It appears that the Governing Council of the ECB is reviewing the situation. From the Financial Times:
Jean-Claude Trichet, president of the European Central Bank, signalled for the first time yesterday that he was not entirely deaf to calls for an interest rate cut...
Mr Trichet said the ECB's governing council believed the current rate was appropriate, "and that if we move them we would not augment our faithfulness to our [price stability] mandate".
But analysts noticed a change of tone when Mr Trichet refused to say whether a cut had been discussed yesterday or might be a future option. The ECB "has given itself a kind of escape route in case things get significantly worse on the economy", said Julian Callow, economist at Barclays Capital.
Meanwhile, Reuters, UK reports that bond markets seem to think the escape route is the road the ECB will be traveling:
European Central Bank President Jean-Claude Trichet stuck to his guns on Thursday that lower interest rates were not on the agenda, but bond market yields suggest pressure on the central bank to ease policy is mounting...
The market, however, begs to differ. Ten-year German Bund yields hit a new record low of 3.21 percent, even after Trichet's comments.
The gap between the bond and the ECB's benchmark rate has dropped to around 121 basis points. That is the narrowest spread since June 2003 when the ECB cut rates by 50 basis points.
"Our short-end models have been signalling the need for a 50 basis points cut for many months. I think it will be a policy mistake not to cut rates, but that doesn't mean that the ECB will cut them," said Harvinder Sian, strategist at ABN AMRO...
"I don't think they will cut rates soon. There have been concerns about inflation risks that come from high liquidity that already exists in the system," said Richard McGuire, strategist at RBC Capital Markets.
"But the balance of risks are swinging towards a rate cut. Data have been deteriorating. They did not give much room for optimism."
For his part, Mr. Trichet indicated that if and when a rate cut is in the offing, we'll be the first to know. From Forbes' at-a-glance guide to yesterday's press conference:
"If I was preparing for a rate cut, I will tell you something which would permit you to think 'they are preparing a rate cut'. I'm not telling you anything which would be interpreted (as) preparing a rate cut,' he said.
A Fistful of Euros has more on the ECB decision. Edward at afoe also notes (with some skepticism) some noise from Italy about a possible departure from the euro system. (But see also this earlier post, identifying Italy as the key pressure point on the ECB.) If, however, you are looking for a little good news from Europe this morning, A Few Euros More has you covered.