The European Central Bank has slashed interest rates by half a per cent for the fifteen countries using the euro.
It is now at a two-year low of 3.25 percent.
The move, by ECB President Jean-Claude Trichet and his policymakers, is designed to breathe life into the euro zone economy as it faces its first recession
The bank made the decision against a bleak economic backdrop.
This week the European Commission said the euro zone is already in a technical recession and is predicting s economic growth will come to a virtual standstill next year.
Earlier the Bank of England had dramatically cut the cost of borrowing in the UK.
The record reduction, to three percent from 4.5 percent, far exceeded economists expectations.
Britain’s central bank is also trying to soften the blow of a sharp economic downturn.
In a statement it said the outlook for the UK economy had deteriorated markedly in the face of a slumping housing market, a steep decline in manufacturing and increased unemployment
New figures show British house prices fell by a record 15 percent in the year to October.
The Swiss National Bank also cut its rates by half a percent.