German finance minister Mr Hans Eichel said last night that euro-zone finance ministers had agreed economic strategy in the current economic situation. Speaking ahead of a joint statement due at today's Laeken EU summit, Mr Eichel said the ministers had agreed to let budget deficits rise without breaching the Stability Pact.

He said the statement would reflect the scope for interest rate cuts as inflation fell. Mr Eichel's comments came as the European Central Bank (ECB) slashed its growth forecasts for the euro zone for next year to reflect the impact of a rapidly slowing global economy. It said growth would improve by the end of 2002. Economists said the projections appeared "realistic rather than overly optimistic for once" and boded well for an interest rate cut early next year to help bolster the forecast upturn. The ECB lowered its 2002 GDP growth forecast to 0.7-1.7 per cent from 2.1-3.1 per cent. It also reduced its forecast for euro-zone growth this year to 1.3-1.7 per cent, a substantial drop on the 2.2-2.8 range projected in June.