MEP's in Strasbourg voted yesterday in favour of proposals which set the upper limit of the European Central Bank's reserves (ECB) at 10%, and a lower limit of zero, as the importance of reserves as a instrument of monetary policy declines.

The German Christian Democrat MEP, Mr Karsten Hoppenstedt, said that ECB`s intention to impose a low reserve ratio and to insure that interest rates were closer to prevailing market conditions, would provide a zone of stability and competitiveness at a time of world economic turbulence.

An amendment allowing ECB deposits to be interest-bearing, allowing European banks to be as competitive as other financial institutions around the world in lending money, was also passed.

The Fine Gael MEP, Mr John Cushnahan, said that the measures were designed to make the ECB function more effectively.