The European Central Bank, which sets monetary policy for a dozen European nations -- including Germany and France, in which economic growth has all but vanished -- cut its key short-term interest rate by half a percentage point yesterday.
But analysts in Europe and the United States, some of whom had been urging the ECB for many months to cut rates, said the bank's action is unlikely to provide much stimulus for the European economy in the short run.
"Frankly, we do not think it matters two hoots to the economy where the ECB puts rates," said Carl B. Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y. "The economy is flat in the current quarter, and it will be flat or contract next quarter. Nothing the ECB can do can change that now."
Some officials in the Bush administration and at the Federal Reserve, the U.S. central bank, have been hoping that both Europe and Japan would pursue more stimulative policies to get their economies growing more rapidly. That would be likely to increase foreign demand for U.S. exports of goods and services, which would help boost growth in this country.
The ECB Council, that bank's top policymaking group, had not reduced its key rate in more than a year despite a gradual drop in growth and growing political pressure to act. But the sole mandate of the independent ECB is to keep prices stable, which the council has said means keeping inflation below 2 percent. Unlike the Fed, the ECB has no legal responsibility for maintaining growth and employment.
But parts of the ECB statement explaining why rates were reduced could just as well have come from the Fed.
"Recent information has strengthened the evidence of a decline in inflationary pressure," the statement said. Citing a new estimate that growth in the euro area was only 0.3 percent in the third quarter and that both business and consumer confidence are low, the statement added: "It is expected, therefore, that economic growth will also remain subdued in the coming months.
"This disappointing picture mainly reflects the persistently high degree of uncertainty," the statement continued. "Geopolitical tensions with potential consequences for oil prices, developments in financial markets, the sluggish growth of the world economy and the persistence of global imbalances are all factors" hurting confidence, consumption, investment and the labor markets, it said.
"We think the subtext to the decision is that euro-zone GDP growth is clearly unacceptably slow," said economist David R. Malpass of Bear Stearns Cos. in New York. "In fact, of the major economies, euro-zone GDP thus far in 2002 has been the slowest. Even Japan's GDP growth over the first three quarters of this year has exceeded that in the euro zone."
Malpass said his firm is pleased with the rate cut, "though we think Europe's growth rate depends more on Iraq, U.S. growth and European structural reforms" than on the level of short-term interest rates.
The ECB uses a different operating procedure than the Fed to add money to its banking system, but both approaches focus on establishing a minimum rate at which financial institutions obtain funds. The ECB action yesterday lowered its target to 2.75 percent, still well above the Fed's target of 1.25 percent.