INTEREST rates may yet be lower and more stable than many had anticipated once the single currency gets underway, if recent pronouncements from the Bundesbank are to be believed.

This week a veritable bevy of senior Bundesbankers have been on the news wires pronouncing on the future of Europe's economies. Chief amongst them was president Dr Hans Tietmeyer who appeared confident that the euro-zone will enjoy low inflation, even when growth picks up.

Dr Tietmeyer is stressing that rates will be at the lower end of the spectrum and set by countries such as France, Germany, the Netherlands and Austria. That could mean European rates at below 4 per cent by the end of next year, or more than 2 percentage points off Irish interest rates.

Until the end of last week, the markets had been predicting a euro rate at around 5 per cent, a far less significant fall for the Irish economy.

However, as ever the Bundesbank left the markets guessing. Later in the week Bundesbank Council member Helmut Hesse said he saw inflationary dangers ahead and forecast that euro rates would be substantially higher than now, in other words above 4 per cent.

Nevertheless, the news is good for equity markets. The European markets have been heavily driven this year by the weak deutschmark and while it rallied very slightly after Mr Hesse's remarks few believe it will provoke a sustained rally.

But for Ireland and other States with higher interest rates, the clear message form Frankfurt is that there will be no averaging deal done and rates are set to fall substantially.