Central Bank, Euro Zone | featured news

As Cypriot politicians raced to find a new financial rescue plan ahead of a Monday deadline, tensions built in the streets of the capital. Residents withdrew what money they could from ATMs amid concern the banks could collapse.

The European Central Bank is prepared to cut off funding to Cyprus and let the Mediterranean island succumb to financial meltdown if it has to, confident it has unlimited firepower to protect the rest of the euro zone.

The data is likely to put pressure on the European Central Bank to cut interest rates at its next meeting.

The euro zone economy shows little sign of recovering before the year-end despite an easing of financial market conditions, European Central Bank Mario Draghi said on Thursday after interest rates were left at a record low.

Britain is pushing for changes to a proposed euro zone banking union to dilute the power of the European Central Bank, EU officials said, potentially hampering efforts to build the infrastructure urgently needed to underpin the euro.

Markets and the euro rose after Mario Draghi reportedly told a conference in London that the central bank would “do whatever it takes to preserve” the currency.

Inflation in the euro zone fell to its lowest level in more than a year in May, giving the European Central Bank more leeway to stimulate the flagging 17-nation economy as the intensifying debt crisis takes its toll on confidence.

The central bank also said it would maintain its program of low-interest lending to euro-zone banks through the end of the year.

The European Central Bank stepped up pressure on Thursday for a joint fund to guarantee bank deposits in the euro zone, saying Europe needed news tools to fight bank runs as the bloc's debt crisis drives investors to flee risk.