ECB under fire from rates rebellion

THE future of the euro was under scrutiny yesterday after the European Central Bank infuriated its members by cutting growth forecasts while refusing to slash interest rates.

It left rates at 2%, despite calls for cuts from the heads of some of Europe's biggest countries, including Italy, and an army of experts.

The decision helped lift the euro from eight-month lows, following the French and Dutch 'no' votes on the EU constitution. The currency was up a quarter of a cent against the dollar to $1.2287.

In a press conference in Frankfurt, ECB president Jean-Claude Trichet batted down questions on whether he had even considered a rate cut to revive the eurozone's struggling economies.

'If I was preparing for a rate cut, I will tell you something which would permit you to think 'they are preparing a rate cut',' he said. 'I'm not telling you anything which would be interpreted [as] preparing a rate cut.'

But the ECB also said it expected eurozone growth this year to be 1.4%, rather than the previously-expected 1.6%. It also lowered its inflation forecast for next year.

This undermined Trichet's previous claims that inflation is threatening EU economies. It was taken by some as a sign that he may soon give in to calls for rate cuts.

He urged consumers and businesses to spend more. 'It is time to consume,' he said. 'It is time to invest.'

But the collapse of the EU constitution may force the ECB to think twice about its recent policies.

Julien Seetharamdoo, international economist at Capital Economics, said: 'We still do not think it likely that any eurozone state will ultimately choose to leave [the euro].

'But because the idea has a superficial attractiveness, it could be mooted as a real possibility in some countries,' he added.