April 6 (Bloomberg) -- European Central Bank officials said they may use new tools to bolster the economy as finance chiefs, defending their efforts to stem the worst recession since World War II, failed to agree on an overhaul of banking supervision.

The ECB is studying what else it can do to revive lending and economic growth as interest rates approach a floor, council members Guy Quaden and Michael Bonello told Bloomberg News in Prague. “There is still room for maneuver and I confirm also that we are reflecting on other possible measures,” Quaden said. “When you’ve reached historically very low levels of interest rates” you have to “consider all the options,” said Bonello.

Central bankers and finance chiefs from the 27 European Union countries, who met in Prague on April 3 and April 4, were unable to push through a plan that would give the ECB greater power in banking supervision, illustrating the difficulties Europe faces as it tries to step up its response to the global financial crisis. The lack of a single treasury in the 16-nation euro region also restricts the options available to the ECB once it exhausts its leeway with borrowing costs.

Belgian central banker Quaden reiterated the ECB can still lower its benchmark rate further from 1.25 percent. Still, President Jean-Claude Trichet last week indicated 1 percent may be the floor and said a decision on new measures will come next month.

The ECB is lagging counterparts such as the U.S. Federal Reserve, the Bank of England and the Bank of Japan, which have cut their key rates to almost zero and are pumping money into their economies by buying government and company securities.

U.K. Resistance

Without a treasury to indemnify the ECB against the losses it might incur buying risky assets, some policy makers are reluctant to follow suit. Other options under discussion include offering banks longer-term loans to ease liquidity concerns.

The U.K. resisted a push for the ECB to run a committee that will monitor economic risks in the 27-nation bloc. Britain also rejected a plan to give new EU agencies the authority to overrule national banking and insurance regulators.

“We need a common front,” French Finance Minister Christine Lagarde told reporters during the meeting. Dutch State Secretary of Finance Jan Kees de Jager said: “We hope that in the next couple of weeks these hesitations will be overcome.”

Ministers also said it is “critical” that convergence on accounting standards is reached on the continent to ensure that the region’s banks are not placed at a disadvantage against U.S. competitors.

Deep Recession

The International Accounting Standards Board, which writes the rules used in Europe, must cooperate with the U.S. Financial Accounting Standards Board, the ministers said in a statement on April 4. A goal is to avoid “competitive distortions,” they said.

Europe may be sliding deeper into recession as the global slowdown, triggered by the U.S. housing slump, erodes export demand and forces companies to curb production and fire workers. The Organization for Economic Cooperation and Development said last week it expects the euro-area economy to contract 4.1 percent this year.

A surge in unemployment is crushing consumer confidence and prompting strikes and protests from the U.K. to Latvia, with some French workers holding their bosses hostage.

“Employment is being destroyed because of the crisis,” said EU Monetary Affairs Commissioner Joaquin Almunia. “We are dealing with the social consequences of the crisis not only at the national but at the European level.” The EU will meet with workers and business representatives in May to discuss these issues.

The ECB has reduced interest rates by 3 percentage points since early October. Bonello, who heads Malta’s central bank, said the ECB has already done a lot to help the ailing economy.

“While it’s good to think where you’re going next, I think it is also important to reflect on what has been achieved so far,” he said.

To contact the reporters on this story: Meera Louis in Prague at mlouis1@bloomberg.net; Jana Randow in Prague at jrandow@bloomberg.net

Last Updated: April 6, 2009 02:21 EDT