European Central Banks Cut Key Rates

Europe’s key central banks slashed interest rates Thursday, following in the footsteps of the Federal Reserve in a campaign to reverse the world’s worst economic slowdown in a decade.

The European Central Bank and the Bank of England cut their main short-term rates by a half percentage point to 3.25% and 4%, respectively, matching the scale of the Fed’s move Tuesday.

Denmark’s Nationalbanken followed suit with a half-point cut. But the Swiss central bank bucked the trend and left rates alone, pointing out that it already had eased rates more than the European Central Bank.

European equity markets rallied on news of the rate cuts. German stocks rose 2.7%. Bourses in London and Paris gained 1.2% and 1.8%, respectively.

The European banks moved as plunging business confidence and a tide of job cuts since the Sept. 11 terrorist attacks have brought world economic growth to a standstill. Japan is already in recession, the United States is heading the same way, and Europe is teetering on the brink.

Mass layoffs have spread to the other side of the Atlantic, with the collapse of Belgian airline Sabena on Wednesday placing 12,000 more jobs in jeopardy.

“World economic activity had weakened further,” the Bank of England said, explaining its rate decision. “And evidence on the outlook now suggests that the global slowdown may be somewhat deeper and longer than previously thought.”

ECB President Wim Duisenberg was also in a somber mood and pointedly declined to rule out the risk of a recession--commonly defined as two consecutive quarters of negative economic growth.

Europe’s deep ties with the U.S. economy have hit demand for exports, and the Sept. 11 attacks sent its businesses and consumers into shock. Euro-zone business confidence hit a five-year low in October, industrial production is already in recession, and the fallout for consumer spending will be significant.

Job creation has halted in continental Europe, and unemployment in Germany, its largest economy, has risen every month but one this year and stands above 3.9 million.

The European Commission has lowered its official growth forecast for the 12-nation euro zone this year to 1.7% from 2.8%. But it publicly admits that growth will be about 1.5% this year and next.

Germany is in the worst shape, and its industrial output shrank by a worse-than-expected 2% from August to September, according to data released Thursday.