EU finance chiefs brace for recession fight (AFP)
11.09.2008 23:05 Business
Amid growing evidence that a US-born financial crisis is hurting Europe, recession jitters are mounting, weighing on the euro and European stocks.
"This turmoil has posed serious and far-reaching challenges to the financial industry and our economies," EU Economic Affairs Commissioner Joaquin Almunia said on the eve of a meeting of finance ministers and central bankers in Nice, southern France.
Heightened concerns that Europe faces a serious risk of recession sapped investor sentiment on stock markets Thursday and saw the euro strike a one-year low of 1.3893 dollars while oil prices tumbled to six-month low points below 98 dollars a barrel.
Bank of France governor and European Central Bank board memberChristian Noyer said that although Europe's banks were strong in the face of the current turbulence, risks to stability in the sector remain.
"Further shocks can't be excluded if you look at the weakened economic environment," he said.
The European Commission estimated on Wednesday that Europe was teetering on the brink of a technical recession, which economists define as two consecutive quarters of contraction.
After the 15-nation eurozone economy contracted 0.2 percent in the second quarter, the European Union's executive arm predicted that that it would be at a standstill in the third quarter.
For the whole of 2008, the commission slashed its eurozone economic growth outlook to 1.3 percent from 1.7 percent previously.
The commission also said that Germany, Spain and Britain were headed for recession this year. Britain is not a member of the eurzone.
However, unlike other global economic heavyweights, most politicians and central bankers have ruled out stimulus plans or interest rate cuts to restore Europe to a more solid footing.
Ever vigilant about keeping a lid on inflation, the European Central Bank is unlikely to give a boost to the economy by cutting interest rates until at least next year, according to economists.
On the fiscal front, few European countries have budgets strong enough to allow for major tax relief or spending programmes such as in the United States and Japan without breaking the EU's strict public deficit rules.
Among the major eurozone economies, only Germany has healthy public finances, but Finance MinisterPeer Steinbrueck is against any costly stimulus package even though the commission estimates that Europe's biggest economy is in a recession.
In France, Prime Minister Francois Fillon has repeatedly ruled out an economic stimulus plan, urging on Thursday that "it's time for reform and not for a relaunch."
Apart from targeted national measures, EU finance chiefs are to focus on how the Luxembourg-based European Investment Bank (EIB) can help provide some relief by lifting funding to small and mid-sized firms in particular.
The lack of options open to EU countries contrasts sharply with the more pro-active stances of the US and Japanese governments in the face of sharply slowing economic activity.
Earlier this year, the United States handed out billions of dollars in tax rebates, trying to boost the economy, and at the end of August Japan's government announced an economic stimulus package worth over 100 billion dollars.
EU officials will also focus on how to bolster the financial sector in the face of the recent turmoil.
The meeting will in particular look at the nitty-gritty details of how to coordinate across Europe to prevent any big cross-border bank from going under.
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