Almunia – EU economy can weather the storm

The European economy is in good shape, despite the turmoil on world financial markets, according to EU finance ministers who met in Brussels on Tuesday (22 January).

As investors around the world retreated from stock markets and the US Federal Reserve slashed interest rates, Joaquín Almunia, European commissioner for economic and monetary affairs praised Europe’s "solid fundamentals".

"Our fundamentals are sound. We have a positive current account position. We have a level of savings in our economy that is the level required to finance our investments...We have improved our fiscal positions...Indeed, we have no subprime mortgages in our system," said the commissioner.

But he added: "We cannot ignore that we are living in difficult moments, that we need to be vigilant, but we need also to send a message...that we have the tools...to weather the situation and tackle the challenges." Almunia cited the updated Lisbon Strategy for growth and jobs, and member states’ stability and convergence plans, as part of the EU’s weaponry.

The blame for current turmoil in global markets was pinned firmly on the US. "In the past few years, big imbalances have built in the US economy," said Almunia. The US economy, he said, suffered from "a big current account deficit, a big fiscal deficit and lack of savings".

His tone echoed the line taken the previous day by Jean-Claude Juncker, president of the Eurogroup. He said that eurozone growth this year would be lower than the European Commission’s previous forecasts of 2.2% but he ruled out the need to put together a rescue package of the type unveiled by US President George Bush on Friday (18 January). Bush’s $150 billion (€103bn) economic stimulus package proposed tax incentives for US business and direct tax relief for US citizens.

Speculation is now focused on whether the European Central Bank will cut interest rates. Almunia asserted the ECB’s independence. The question now is whether the ECB can resist pressure from the market and whether politicians can resist the temptation to add to that pressure.

• The European Commission yesterday (23 January) released its first batch of assessments of member states’ budgetary plans for the coming four years. Countries covered are Finland, Germany, Hungary, Luxembourg, the Netherlands, Sweden, and the UK.

Assessments for Italy, France, Romania and Slovakia will be released on 30 January. Results for remaining countries Austria, Belgium, Bulgaria, Cyprus, the Czech Republic, Denmark, Estonia, Greece, Ireland, Latvia, Lithuania, Malta, Poland, Portugal, Slovenia and Spain will be released on 13 and 19 February.

The European economy is in good shape, despite the turmoil on world financial markets, according to EU finance ministers who met in Brussels on Tuesday (22 January).

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