Papademos calls for lower euro zone interest rates

European Central Bank (ECB) President Jean-Claude Trichet said that the ECB council decision on 5 February defended the interest rate decision back on 15th January, although as anticipated the latest data has confirmed the forecast that the major trading partners of the euro zone have experienced significant problems in the face of the economic downturn.

As a result, Trichet has announced the expectation that inflation within the euro zone will support the purchasing power of euro zone households, since October 2008 the ECB has cut interest rates by 2.25 percent.

Despite this ECB Vice-President, Lucas Papademos, said that the inflation in the euro zone may actually reach zero by the end of the year, and has called for further easing which may be more appropriate in maintaining inflation over the medium-term and returning price stability.

According to the ECB executive board member Jose Manuel Gonzalez-Paramo, the bank could actually use quantitative easing as per the US model, although as Gonzalez-Paramo explained it is unchartered territory but does not mean that it would be an ineffective one.

Basing monetary policy on buying assets is not a particularly European venture but it does mean that there is difficulty in supporting a quick exit strategy.

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