|Author (Person)||Chapman, Peter|
|Series Title||European Voice|
|Series Details||Vol.7, No.34, 20.9.01, p4|
THE terrorist attacks on America left many questions in its wake, not least of which being who was behind the deadly mission.
But for the economic and financial world, struggling against plunging share prices and a loss of investor confidence, the most compelling question is how to stave off a global recession.
The EU's response comes under the spotlight this weekend, when its economic policy elite put their heads together in the Belgian city of Liège.
Making sense of a week of flux will not be easy. Markets continued to fall and job losses mounted even after the European Central Bank and Federal Reserve won praise from analysts for knocking another half point off interest rates on Monday in a bid to bolster confidence.
Shares in companies ranging from German sports-wear giant Adidas Salomon to French carmaker Renault dived, while Royal Dutch/Shell Group issued a profits warning on Wednesday as the prospect of a recession began to appear inevitable.
On Wednesday, Dutch bank ABN Amro said it was downgrading its growth prediction for the US from 2.5% before the attacks to zero - with follow-on effects right through the global economy.
A key question in Liège is whether the EU will match action in the US, where airlines have won the promise of a $20 billion rescue package on top of a wider $40 billion emergency spending programme for US industry.
Belgian finance minister Didier Reynders offered hope of similar action at EU level when he said there must be an immediate analysis of the impact on key industries to see the need for special measures starting this weekend.
This followed an earlier reaction from the European Commission, which said there would be little need for loosening state aid rules for harmed sectors - despite reports that airlines such as Belgian carrier Sabena faced bankruptcy.
Reynders said the Commission had been asked to supply figures on the likely impact on key sectors, including energy, transport and insurance, and an analysis of how US aid would affect the market. "We must see if it is possible to agree with such an intervention in the US without a distortion of competition and after that to see if it is possible to do something in the EU," he said.
Meanwhile, the Belgian finance chief, who chairs both Friday's meeting of 12 eurozone ministers - exceptionally opened-up to non-eurozone counterparts - and Saturday's full 'ecofin' session put a brave face on the EU's economic prospects. "It is impossible to say now what will be the evolution...but I am sure we have good fundamentals in the European and US economy." Nevertheless, he stressed that finance ministers and central bankers would also take a hard look at what last week means for prospects for growth in 2002 and budgetary policy.
Lurking in the background is the EU's stability and growth pact, which imposes tough discipline on member states in order to rein-in excessive government spending and borrowing.
Reynders said the prospect of lower growth this year and in 2002 would need to be discussed: "It is sure that there is an evolution with growth this year, so we must take account of that."
But he insisted there is still no reason to veer from the pact, which allows countries to run deficits above 3% only in exceptional circumstances. "The most difficult step must be the new definition of new stability programmes for next year. But we must do that with the same link - the same band as the stability pact. I am sure we must stick to the stability pact at this time also."
Reynders' comments were followed by an even more upbeat assessment of economic prospects by German ECB board member Ernst Welteke in an interview with CNN.
He said the most important factor would be the reaction of the US military to last week's attacks.
But he insisted the US and EU economies were strong enough to withstand last week's attacks.
He predicted that some sectors, particularly construction in Germany, would come out of the doldrums, with the help of low interest rates.
Ironically, last week's events gave the euro a boost as currency traders took a more favourable view of the single currency vis a vis the dollar - with the euro worth a respectable 92 US cents late on Wednesday.
The concerted effort with the Federal Reserve to drop interest rates on the same day also won praise as an example of good co-ordination. "It is impossible to say whether it will be enough but it was a good decision," said Reynders.
But more important than cutting rates by 0.5%, he said, was "the decision to make a decision together".
Nevertheless the ECB did not escape criticism for its handling of the rate cut.
Some members of the European Parliament's economic and monetary committee - the body charged with public oversight of the ECB's actions - attacked bank president Wim Duisenberg for sending confusing signals to the markets before the announcement. Duisenberg told reporters at a conference in Helsinki that it was too early to come to a judgement on the impact on economic growth of last week's events and rushed action would be tantamount to panic.
But only hours later, the ECB's governing bodies had 'met' by teleconference to announce their cut, stating "that recent events in the US were likely to weigh adversely on confidence in the euro area".
Luxembourger MEP Robert Goebbels said this was another example of Duisenberg misleading the markets. "I am sure this led to sell orders that would not have been placed," said Goebbels, adding that Duisenberg had a "communication problem".
However others sprang to the Dutchman's defence. ECB insiders insist Duisenberg's comments were overblown by the financial press. And EMAC chairwoman Christa-Randzio Plath took a swipe at her colleague, claiming Federal Reserve chief Alan Greenspan and Duisenberg must have agreed on a joint strategy during the weekend. "All this is very short sighted," she said, adding: "we only know what was said in public. None of us knows that it was not the explicit demand [of Greenspan] that coordination should work as it did."
Feature looks at the economic impact in Europe of the terrorist attack in the US, 11 September 2001.
|Subject Categories||Economic and Financial Affairs|