European confidence falling

THE PRESIDENT of the European Central Bank has cited faltering European consumer confidence as the reason for recent interest-rate cuts in the euro zone. Speaking in Brussels, Wim Duisenberg played down the risks of deflation, but strongly defended the cuts made last week.

Mr Duisenberg said: "One of the main motivations behind the recent decision to lower interest rates was a faltering of confidence, predominantly in the business area, and in some countries' private households."

Addressing the European Parliament's economic committee yesterday, the ECB president said there was no risk of deflation, even though euro zone inflation was just 1 per cent in October. "We see no risk of that developing into an inflation figure that might be called deflationary," he said.

Mr Duisenberg said euro zone economic growth was expected to slow to 2.4 per cent in 1999 from 2.8 per cent this year, but that the general view was that the slowdown would be temporary.

"It is expected that growth might slightly accelerate again in the course of the year 2000," he said, adding however that such a forecast had to be treated with care.

Strengthening the case for interest-rate cuts, Mr Duisenberg pointed to Ireland's ability to reduce the cost of lending while controlling inflation. The country's progress was "remarkable and also gratifying," he said.

Mr Duisenberg's comments coincided with the release of unexpectedly poor German unemployment figures, which fuelled fears of a sharper-than-expected slowdown on the Continent. According to official figures, Germany's jobless total rose by 4,000 in November to 4.11 million. Analysts had been expecting a fall in unemployment of 30,000.

The poor figures underlined the scale of the problem facing Chancellor Gerhard Schroder with his Alliance for Jobs initiative, analysts said.

The initiative, launched on Monday, is intended to tackle Germany's immense structural unemployment problem and bridge the wide gap between employers and unions.

Bernhard Jagoda, president of the government's Labour Office, welcomed the Alliance but said there were no instant solutions to the joblessness problem. "You can't expect unemployment to be halved after a three-hour meeting," said Mr Jagoda.