European interest rate cuts reflect weaker mark

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The Independent Online
AS JACQUES DELORS yesterday presented EC leaders with a plan to tackle the European unemployment crisis, France led a wave of European interest rate reductions designed to counter the continental recession with an unusual reduction below official German rates, writes Peter Torday.

The move highlighted a growing view that Germany's recession, relatively high inflation and budget deficit crisis are undermining the anchor role of the mark in the European exchange rate mechanism. It also underlined the growing pressure on European governments to act over dole queues, falling orders and collapsing companies.

The French intervention rate was cut by a quarter point to 7 per cent, taking it below the 7.25 per cent German discount rate for the first time since 1991. The Netherlands, Belgium, Portugal and Austria all followed with small cuts.

The moves left the ERM relatively free of tensions, largely because a climbing dollar helped to weaken the mark against European currencies. Despite the mark closing 1 pfennig lower against the dollar at DM1.6880, speculation persisted that the Bundesbank would be forced to cut its rates soon to ease the deepening German recession.

Delors unveils jobs plan, page 10

Rate cut details, page 23

Hamish McRae, page 25