The European Central Bank acted to soften a looming recession and avert a credit crunch by cutting interest rates and offering banks long-term funds on Thursday, as EU leaders prepared for a summit that could determine the fate of the euro zone. The ECB cut its main rate by a quarter-point to a record low 1.0 percent with anxiety over the worsening sovereign debt crisis drowning out concern about above-target inflation. ECB President Mario Draghi also announced unprecedented action to support Europe's cash-starved banks with three-year liquidity tenders and easier collateral rules. “The intensified financial market tensions are continuing to dampen economic activity in the euro area and the outlook remains subject to high uncertainty and substantial downside risks,” he said in a gloomy assessment. Draghi has signalled the ECB may act more aggressively to support government bonds if Friday's EU summit agrees to move towards fiscal union in the euro area. French President Nicolas Sarkozy dramatised the danger facing the 17-nation single currency area hours before their eighth crisis summit of the year in a speech to European conservative leaders in the French port city of Marseille. “Never has the risk of Europe exploding been so big,” he told leaders including German Chancellor Angela Merkel and the heads of the EU institutions. “The diagnosis is that the euro, which should inspire confidence, is not inspiring this confidence. The diagnosis is that we have a few weeks to decide, because time is working against us,” the French leader said. “If there is no deal on Friday, there will be no second chance.” European Commission President Jose Manuel Barroso used words reminiscent of the late U.S. President John F. Kennedy to appeal to EU leaders to put aside sharp differences and support their common currency. “What I expect from all heads of governments is that they don't come saying what they cannot do but what they will do for Europe. All the world is watching us and what the world expects from us is not more national problems but European solutions.” France and Germany used the Marseille meeting to lobby for their plan to amend the European Union treaty to toughen budget discipline, which they want to have ready by March. But several countries are sceptical. The often contradictory views were illustrated by two comments that came within a few hours of one another. France's Europe minister said the fate of the euro was at stake. “What that means ... is that the euro can explode and Europe come apart. That would be a catastrophe not only for Europe and France but for the world,” Jean Leonetti told Canal+ television. The chairman of euro area finance ministers said the 17-nation currency was not at risk. The euro gained on currency markets after the ECB decision but European shares pared gains in thin trading with investors sidelined by uncertainty over the summit outcome.
