the economic uncertainty continues.
The growing sense of urgency about the state of the economy prompted EU leaders to issue yet another plea for calm and more co-ordination. "France and the European presidency are working on this global, co-ordinated response and in the hours ahead we will have concrete results . . . There can be no isolated response to the global challenges . . ." said Nicolas Sarkozy, who has called for a meeting this year of G7 leaders and the leaders of major emerging powers to tackle the crisis and reform global institutions.
British prime minister Gordon Brown, who announced a potential £500 billion rescue package for the banking sector, also called on world leaders to take concerted action to guarantee interbank lending.
In a letter to the leaders of the US, Germany, France, Italy, Japan and Canada, he called on them to issue "a set of national guarantees to a broadly similar design" to restore trust in the global market for interbank funding.
European Commission president José Manuel Barroso welcomed the British rescue plan and suggested that it was in line with European state-aid and competition rules. But in a speech to the European Parliament, Mr Barroso said he was not yet satisfied with Europe's response to the financial crisis, noting the regulatory framework was inadequate.
"We can and must do more. I urge member states to make a real effort at co-ordination," he said, noting that just a day earlier in Luxembourg finance ministers had blocked a draft directive that would have enforced more co-ordinated regulation of the insurance sector.
"It makes sense to remove the mismatch between a continental-scale market and national systems of supervision," said Mr Barroso, who announced the creation of a new high-level panel headed by a former International Monetary Fund managing director to advise the EU on long-term goals and create a "future architecture for the financial markets".
Mr Barroso also said he had set up a "crisis steering group" which includes commissioners Charlie McCreevy, Neelie Kroes and Joaquin Almunia as members.
