The European Central Bank has cut its key interest rate to 1.5% from 2.0%

Jean-Claude Trichet, President, ECB
Overall inflation rates have decreased significantly and are now expected to remain well below 2% over 2009 and 2010.


Euro rates hit record low of 1.5% .The European Central Bank (ECB) has cut its key interest rate to 1.5% from 2.0%, the lowest since it started setting euro rates in January 1999.

It followed a cut in UK rates by the Bank of England. US and Japanese rates are, in effect, already at zero.

At a news conference, ECB president Jean-Claude Trichet slashed his forecasts for eurozone growth.
The ECB is now predicting GDP this year in the 16-nation bloc will shrink by between 2.2% and 3.2%.

Its last prediction, made in December, was that growth would be between no change and a fall of 1% in 2009.

For 2010 it was predicting growth of between 0.5% and 1.5%. It is now forecasting growth of between 0.7% and minus 0.7%.

Non-standard measures

The revisions reflect Mr Trichet's view that the global economy has "weakened substantially in recent months" but that it will "gradually recover" in 2010.
But there were no new measures announced to help stimulate the eurozone economy, with Mr Trichet stressing that he was already using various "non-standard measures" and saying that the ECB's rate-setters were considering various others.

Slowing growth was confirmed by revised economic growth figures issued earlier on Thursday.

GDP for the last three months of 2008 was down 1.3% from the same quarter of the previous year, worse than the initial estimate of 1.2%.

The figure for the previous quarter was left unchanged at a 1.5% fall.

Thursday's decision was the ECB's fifth rate cut since October 2008, which has brought eurozone rates down from 4.25%.

Mr Trichet said that interest rates could still fall further from their current level, although he pointed out that they are already at a very low level.

He also said that inflation would stay below the ECB's target of below, but close to, 2%.

"Overall inflation rates have decreased significantly and are now expected to remain well below 2% over 2009 and 2010,"

Europe's major economies said a global solution was needed to the current financial crisis.

Capitalism must be given new moral foundations
Nicolas Sarkozy
French President
German Chancellor Angela Merkel highlighted that leaders faced an "extraordinary international crisis".
But leaders including UK Prime Minister Gordon Brown warned against reverting to protectionism in such a difficult economic climate.

The Berlin gathering is a precursor to the next meeting of the G20 group of major developed and developing countries in London on 2 April, which aims to rewrite the rules of the global financial system.

French President Nicolas Sarkozy said participants at the London summit would bear a "historical responsibility" to reform the global system.

"We have to succeed and we cannot accept that anything or anyone gets in the way of that summit. If we fail there will be no safety net," he said.

What role can France and other European Union countries play towards encouraging the GCC and the rest of the Arab World to take an active role in finding ways to solve the crisis?
France has experience and knowledge of the constraints that apply in different parts of the region. It is time for responsibility and respect to be shown by all sides. In the past we have seen Europe taking the initiative and then the US or some of the countries from the Arab World taking the initiative. Today, we need a global approach where all these countries act together with one goal, that is taking concrete measures to show people in the region that a solution can be found. If the crisis is not dealt with seriously and collectively the consequences may touch everybody

'Supervision'

However, despite the encouraging words from key leaders, Czech Prime Minister Mirek Topolanek, whose country currently holds the EU's rotating presidency, voiced concern at what he saw as divisions between Europe's major economies.

"If I put it very tenderly, the divergence in opinions was rather big," the AFP news agency reported him saying as he headed back to Prague.
"It was obvious that the four countries representing the EU in the G20 [France, Germany, Britain, Italy] do not have the same opinion on a number of issues."

Mr Brown said there was a need to create an economy that is based on the "soundest principles", saying the world needed a "global new deal".

Leaders said there was a need for international institutions, including the International Monetary Fund, to play a greater role not just to help countries in financial trouble but to prevent countries from getting into such difficulties.

Mr Brown said leaders had agreed that the IMF needed access to at least $500bn (£348bn).

The comments in Berlin come amid ongoing volatility in world financial markets and uncertainty over the future of some of the world's key banks.

Ms Merkel said: "We are making a commitment that all financial markets, products, and participants - including hedge funds and rating agencies - are of course subject to supervision and regulation."

Details on such a plan need to be worked out before the meeting in London, she added.

Hedge funds, which typically attract wealthy private investors, have been criticised for their lack of transparency and oversight.
Bonuses

As well as greater supervision of all financial markets and instruments, leaders underlined the need to reassess the issue of pay at finance firms.

Mr Sarkozy added said people could "no longer tolerate the reward package system for traders and bankers".

There has been much criticism of bankers' bonuses, which have been high despite their bank's poor performance.

Different opinions
French, Italian, Spanish, Dutch, UK and German leaders are hoping to take a common approach at the London summit.

But analysts say reaching agreement among EU powers will not be easy.

Both Mr Topolanek and the European Commission have voiced concern at attempts by France, Italy and Spain to shelter their car industries from the effects of the downturn.

Mr Sarkozy has suggested that in order to secure government aid, French carmakers should move production out of their East European factories and back to France.