Europe defies calls for rate cut

European markets reacted nervously to the Fed's cut

European economic policymakers reacted defiantly to Wednesday's quarter-point cut in US interest rates, arguing that Europe does not need a further monetary boost.

Ernst Welteke, president of Germany's Bundesbank, said on Thursday that while the global economic environment uncertain, the eurozone was the only one of the world's big three regions still to have robust growth.

This would make it "inappropriate" to cut rates at the European Central Bank (ECB) governors' meeting next week, Mr Welteke said.

The Fed did what was necessary for the US and we will do what is necessary for Europe

Otmar Issing, ECB chief economist

European markets did not seem convinced: the euro fell below 85 US cents in early trading, a drop of some 1%, and stock prices dipped before being drawn back up by positive corporate news.

Although the ECB is still sticking to its 2-2.5% eurozone economic growth target for the year, more evidence of slackening growth is emerging.

Lack of confidence

A monthly survey of 4.500 French firms, published by statistics office INSEE, found that business confidence in France fell to a two-year low in June.

The announcement has all-but eliminated hopes for a strong result when INSEE publishes its economic growth forecasts late on Thursday.

Once predicted to return 3% economic growth this year, France is now believed unlikely to make even 2.5%, according to finance minister Laurent Fabius.

The French news came after a lengthy run of gloomy economic figures from Germany, Europe's biggest economy.

Fighting back

But officials claimed not to be disheartened.

Didier Reynders, chairman of the eurozone finance ministers' working group, acknowledged that "there are some problems with growth in some countries".

But he stressed that the region had enough growth capacity to be able to shrug off a slowdown in the US.

Duisenberg: Unruffled by Fed action

Others focused on inflation, which has been easing in the eurozone in recent months.

ECB chief economist Otmar Issing said that the most recent inflation data for Germany and Italy were "less negative".

Asked whether the ECB would follow the Fed's lead, Issing said: "The Fed did what was necessary for the US and we will do what is necessary for Europe."

Over the last few days, the ECB has been leading a campaign to rebut pressure to cut rates.

ECB president Wim Duisenberg has made a series of statements in defence of leaving rates unchanged again.

The ECB's key interest rate is currently 4.5%.