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Pastimes : Kosovo -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (4212)	4/17/1999 9:45:00 AM
From: goldsnow	Respond to of 17770

Dresden, Germany, April 17 (Bloomberg) -- European governments came under more pressure to cut spending even as the new chief of the European Commission warned that the Kosovo war could further dent the continent's flagging growth rate. As central bankers badgered governments to rein in their budget deficits in order to shore up the new common currency, the commission's designated president, Romano Prodi, said the costs of the three-week-old war could further stunt the economy. Labeling as ''disappointing'' official forecasts that growth in the 11 euro countries will slow to 2.2 percent in 1999 from 3.0 percent last year, Prodi said in Rome yesterday that the economy risks weakening further ''as a consequence of the war.'' The warning came as European Union finance ministers met in Dresden to renew their commitment to tight budgets in order to bolster confidence in the euro, which has declined 8 percent against the U.S. dollar since its arrival on Jan. 1. NATO's attack on Yugoslavia to end the repression of ethnic Albanians in Kosovo could cause the budget-cutting to unravel if the war drags on. The U.S. has estimated it might have to spend an extra $4 billion if the campaign lasts until September. Europe is gearing up for a ''long-term European engagement in the Balkans,'' said Hans Eichel, who chaired the talks as one of his first tasks in his first week as German finance minister. The meeting resumed at 9:30 a.m. today. Closed Airports Italy, across the Adriatic Sea from Yugoslavia, has shut several airports because of the war, damaging regional economies, Eichel said. Greece has been forced to reroute cargo to and from northern Europe, he added. Softer growth and more spending on weapons would push up budget deficits, which the commission warns are already too high in Germany, France and Italy, the euro area's three largest countries. ''The economic situation in Germany and Italy is pretty grim,'' said French Finance Minister Dominique Strauss-Kahn. ''It is legitimate that we ask ourselves what to do.'' The cutbacks in public services and worker benefits that helped all 11 countries meet the financial targets for the euro are grinding to a halt, leaving the EU far behind the U.S. in the pursuit of balanced budgets. While the combined euro-area shortfall will dip to 1.9 percent of gross domestic product this year from 2.1 percent last year, the bloc has long since jettisoned the informal goal of wiping out its deficits by 2002. Deficits Euro states must keep their deficits below 3 percent. In theory, the costs of the war in Yugoslavia could prompt them to invoke treaty languages that allows deficits to go above the threshold in ''temporary and exceptional'' circumstances. Governments should get back on track with deficit-reduction to send a ''message of confidence'' in the single currency, said Monetary Affairs Commissioner Yves-Thibault de Silguy. ''We expect a strong message,'' he added. De Silguy said last week's unexpectedly deep cut in European Central Bank interest rates puts political leaders on the spot to shore up the European economy by pressing ahead with deregulation and lowering taxes. ECB President Wim Duisenberg underlined that message in a personal appearance at the meeting and in the central bank's annual report, which criticized many governments' steps as ''modest.'' The report named no names, but the criticism appeared targeted at France, Italy, Germany, Austria and Portugal, which are set to post deficits of 2 percent of GDP or higher this year, according to forecasts by the commission, the EU's executive arm. Rate Cut The central bank cut its main rate by a half-point to 2.5 percent last week, citing the economic slowdown and dismissing the threat of inflation. At the same time, it signaled that no more reductions are in the pipeline. Echoing most ECB members, De Silguy said he is unconcerned about the euro's decline against the dollar, calling it the product of unexpectedly strong U.S. economic growth and a slowdown in Europe. ''It is not the weakness of the euro -- on the contrary, it's a forceful appreciation of the dollar,'' De Silguy said. The euro fell as low as $1.0622, its weakest point yet. The 11- country currency ended the week at $1.0704. De Silguy continues to serve in a caretaker role after resigning along with the other 19 European commissioners last month amid allegations of financial mismanagement. De Silguy wasn't touched by the charges. Prodi, a former Italian prime minister, was picked by EU leaders to take over the commission from Jacques Santer of Luxembourg. Prodi is expected to be confirmed by the European Parliament in May and will take office in August. Meanwhile, France's Strauss-Kahn sought to improve the coordination of economic policies by calling for the appointment of a chief economist at the Brussels-based commission. Currency Analysis In order to get a better handle on the euro, Strauss-Kahn proposed turning the euro-11 council of finance ministers into a more formal body. He also said the commission should develop new models to analyze currency misalignments. The meeting continues today with a discussion of aid for the Balkans, energy and investment taxes, and reforms to the international financial system. Press conferences are scheduled for 4:15 p.m. ©1999 Bloomberg L.P. All rights reserved. Terms of Service, Privacy Policy and Trademarks.