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Business

ECB Interest Rate Decision Could Hinder German Growth

As the ECB keeps interest rates constant, Germany’s new economic Super Minster has renewed calls for the European Central Bank to help its flagging economy by cutting interest rates.

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Wim Duisenberg, president of the ECB has keeps interest rates constant.

Germany’s Minister for Economy and Labor, Wolfgang Clement, made an indirect call on Friday to the European Central Bank (ECB) to lower its interest rates after the bank decided to keep monetary policy constant for the 12th month in a row.

Speaking at a forum of the Rationalization and Innovations Center for the German economy on Friday, Clement implied that the responsibility for German economic growth was not solely that of the German government and that the ECB should help by lowering interest rates in the eurozone.

"In order to have a consistent policy for growth and employment [in Germany], others have to do their homework, too," Clement told attendees at the forum in Berlin. "The tariff policy or European monetary policy is part of that," he added.

Despite flagging growth across the eurozone, Thursday’s decision by the ECB to keep its primary interest rate at 3.25 percent was in line with the Bank of England’s refusal to fall in with U.S. monetary policy. The U.S. Federal Reserve on Wednesday surpassed expectations by slashing its own interest rates by half a point to 1.25 percent in a bid to jump start growth.

Getting Germany spending

As Germany and other eurozone countries languish in the economic doldrums, European governments have been eager to get the public spending again.

Speaking to journalists in Berlin, the head of the Federation of German Trade Associations Michael Sommer joined the chorus of calls by German trade unions to put life back into Germany’s flagging economy.

"How long will politicians in Europe stand by and watch while the ECB pursues an interest rate policy that does nothing for job creation?" Sommer asked.

Cut in sight

But the admittance by the ECB that the decision by its 18-head policy-making council was difficult, has prompted rumors that a possible interest rate cut could come as early as next month.

Wim Duisenberg, president of the ECB, told the Financial Times that the discussions within the council were "extensive," but that "in the end the view prevailed that it would be wise to keep interest rates unchanged."

A cut would be good news for Germany, which has admitted it will exceed the 3 percent budget deficit allowed under the Growth and Stability Pact rules. Currently the country’s economic growth is crawling at some 0.3 percent. With unemployment figures at the four million mark and experts predicting no end in sight to Germany’s economic malaise, calls to change eurozone monetary policy are likely to grow louder every day.

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