GHENT, Oct 19: European Union leaders agree that lower inflation would give the European Central Bank more flexibility in setting monetary policy, according to a new draft statement obtained on Friday at a summit here.

The latest wording significantly softened an earlier statement proposed by the Belgian EU presidency, which had appeared to signal a showdown between frustrated EU member countries seeking relief for their slumping economies and the independent ECB.

The earlier draft text had said the EU leaders noted that reduced inflation should provide room for monetary authorities to take further decisive action, suggesting a pointed push for the ECB to cut interest rates again.

The new version was more oblique. They noted a further improvement in inflation prospects would provide room for maneuver for monetary policy, it said.

The draft economic text is one of three statements being prepared. One is to address the effects of the September 11, terrorist attacks in the United States and the US-led war in Afghanistan; the other will deal with the conversion to euro cash in the 12-nation single currency zone on January 1, 2002.

ECB President Wim Duisenberg is attending the summit to present a report on the launch of the euro banknotes and coins.

The ECB has been under fire to loosen the monetary reins after the attacks hammered EU economies that already had been weakened by a US slowdown.

The central bank, which in a surprise coordinated move with the US Federal Reserve and other central banks cut rates on September 17, has since been pressured by several European countries for additional reductions.

The bank has resisted political pressure, saying any yielding to outside interests would harm its credibility and limit its room for maneuverability.

ECB board member Domingo Solans said in Bilbao, Spain on Friday that the central bank’s monetary conditions are not obstructing growth in the euro zone.

The current level of interest rates in not prejudicing economic growth, he told journalists after a conference in the Basque city.

The ECB would continue to act in an independent way despite pressure from politicians, he insisted.—AFP