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European Union Cuts Interest Rates Before Euro Takes Hold

By Anne Swardson
The Washington Post

The central banks of the 11 European countries that will merge their currencies into one in less than a month unexpectedly cut interest rates Thursday in a coordinated response to sagging economic growth.

Political officials in France, Germany and elsewhere praised the rate reductions.

"These decisions, by their nature, reinforce the confidence in the European economy on the eve of the launch of the euro," said Yves-Thibault de Silguy, European Union commissioner for monetary affairs.

The European actions were welcome news for the Clinton administration, which has sought to ease global financial turmoil by encouraging the world's industrial countries to stimulate economic growth. Administration officials have been privately urging their European counterparts for weeks to follow Washington's lead in cutting rates. U.S. Treasury officials declined comment Thursday in apparent deference to the Europeans' assertions that the move was undertaken for Europe's own sake.

The rate cuts sparked a rally in European stock and bond markets. But U.S. stocks dropped and global markets were shaken by the news that Japan's economy continues to shrink and that Brazil's Congress voted late Wednesday to reject a key component of the government's economic reform plans, renewing investor concerns about the stability Although the Federal Reserve has eased U.S. rates three times since financial markets slumped this fall - and is not likely to follow the European actions with more cuts in the near future - France and Germany had not reduced rates for two years. Most other European nations have been cutting interest rates lately in order to bring them into line with those of France and Germany before the new currency is born on Jan. 1.

Euro bills and coins will not circulate for three more years, but in every other respect the euro will be the money of Europe in 29 days. Stock prices will be quoted in euros, government borrowings will be denominated in euros, and consumers will be able to write bank checks in euros.