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Politics : Foreign Affairs Discussion Group -- Ignore unavailable to you. Want to Upgrade?

To: zonder who wrote (52830)	10/18/2002 6:07:36 AM
From: LindyBill	Read Replies (1) \| Respond to of 281500

You and JJ keep telling me things are great in the EU. But I keep reading these articles. Here is one from AP, tied to SI Europe Sees Economic Hopes Unravel By STEPHEN GRAHAM 10/18/2002 02:08:47 EST BERLIN (AP) - Instead of rebounding on the strength of cheap loans, low inflation and the combined spending power of 370 million people, Europe has seen its hopes of economic recovery unraveled by mass layoffs, slumping stock markets and the threat of war with Iraq. The governments entrusted with steering their economies clear of recession are caving in to old temptations. First France, then Germany and now the European Union itself are suggesting that rules designed to protect the continent's flagship project, the euro, should be relaxed. France, for instance, now says cutting taxes is more important that cutting borrowing. Ernest Antoine Seilliere, who heads a group of French business associations, says even that will not keep France from falling short of the hoped-for 2.5 percent growth next year. "The financial crisis and the well-known geopolitical uncertainties weigh on the cyclical slowdown, and all of this - and it's not a surprise - leaves the government quite powerless," he said. The euro is generally viewed as a success helping pave the way for 12 new members to join the EU by 2004, another step toward the goal of creating an economic powerhouse to rival the United States. The European Central Bank, which governs monetary policy in the 12 countries using the new currency, guided inflation down to a stable 2 percent in September. But economists say the bank and national authorities can do little to conjure up the magic ingredient that could power an upturn: confidence. Consumers are reluctant to splurge on new cars or homes for fear they could lose their jobs. Fiat announced last week it wants to cut 8,100 jobs, or 20 percent of its domestic car workers. In Germany, Siemens and Deutsche Telekom alone have announced plans to let 85,000 workers go, sparking an outcry from labor unions. The mood also is dampened by slumping stock markets that have hammered many small investors. Germany's DAX index of blue chip stocks has lost more than 40 percent of its value since March, despite a rally in recent days. "We have to prepare ourselves for a lean patch this winter," according to the German Chamber of Industry and Trade. "Recessionary tendencies can't be excluded." The greatest fear, economists say, is that the United States will get bogged down in a war with Iraq or that trouble in the Middle East will lead to global instability and a sustained hike in oil prices. "Then we'd have a real recession scenario," said Harald Joerg, an economist at Dresdner Bank in Frankfurt. "That prospect is not exactly helpful for investment." Even if it does not come to that, growth next year in the so-called euro zone could still be an unimpressive 1.9 percent, Joerg said, a forecast the bank recently revised down from 2.3 percent. The slowdown already has blown holes in the budget plans of governments across the continent. Leaders of France and Germany have responded by questioning spending limits designed to protect the euro. The EU's Stability and Growth Pact, which caps budget deficits at 3 percent of gross domestic product and demands a steady reduction to rein in government debt, should be "flexible," German Chancellor Gerhard Schroeder and French President Jacques Chirac agreed this week. On Thursday, Germany admitted it would join Portugal in breaking the ceiling this year, and the president of the EU's executive Commission, Romano Prodi, told the French daily newspaper Le Monde in an interview released Thursday that the pact was "stupid, like all rigid decisions." Germany and France also recently persuaded the EU that they needed more time to balance their budgets - by 2006 instead of 2004. That dismayed smaller states that have obeyed rules laid down largely at the insistence of Germany. "It's regrettable," Dutch Finance Minister Hans Hoogervorst said last week. "I'm not pleased with the situation we're in." Critics say European countries are paying the price for pushing ahead too slowly with reforms and efforts to reduce their overspending when times were better. Caught cold, politicians also now are putting new pressure on the European Central Bank to help them by cutting interest rates to make borrowing even cheaper. So far, the bank has not budged. "Monetary policy will remain geared toward maintaining price stability and continue to focus on the medium term," central bank President Wim Duisenberg said a week ago, after leaving rates unchanged for the 11th month. Currency markets have yet to show any concern about the bank's independence: The euro continued to trade at about 97 cents Thursday, little changed from recent weeks. "Having a steady hand in monetary policy is providing a stable anchor for consumers and investors," Duisenberg said. "Monetary policy is in no way a hindrance to resumption of economic growth."