European Central Bank President Jean-Claude Trichet said threats to the euro region’s economy have “intensified” and inflation risks have eased as the region’s debt crisis worsens. The economy faces “particularly high uncertainty and intensified downside risks,” Trichet said at a press conference in Frankfurt today after the ECB left its benchmark rate at 1.5 percent. The ECB cut its growth forecasts for this year and next, and Trichet said inflation dangers are “broadly balanced.” Last month those risks were on the “upside.” The spreading debt crisis is sapping confidence in European banks and driving up market borrowing costs, prompting economists such as Nouriel Roubini and Nobel Prize winner Joseph Stiglitz to urge the ECB to quickly cut rates. The central bank raised rates in April and July to combat price pressures. The euro slipped after Trichet’s remarks, falling as low as $1.3987 from $1.4043 before the press conference. The yield on Germany’s benchmark 10-year government bond fell 8 basis points to 1.828 percent. Since the July rate increase, the debt crisis that had already engulfed Greece, Portugal and Ireland has spread to Italy and Spain, the region’s third and fourth-largest economies. That forced the ECB to start buying Italian and Spanish bonds on Aug. 8. Investors have increased bets that the ECB will cut its key rate by the end of the year, Eonia forward contracts show. Global Recession Fears of a renewed global recession have caused stocks to tumble around the world and forced Japan and Switzerland to intervene to stop their currencies appreciating as investors seek havens. Other central banks are refocusing on supporting growth. Yesterday the Bank of Canada said there is a “diminished” need for it to raise interest rates, Sweden’s Riksbank abandoned a planned increase and the Reserve Bank of Australia signaled it is prepared to keep rates on hold. The Bank of England will be forced to add stimulus within months, Citigroup Inc. and Goldman Sachs Group Inc. say. The U.K. central bank today kept its key rate at a record low of 0.5 percent and left its bond-purchase program at 200 million pounds ($320 billion). To contact the reporters on this story: Gabi Thesing in London at gthesing@bloomberg.net; Jana Randow in Frankfurt at jrandow@bloomberg.net To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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