European Bank Holds Steady on Interest Rates

European Bank Holds Steady on Interest Rates
By JACK EWING
Copyright by The New York Times
Published: January 14, 2010
http://www.nytimes.com/2010/01/15/business/global/15euro.html?ref=global-home


FRANKFURT — The European Central Bank left its benchmark interest rate unchanged at a historic low Thursday, amid signs the region’s economy and banking system are still struggling back to health.

The bank’s president, Jean-Claude Trichet, said that while the region's economy is expanding, “We have a bumpy road ahead of us.” It was possible that economic indicators could be uneven from quarter to quarter, he said at a news conference following a meeting of the bank’s governing council.

The bank, which sets monetary policy for the 16 countries that use the euro, left its benchmark interest rate at 1 percent, where it has been since May. Many analysts do not expect the E.C.B. to begin raising rates until late 2010 or even 2011. Mr. Trichet’s comments Thursday are not likely to change that view.

Mr. Trichet, who was asked repeatedly about Greece’s attempts to tame its soaring budget deficit, indicated that the country cannot expect “special treatment” from the E.C.B. But he also dismissed as “absurd” the suggestion that any country would leave the euro zone.

In December, the central bank’s governing council said it would begin scaling back its huge lending program to euro-zone banks, which has helped avert a collapse in lending to business. Mr. Trichet pointed out Thursday that the European recovery is due in part to stimulus measures. “Some of the factors supporting the growth in real G.D.P. are of a temporary nature,” he said.

European growth, while recovering, remains spotty. Output in Germany, the euro-zone’s largest economy, was close to zero in the fourth quarter, the Economics Ministry said Wednesday.

But the European Union’s statistics office on Thursday reported that euro zone industrial production rose twice as much as expected in November, jumping 1 percent against October. Eurostat also revised upwards October’s data to a 0.3 percent decline from the previously reported 0.6 percent fall.

The French government said Thursday that it expects to nearly double its official economic growth forecast for 2010, which stood at 0.75 percent in the budget presented in September.

While France and other major European countries have emerged from recession, smaller countries — notably Greece and Ireland — are struggling to tame public debt as tax revenues slump. The European banking system also remains shaky, with institutions such as Germany’s Commerzbank still dependent on government support.