The European Central Bank told euro zone finance ministers at a Monday dinner that its interest rate rise last week was not one of a series, replying to concerns that further hikes would damage the nascent economic recovery.
The ECB defied opposition from politicians, businesses, trade unions and banks last Thursday when it raised interest rates for the first time in five years to 2.25 from 2.00 percent.
Euro zone finance ministers, who met ECB chief Jean-Claude Trichet on Monday for a working dinner, had no choice but to make peace while stressing that further rate rises could stifle economic growth. "It was important for me, also in bilateral discussions with the president of the ECB, that this was not the start of a series of interest rate increases, otherwise we would have difficulties, also for the economic recovery," German Finance Minister Peer Steinbrueck told a news conference on Tuesday. "This was confirmed again yesterday," he told reporters after his first meeting with fellow EU finance ministers.
Belgian Finance Minister Didier Reynders also said that euro zone finance ministers had got what they wanted from Trichet.
"Yes, it's not a decision taken by the bank to embark on a cycle of increases. It is a good thing to have this position," Reynders said on leaving the meeting late on Monday.
The ministers said they expected economic growth would pick up despite the ECB rate rise, but Austria's Karl-Heinz Grasser nevertheless took a swipe at the ECB for tightening the noose.
"I think 25 basis points is not much and not really impacting a lot but it was nevertheless the wrong signal," Grasser said.
But others were less worried. Giancarlo Morcaldo, head of research at the Bank of Italy, said ahead of the ECB's decision that the rate hike would cost Italy "a few tenths of a decimal point" of gross domestic product. In the first year, it would only affect short-term BOT bills which account for less than 10 percent of Italy's debt.
Ireland's National Treasury Management Agency said the cost could be at most 2.5-3 million euros because it had increasingly been locking into low-interest, fixed-rate, long-term debt.
Greek Public Debt Management Agency officials said the impact would be small as it concerned short-term debt, about 1.8 billion euros out of the 30 billion to be borrowed next year.
But financial markets expect another ECB rate rise in the first quarter of 2006, possibly in March.
The ECB has said it does not plan rate moves in advance and would evaluate data at each of its rate setting meetings rather than embark on a series of rises like the US Federal Reserve.