The ECB is set to take over the running of monetary policy on 1 January for the 11 countries joining the single currency, the euro.

Central bankers met to consider the first Europe-wide rate cut

Crucial to its success will be its ability to convince individuals and markets that it will be tough on inflation.

Now there are worries that the new central bank will be more vulnerable to political pressure than previously believed.

Oskar Lafontaine, the new German finance minister, has been urging the Bundesbank, and the ECB, to cut rates in order to boost Europe's economies and reduce unemployment.

And other socialist governments, like the French, share the same view.

If the ECB acted because of political pressures, that would contradict its founding statute which says that it should be politically independent in order to pursue its main objective of price stability, however painful that might be for the politicians.

Cuts justified on economic grounds

The ECB has argued that the interest rates cuts can be justified on economic grounds, and were not motivated by the need to placate Oskar Lafontaine.

Inflation in the eurozone is running at 1%, below the ECB's target of 2%. And low commodity prices are continuing to keep inflation in check.

Meanwhile consumer and business confidence in Europe is dropping, signalling that investment and spending may drop by more than expected in the next few months.

While the ECB has lowered its forecast for economic growth next year to 2.5%, some forecasters are now expecting a growth rate of under 2%.

After the ECB central council meeting on Tuesday, ECB president Wim Duisenberg said: "The most significant risk for all forecasts is that confidence within the euro area and thereby domestic demand could be negatively affected."

Adolf Rosentock, of Nomura International, agrees. "The economic fundamentals have deteriorated more deeply and faster than we thought," he said.

Some US policymakers believe that the eurozone countries have been remarkably complacent during the autumn about the global crisis, and that if anything, this move is too little, too late.

Greater political stability?

There is an argument that by taking pre-emptive action, the central banks have ensured that there will be no controversy over interest rates when the euro is actually launched in three weeks' time.

Not only have all the eurozone countries, (with the exception of Italy), managed to bring their rates into line, but also they have ensured that there is little to distract them from the difficult technical tasks of establishing the currency zone in January.

The ECB says that the new rate will stay "for the foreseeable future."

Thomas Mayer, European economist with investment bank Goldman Sachs, thinks the ECB may have got it right:
"It has cleared the way for the ECB, in that the ECB will now probably not come under pressure for further rate cuts for some time."

The head of the Bundesbank, Hans Tietmeyer, argued that the central banks made their move precisely to ensure stability of monetary conditions in an uncertain world.

Smoothing way

In another sense, however, the ECB was probably responding to broader political concerns.

The euro has not been widely popular in Europe, with at best a bare majority in Germany in favour of giving up the Deutschmark. By appearing to respond to popular pressure to do something about unemployment, the ECB is trying to ensure that people can give a positive answer to the question "What is the euro for?" at the time of its launch.