Some of us have been alarmed by the European Central Bank's apparent refusal to acknowledge that deflation (and its really, really bad economic consequences) is a genuine possibility. So it's reassuring to see the ECB start to follow the Fed's lead and move more aggressively to prevent it. According to today's Wall Street Journal, the bank is cutting its benchmark interest rate half a point to 1.5%, its lowest level ever. The Journal says another half-point cut is likely by June, and offers this intriguing nugget:

The ECB has been reluctant to take similarly unorthodox steps [like printing money and buying government debt with it, to lower long-term interest rates], in part because it has more room to lower its key rate further. But policy makers have signaled in recent weeks that their resistance to unconventional moves is waning. ECB president Jean-Claude Trichet may shed light on the bank's thinking in a press conference later this afternoon.

Options include expanding the range of collateral the ECB accepts for the short-term loans it makes to banks, purchasing euro-zone corporate debt directly or buying government bonds. The central bank could also lengthen further the tenure of the loans it makes to banks, which currently top out at six months. Longer-term loans could ease bank jitters about having enough cash on hand and spur them to lend more.

The newfound resolve apparently comes on the heels of a new ECB forecast showing the Euro-economy shrinking by 2 percent this year, versus the .5% shrinkage the bank predicted in December.

I'd be curious to see what Edward Hugh thinks of this over at Fistful of Euros. Hugh set off a minor panic in the blogosphere earlier this week with this extensive post.

--Noam Scheiber