European Central Bank Leaves Key Interest Rate Unchanged

Posted January 12th, 2012 at 3:15 pm (UTC-5)
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The European Central Bank left its key interest rate unchanged at a record-low one percent on Thursday, as signs emerged that the continent's governmental debt crisis may have eased for the moment.

The continent's central bank had cut the benchmark borrowing rate by a quarter percentage point in each of the last two months in an effort to spur lagging economic growth. But bank president, Mario Draghi, said recent economic indicators showed “tentative signs” of stabilizing across the 17-nation bloc that uses the euro currency even as “substantial downside risks” remain.

Some economists say the bank may still need to cut its borrowing rate even further, especially if the eurozone slides into a recession this year.

Several debt-ridden European governments, including Italy and Spain, have embarked on unpopular austerity spending plans. Investors showed their approval Thursday, with European banks buying debt offered by the Rome and Madrid governments at sharply lower borrowing rates than the two countries had to pay previously. The banks in turn had borrowed the money from the central bank at its low interest rates.

Draghi said Europe's financially troubled governments are making “very substantial, very significant progress” in resolving their debt problems. The continent's governmental debt crisis is now in its third year.

A senior Greek finance ministry official said his government's negotiators may be able to reach agreement with the country's private creditors by the end of next week to cut in half the amount of money Athens owes them. It is an effort aimed at securing a new $165 billion Greek bailout and would cut the country's debt by about $127 billion.

Denmark took over the presidency of the 27-nation European Union Thursday. Danish leaders said they would work to include Britain in the EU's effort to craft a new treaty to control the spending of individual countries, even though the London government balked at the December agreement calling for changes in the pact.

Prime Minister Helle Thorning-Schmidt said Denmark, with its separate currency, would act as a “bridge of stability” as the EU drafts new treaty regulations over the next several weeks.