BERLIN, Dec 28: The European Central Bank does not rule out further interest rate cuts but remains focused on stability and continuity, European Central Bank President Wim Duisenberg told a German newspaper on Saturday.

The ECB slashed interest rates by a hefty half a percentage point in early December in a bid to shore up the waning confidence of euro-zone consumers and business.

We are always flexible on this... but we are also focused on stability and continuity, Duisenberg was quoted as saying in an interview with Bild am Sonntag newspaper released ahead of publication on Sunday.

Duisenberg said he expected the inflation rate in the euro zone to remain under two per cent in 2003 and 2004.

Our decision to cut rates was based on our analysis that the inflation rate in 2003 and 2004 would remain under our self-imposed limit of two per cent, he was quoted as saying.

The Dutchman said euro-zone growth should pick up in 2003, maybe in the first half, but it was vital that countries keep to the fiscal goals laid down in the Stability and Growth Pact of bringing budgets close to balance or in surplus.

Things will start to go upwards next year. Maybe even during the first half of the year, he said.

No one should call this pact into question. The consequences for the stability of the European economy and currency would be fatal, Duisenberg said.

Eight of the euro zone’s 12 member countries have met the targets, but Germany, France, Italy and Portugal are still struggling to bring their deficits below three percent of Gross Domestic Product (GDP).

The European Commission has proposed fine tuning the implementation of the Stability Pact but not changing its deficit limits.

Asked if he thought it made sense to cut taxes and increase government debt to help boost demand, Duisenberg said: That depends on a government’s budget situation.

Some countries, such as Germany for example, are facing a great challenge to meet the conditions of the Stability Pact. However, its debt is continuing to rise too strongly. There is no room for these kind of measures there, he said.

Germany could only lower taxes if it cut spending, he said.

The central bank chief said he did not see the impetus for growth coming from any country in particular, rather it would come from improved consumer conditions in Europe.

We don’t see any engine for growth in Europe. Unfortunately it won’t be America either. We are also convinced that the inflation rate will fall significantly in the first half of the year. That means the purchasing power of the euro will increase and with that the (purchasing power of) the consumer.

He said overcoming uncertainty played a key role in encouraging growth.

Psychology plays an important role... removing people’s uncertainty — not just in Germany, but in the rest of Europe and America.

Our job as a central bank is to contribute as much as we can to reducing uncertainty. People should feel that we have a stability-oriented and reliable currency policy, he said.—Reuters