Europe Stuck In First As World Speeds Up; ECB may reduce rates, but structural reforms are needed, experts say.(A)

Byline: JED GRAHAM

In the U.S., where the economy grew at a 6% pace in the second half of last year, the Federal Reserve is holding interest rates at a 45-year low of 1%. In Germany, where second-half growth was a meager 0.8%, the European Central Bank's key rate is twice as high.

While the interest-rate differential is just one reason for the growth disparity, a tighter monetary policy in the world's slowest-growing major economy doesn't seem to add up.

"Interest rates are really too high given what their growth has been," said Nariman Behravesh, chief economist at Global Insight.

One big factor restraining the ECB is that it sets rates for the entire 12-nation region, not just Germany, the region's largest economy. And while euro zone growth has been slow, it's still stronger than in Germany alone.

Despite a growing clamor for a rate cut, most economists expect the ECB to hold tight at Thursday's meeting. Many expect a rate cut by June unless the economy starts taking off.

But even those who want a rate cut don't think it would be a panacea. Inflexible labor markets, slow productivity growth and aging demographics will keep a low ceiling on growth.