Pleas for calm, but most admit it won’t be business as usual

Date: 13/09/01

By Peter Chapman, Business Correspondent

EU finance and industry leaders insisted yesterday that they would pull out all the stops to ensure that economies were not dragged into recession following Tuesday's devastating strike at the heart of global capitalism. But most admitted it cannot be business as usual.

Belgian Finance Minister Didier Reynders and Monetary Affairs Commissioner Pedro Solbes gave their perspective on the tragic events in America during a sombre press conference at the EU Council of Ministers.

Solbes said that eurozone growth prospects, currently around 2, would inevitably suffer as a result, adding that the EU was more economically entwined with the US than had previously been thought. "There will be effects - I have no doubts whatsoever. We said a growth rate of 2 would be quite good for the euro but any forecast for growth after the last two days will have to be revised. It is too soon to assess the potential impact of these tragic events in the US. But I don't think we can imagine the situation is going to improve as compared with what we were saying prior to these tragic events. I think budget, monetary and market authorities need to demonstrate that it is possible to work calmly and continue activities over the next few days. That will show the ability to continue with economic development."

Reynders, who chairs the Euro12 group of countries and EU finance ministers meetings, said: "The only response we can give is to show that things can recover or continue. We need to try and show that activity can continue in all economic zones across the planet."

He said the EU's markets had shown they could withstand the shock: "It is fair to say all markets opened without major problems. At this time, markets are open, liquidity is present and I am hoping we can go further with the functioning of markets without any problems."

He said he had already been in touch with his counterparts in the EU, G7 countries and US, including American Treasury Secretary Paul O'Neill yesterday morning (12 September). "It was a contact of sympathy and to say we were open to more collaboration but there were no comments about the economic situation in US economy."

He added EU finance chiefs would be in a better position to judge the impact of Tuesday's events next week, when ministers are due to meet in Liège, Belgium.

Solbes said it was impossible to gauge the impact that falls in the share prices of EU insurance firms, as a result of events across the Atlantic, would have on the Union's financial services sector.

The collapse of the World Trade Center could cost insurers and re-insurers, many operating on the Lloyd's of London market, billions of euro. Swiss Reinsurance Co. led a fall in insurance stocks down after it said it alone could face €795 million of losses.

Earlier European Central Bank President Wim Duisenberg told the Parliament's economic and monetary affairs committee that the ECB was on stand-by to give help to the US if needed. "I am not speculating about intervention, but the fact that I on behalf of the Eurosystem offered if necessary any help when needed or when asked for to the American monetary authorities implies that this help could take any form that was necessary in the circumstances."

Analysts interpreted his comments as a willingness to cut eurozone interest rates, possibly at today's meeting of the ECB's governing body . They said there might also be an agreement to cut rates in tandem with the US Federal Reserve - in a similar move to one on 1987 following the collapse of world stock markets.

As soon as news came in, the ECB announced that it would ensure there was enough cash in the eurozone financial system to weather the initial aftermath. It lent nearly €70 billion in a special overnight tender; more than it typically lends in two weeks.

The economic and monetary affairs committee chairwoman, Christa Randzio Plath, told European Voice that it was crucial for governments to do everything to ensure "that peace in the world is not endangered".

On the economic impact of Tuesday, she said: "What worries me is if markets are panicking. This does not do a service." She warned against rash short-term policy decisions that might send the wrong signals to markets. "People might get the wrong signal that there is a tendency to recession. I don't think that is the case. There is a bigger slowdown possible. But we should not aggravate the situation with panic and speculation. We have to find a forward-looking strategy."

Back at ECB headquarters in Frankfurt, a spokesman said the bank had decided to open its doors as usual yesterday - but added that there was tighter-than-usual security placed outside the main entrance. "We spoke with the public authorities and major international banks and decided to open the building. Staff feeling shocked or threatened could speak to the management and stay at home," he added.

MEPs demanded to know if the ECB - housed in a huge tower block - was safe from a copycat attack when they came face to face with Duisenberg. But the ECB president was forced to admit that a special emergency back-up centre was "not yet operational" and will not be until later this year.

Did this mean euro monetary policy was in peril from terrorists? No, insisted Duisenberg, who said national eurozone central banks did have such emergency facilities.

With the Wall Street area of New York still reeling as European Voice went to press, US Securities and Exchange Comission chairman Harvey Pitt said that trading "may resume" today. There was an initial flight from the US dollar to the euro and other currencies, as well as expected post-trauma gains in oil and gold. The dollar regained some of its losses after central banks pumped cash into the monetary system and made reassuring comments. With markets still closed, EU-based companies with branches in New York and Washington struggled to make contact.

European Voice, which is part of the Economist Group, was told by its London-based IT management team that all communications with Economist offices in the two cities had been re-routed via the Internet after the group's lines had been "commandeered for emergency purposes". Subscribers to mobile phone company Vodafone were also told not to make calls to New York.

Meanwhile US businesses in the EU expressed their shock but reiterated the need to carry on without giving in to terrorism - even though Belgian police had placed offices of American firms in the Waterloo suburb of Brussels under special surveillance.

The chairwoman of the EU committee of the American Chamber or Commerce, Maja Wessels of United Technologies Corporation, said it was a "tragic day for America and for Americans around the world. Our hearts and prayers go out to the injured and deceased and their families."

She said Amcham, which has many members with offices in the doomed World Trade Center buildings, would "for the most part" continue with its schedule of meetings and events after consulting with the US Mission in Brussels, but that it was "impossible for it to be business as usual". The London Stock Exchange, in conjunction with other European exchanges, observed one minute's silence as a mark of respect yesterday.

EU finance and industry leaders insisted on 12 September 2001 that they would pull out all the stops to ensure that economies were not dragged into recession following the devastating strike at the heart of global capitalism. But most admitted it cannot be business as usual.