Business | Banking
Euro zone on the brink of recession
European finance ministers said on Friday a US-led downturn had pushed much of their region to the brink of recession - something they dismissed as implausible only a few months ago.
- Reuters
- Published: 22:59 September 12, 2008
Nice, France: European finance ministers said on Friday a US-led downturn had pushed much of their region to the brink of recession - something they dismissed as implausible only a few months ago.
In talks also attended by central bank chiefs, the ministers were expected to plump for a 'grin and bear it' strategy because of high inflation and a reluctance to defy EU budget rules by spending their way out of trouble with public money, US-style.
"The weakening in growth is considerably worse than we thought some months ago," said Jean-Claude Juncker, Luxembourg's prime minister and finance minister, and also chairman of the Eurogroup club of euro zone finance ministers.
But he did not see the region sliding into a deep or lasting recession: "The slowdown is very grave ... but I don't think that we are undergoing a period of long-stretched recession."
European Central Bank President Jean-Claude Trichet, who has refused to cut interest rates, said on Thursday inflation was a problem of the "first magnitude".
The meeting in the French southern riviera city of Nice came just two days after new economic European Commission estimates showed Germany, Spain and Britain sliding into recession and economic growth in the region overall close to standstill.
French Economy Minister Christine Lagarde set the tone for a two-day session her country organised as holder of the rotating presidency of European Union, spanning 27 countries of which 15 share the euro currency.
"This meeting takes place in a difficult economic context," she wrote in French daily Le Figaro.
Over the past year, Europe had suffered a triple external shock - the financial crisis that began in the United States,
oil price rises that raised costs for firms and hit household finances, plus a strong rise in the exchange rate of the euro.
"These shocks, coupled with the slowdown in world demand, have strongly reduced European growth," she said.
The meeting started on Friday with finance ministers of the euro zone and will widen later in the day to include ministers and central bankers of the entire EU.
No imitation
Officials in France and other countries said ahead of the Nice talks nobody was looking to imitate the US response to the downturn there which has seen interest rates slashed and a $100 billion returned to taxpayers this year.
German Finance Minister Peer Steinbrueck said it would be a waste of money in Europe, "I am against a European economic stimulus programme. I also think in Germany we would be ill advised to implement an economic stimulus package."
Ministers will instead broach the idea of asking for help from the European Investment Bank (EIB), which specialises in venture capital and guarantees for small and medium-sized firms through its European Investment Fund arm, Lagarde said.
Two officials present at the meetings and speaking on condition of anonymity said the amount of EIB lending available to small firms could be raised to six or seven billion euros a year from five billion at the moment, for a few years at least.
Negotiations on the specifics of EIB lending were due to be discussed primarily on Saturday, the second day of talks here.
One fear at the moment is that small companies will start to lose access to money as banks burned by the credit crunch get meaner than they were in more carefree times.
The Commission on Wednesday forecast gross domestic product growth of 1.3 per cent for this year in the euro zone, down from the 1.7 per cent it was reckoning on in April, when the Commission and many policymakers said publicly they saw no risk of recession in Europe.
It forecast growth of 1.4 per cent for the broader EU, and no longer the 2.0 per cent it had been counting on in April.
Between then and now, policymakers have had to digest news that GDP shrank in the euro zone in the April-June period, the
first quarter of GDP contraction recorded since the currency bloc was created in 1999.
One other decision taken on Friday was to renew Juncker's mandate as chairman of the Eurogroup, the forum where ministers meet monthly to confer on economic strategy and liaise with the European Central Bank.
Share this article
More from Banking
More from Business
Popular in Business
-
XPRESS
Way to go this DSF
A fun-filled route to guide you to all the happening dos in town
Business Editor's choice
-
The brains behind campaigns
Chief executives likely to be guided more by bankers and consultants
-
Britain's green departure tax slammed
UK government pulls out of UN body ahead of Copenhagen summit
-
Emirates could buy more aircraft
Airline plans new routes, expects demand to increase
