Ill at Ease With a Stagnant Germany, ECB Takes a Cut at Rates

The central bank slashes the eurozone base rate by 50 basis points.
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The Germans have made themselves heard, loud and clear.

Facing double-digit unemployment and almost no inflation in euroland's key economy, the

European Central Bank

Thursday cut its key refinancing rate by a half-point to 2.5%. The easing marks the first time the eurothorities, led by ECB President

Wim Duisenberg

, have attempted the delicate act of adjusting rates for the large, and largely disparate, region.

The cut, which exceeded the quarter-point easing forecast by most central-bank watchers, comes as the larger euroconomies slow and the smaller ones percolate. It also comes against a backdrop of war in the region's back yard.

The Teutonic hand embodied in former German Finance Minister

Oskar Lafontaine

, who lobbied long and hard for a rate cut before his sudden departure last month, will be felt even in European nations that aren't part of the eurozone. Denmark, in particular, is sensitive to eurozone rates. The

Bank of England

, faced with its own slowing economy, eased earlier Thursday.

The euro, whose notes are still years from circulation, dipped on the news. U.S. Treasuries, on the other hand, were slightly firmer.

Unlike the U.S., where lower rates almost always push stocks higher, in Europe analysts fret that stock traders will push regional bourses lower, though some German ADRs traded in New York popped on the news. That's because the analysts say the central bank is unlikely to cut rates again later this year.

Unless, of course, growth slows even more.