The European Central Bank is pinning its hopes of keeping the euro zone economy out of recession with an interest rate cut and a new package of bank aid.
Setting the stage for a critical euro zone summit, the ECB reduced its key interest rate by 0.25 percent to 1.0 percent, reversing all of the increases in the last two years and taking it back to the record low reached during the financial crisis in 2009.
The financial markets are watching for any hint that the ECB will intensify its buying of euro zone countries’ government bonds to support the bloc’s struggling members.
The widely expected rate cut hours before a high-stakes EU summit which will aim to agree on a plan to defuse the crisis, with France and Germany pushing for rule changes to stricter budget discipline in the bloc.
The ECB, which euro zone officials say has been closely involved in drafting plans for tighter fiscal integration in the bloc, has pressed governments to toughen their budget rules and signalled it could do more to tackle the crisis if they deliver.