The President of the European Central Bank (ECB), Mr Wim Duisenberg, has blamed uncertainty, particularly over the prospect of war in Iraq, for yesterday's failure to cut euro-zone interest rates. Speaking in Frankfurt after the ECB's Governing Council left rates unchanged at 2.75 per cent, Mr Duisenberg said that the central bankers had discussed the possibility of a rate cut.

"The impediment to cutting rates is the uncertainty. We were afraid that, if we were to cut at this moment, it would be a drop that would drown in a sea of uncertainty," he said.

Mr Duisenberg said upheaval over who would lead the ECB this summer was regrettable and was bad for the new institution. But he stopped short of saying EU leaders should find a replacement for ECB heir-apparent and Bank of France Governor Jean-Claude Trichet. "I wish as little uncertainty as possible. Of course, I regret this process, in general terms, is dragging on for such a long time."

He declined to comment on whether EU leaders should look for alternative candidates, now that the French prosecutor has recommended a suspended jail term for Trichet, who is charged with colluding in faulty accounting in the near-collapse of Crédit Lyonnais bank a decade ago.

Mr Duisenberg said that the euro zone remained on course for recovery in the second half of 2003, adding that the ECB assumed the "high degree of uncertainty" would decline towards the end of the year.

The ECB has attempted to assess the impact of war in Iraq on the euro-zone economy, considering scenarios that range from no war at all to a prolonged and difficult campaign. But Mr Duisenberg said these internal studies were not sufficiently far advanced to present to the public or even to the Governing Council.

Despite the likelihood of continuing uncertainty, Mr Duisenberg kept open the prospect of a cut in interest rates within the next few months. He said that inflation was likely to fall below the ECB's target of 2 per cent during 2003, partly on account of the euro's recent rise against the dollar.

Mr Duisenberg struggled to conceal his satisfaction that the euro, rather than the dollar, was now considered a "safe haven" for investors. "If in the past there was geopolitical uncertainty, as we now euphemistically call it, the dollar was the safe haven for the world. Now it weighs on the dollar rather than boosts it," he said.