EU Says Economic Recovery Threatened
By THE ASSOCIATED PRESS
Filed at 9:04 a.m. ET
BRUSSELS, Belgium (AP) -- Europe's economic recovery is threatened by the reluctance of consumers to spend more as well as by the difficulty governments such as Italy, France and Germany to spend less, the European Union's head office said Tuesday.
The 12 countries that use the euro as their currency are expected to show second-quarter growth of between 0.3 percent and 0.6 percent, accelerating to between 0.7 percent and 1 percent in the third quarter, according to the European Commission's second quarterly report on the euro region.
First quarter growth was revised to 0.3 percent from a previous estimate of 0.2 percent. That compares with a 1.5 percent first-quarter rise in U.S. gross domestic product.
The EU's statistics office cited stagnant household consumption and weak retail sales in the euro area as a brake on euro-zone growth.
``The anticipated improvement of domestic demand has not yet materialized,'' said EU economics and monetary affairs commissioner Pedro Solbes.
He blamed the euro, which entered circulation Jan. 1.
Some retailers took advantage of the switch to raise prices on such daily items as a croissant or draft beer. That has led to the ``most negative assessment'' of price trends in the public's mind since the EU started its survey in 1985, Solbes said.
Yet inflation has actually been declining this year, reaching a two-year low of 1.7 percent in June, according to preliminary estimates.
The ``overdue appreciation'' of the euro against the dollar will help keep it under control, he added.
``These two factors augur well for the awaited rebound in private consumption,'' he said.
But he also said perceived high inflation could result in ``excessive'' wage demands, which could ``dampen both employment and consumption in the future.''
The European Central Bank has raised alarms about recent union contracts with pay increases of 3 percent or more in Germany, the euro-zone's biggest economy. The German government reported Tuesday the jobless rate remained stuck at 9.5 percent in June.
Hampered by slow growth and relatively high unemployment, Berlin, Paris, Rome and other EU capitals have been struggling to meet self-imposed targets for a budget ``close to balance or in surplus'' by 2004.
Solbes called the ``weakening of budgetary positions'' in several countries ``worrying.''
Yet although the budgetary rules are meant to underpin the euro, financial markets have shrugged off decisions by governments to stretch them. Analysts say they are more worried about weakness in the U.S. economy and on Wall Street.
Italy became the latest country to warn it would miss its 2003 target once planned tax cuts are enacted. |
