European economy likely to shrink by 2% in 2009

Dubai: France's central bank governor said yesterday the European economy could shrink by two per cent this year and called for reforms in the global financial system to face the "unprecedented times".

Christian Noyer, a European Central Bank Governing Council member and governor of the Banque de France, said 2009 "will be globally difficult year for the economy".

About the growth prospects for the euro zone, he said its economy will decline by two per cent to 1.9 per cent.

He said the French economy will perform better than that, and described his country's real estate market as "very safe" unlike the crisis in the US housing sector. "It is not a major issue for our banks," Noyer said, referring to huge losses reported by banks in many countries due to bad property sector loans.

Following the global financial crisis, the French central bank chief sees a growing consensus around the need for a fundamental review of the foundations of financial regulation.

"I do believe it to be useful to take a fresh look at the existing financial regulation," he asserted.

The crisis has shown "the merits of having the banking supervisor close to the central bank," he said, describing the current global economic situation as "unprecedented."

"We are going through very challenging times, in some respect even unprecedented times," he said.

Many have blamed the chaos in the world's financial system on a lack of proper regulation in the Western model of capitalism.

Noyer also underlined the need for disclosure and transparency from banks and other financial firms.

"Financial institutions made a lot of efforts in this respect in recent months. They should continue to do so," he said.