Quiet Excitement Builds as ECB Looks Ready to Make History

Conditions seem ripe for a rate cut in the 11-country euro zone.
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FRANKFURT -- Against the backdrop of war in Kosovo, Thursday's meeting of the European Central Bank is not such a headline-grabbing event. And given that many analysts say a quarter-point cut is all but inevitable, the meeting here could prove a nonevent.

But even with the central bank exiting stage left, a quiet excitement is starting to build amid what could be the first attempt by eurothorities to adjust monetary policy for the huge region, which is comprised of 11 countries at disparate stages of the economic cycle.

The

Bank of England

, which has developed a penchant for rate cuts over the last seven months, may also trim rates on Thursday, although its decision would likely be an attempt to soothe the sputtering British economy. And Scandinavian central banks, particularly Denmark's, will likely follow ECB rates lower.

Conditions seem ripe for an ECB cut, and Germany, which makes up roughly a third of the euro area economy, is naturally near the center of debate. It doesn't take

John Maynard Keynes

to see why. Unemployment here is hovering around 11% and inflation -- always a German priority -- is nonexistent.

Also importantly, former finance minister Oskar Lafontaine, who harangued ECB President Wim Duisenberg to lower rates to stimulate demand in classic Keynes fashion, unexpectedly resigned last month. With the cantankerous minister replaced by the more conciliatory and less controversial Hans Eichel, the ECB can now avoid the appearance of caving into political pressure when cutting rates.

Duisenberg, who has stressed "price stability" since taking over setting monetary policy for the region on Jan. 1, has the unenviable task of balancing the needs of the zone's Teutonic motor with those of smaller, but faster-growing economies such as the Netherlands, Ireland and Spain. He has repeatedly stated that the current 3% refinancing rate is "appropriate" for the entire region.

Analysts, however, say it's hard for the eurobanker to ignore mounting evidence of slower growth in the region. Last week, the European Commission revised its forecast for 1999 euro zone growth to 2% from 2.6%. And both the

Organization of Economic Cooperation and Development

and the

International Monetary Fund

have recently called upon the ECB to lower rates.

"We've always said they'd like to get a cut in before the World Bank and IMF meetings this spring," says Allison Cottrell, euro area economist for

PaineWebber International

in London. Cottrell has been forecasting a rate cut on April 8 since December.

Oddly enough, the folks most likely to be affected by a rate decision seem to be the least fascinated with the central bank's move.

"Whatever happens tomorrow is rather meaningless," says Walter Schmidt, a fund manager for the Cologne-based

Gerling Investment Kapitalanalagesellschaft

. "The market has already priced in a quarter-point cut."

And if the ECB does nothing tomorrow? Schmidt said such inaction could rankle some, but most investors would simply point to the next ECB meeting, scheduled for two weeks from now, as a perfect time for a rate cut.