ECB leaves interest rates unchanged

BERLIN -- The European Central bank left interest rates unchanged on Thursday, holding off on a step many economists think the eurozone's chief monetary authority will eventually take by year-end to support a weakening economy.

Markets waited for bank head Jean-Claude Trichet's last news conference to see whether the ECB would announce new measures to support shaky banks under pressure from the Greek debt crisis.

The bank's 23-member governing council left the refinancing rate at 1.5 percent. Some economists had expected a rate cut because of signs of slowing growth in the eurozone economy.

Most think the bank waited this month because the latest inflation figures were higher than expected and it typically likes to signal rate moves at least a month ahead of time. It hadn't done so ahead of Thursday's meeting. Rate cuts tend to boost inflation.

Trichet will turn the job over to Bank of Italy head Mario Draghi at the end of the month. But the European debt and banking crisis means his last days in office are not offering any chance for a leisurely goodbye.

Markets are now waiting to see if Trichet will announce at the news conference additional measures to steady Europe's banks. Possible steps include opening the central bank's credit window and offering unlimited loans to banks for six or 12 months or both. Normally the longest lending period is three months. The bank loaned (euro) 49.75 billion ($66 billion) to 114 banks in August as an anti-crisis measure.

Eurozone leaders fear the effects on their banking system from Greece's debt crisis. A default on Greek bonds could inflict losses on the banks that hold Greek bonds. Those default fears are keeping banks from lending to each other for fear they won't get paid back, leaving some European banks dependent on ECB credit to keep running.

Experts and investors are increasingly resigned to the view that Greece will eventually default on its debts. The country faces bankruptcy if it does not get its next (euro) 8 billion installment of money under a 2010 bailout; the European Commission, International Monetary Fund and ECB say a decision won't come until the end of the month.

European Union finance ministers have asked the bloc's banking supervisor to draw up a report on banks' capital levels, a European official said Thursday, amid fears that the worsening debt crisis could trigger another credit crunch.

Banks' ability to survive steeper losses on Greek debt will be one of the scenarios assessed in that report, the official said.

German Chancellor Angela Merkel said Wednesday she was in favor of a coordinated recapitalization of European banks if that was deemed necessary.

European officials have already agreed to give their (euro) 440 billion bailout fund the power to bail out troubled banks. But the changes agreed in July are still awaiting votes in some national legislatures, and the spread of the crisis has led many economists to conclude the fund is too small to effectively reassure markets.

That delay leaves the ECB reluctantly holding the line against the crisis. It has bought Italian and Spanish government bonds, keeping those countries borrowing costs from rising because of market contagion from Greece. Greece, Ireland and Portugal all had to turn to the eurozone countries for bailouts because rising interest rates and fears of default left them unable to affordably refinance their debt burdens. Those countries are small enough to bail out, but Italy, the No. 3 eurozone economy, is too large for that.

The ECB has said it expects the eurozone bailout fund, the European Financial Stability Facility, to take over the bond purchases as soon as it can.