GHENT, Oct 20: The European Union is seeking to pressure the European Central Bank into cutting interest rates but the ECB appeared to win a war of words over the issue at the EU summit in Ghent, Belgium.

Although at the end of Friday’s summit both sides agreed on the possibility of an interest rate cut under the current economic trends, the tension was evident in the negotiations on a final EU statement, observers said.

The ECB has been under pressure from EU governments to loosen the monetary reins after the September 11 attacks on New York and Washington hammered EU economies already weakened by a US slowdown.

But the push by the governments failed to dent the ECB’s independence.

The head of Germany’s Bundesbank, Ernst Welteke, who is also a member of the ECB council, was reported in Saturday’s International Herald Tribune as saying the EU leaders had clearly overestimated the possibilities of the bank to influence economic developments.

The EU leaders, whose room for budgetary manoeuvre to stimulate their slumping economies is strictly limited by a growth and stability pact, had been expected to endorse a statement saying they “noted that reduced inflation should provide room for monetary authorities to take further decisive action”.

But that statement was rejected and after intense negotiations among the EU leaders, the earlier, more pointed proposed call for lower interest rates was watered down.

The final, softer version read: The Council (of EU leaders) noted that a further improvement in inflation prospects and the maintenance of wage restraint would provide room for manoeuvre for monetary policy.

The EU statement was presented at a news conference by Belgian Finance Minister Didier Reynders, whose country currently chairs meetings of the EU and the Eurogroup, an informal body which groups finance ministers of the euro zone’s 12 member countries.

ECB President Wim Duisenberg, seated on the dais with Reynders, said he was pleased with the final statement.

It’s perfectly in line with our monetary policy, said Duisenberg, who was presenting a report on the launch of the euro banknotes and coins.

Duisenberg recalled that inflation was currently forecast to fall below the bank’s two-percent target ceiling in early 2002.

Although the central bank cut its key refinancing rate a half point to 3.75 per cent on September 17, in a surprise coordinated move with the US Federal Reserve and other central banks, several countries have pushed for additional reductions.

But the ECB has steadfastly resisted the political squeeze, explaining that any yielding to outside interests would harm its credibility and limit its room for manoeuvrability.

Despite the apparent harmony on the final wording of the text, German Chancellor Gerhard Schroeder, speaking on the sidelines of the meeting, publicly chastised the ECB but steered clear of a direct call for an interest rate cut.

I am more than respectful of the ECB’s independence. Its policy is always reasonable. But it could still be more reasonable, said the leader of Europe’s largest economy, hard-hit by the economic downturn.

In their statement, the EU leaders confirmed their commitment to the pact that underpins economic union.

Despite the effects of the attacks against the United States, they said: It is important to stress that the outlook remains positive and that there will be no departure from the economic policy strategy of the EU.

Belgian Prime Minister Guy Verhofstadt said the leaders were maintaining “cautious optimism” about the near-term economic situation.—AFP