Brussels, 22/01/2008 (Agence Europe) - Although the markets expect a more pronounced slowdown in growth in the US, a recession even, Eurogroup has been keen on delivering reassurances about the situation in the eurozone. The disappointment provoked by the plan to relaunch the American economy, announced last Friday by President Bush, combined with the general uncertainty about the financial situation of banks, led to an ill-wind that swept through stock markets around the world. Following these record lows - the worst since 11 September 2001 - for European stock markets, which closed by more than 5% down, the collapse continued on Tuesday with Asian markets suffering heavy losses for the second day in a row. At the end of the Eurogroup meeting he was chairing, Jean-Claude Juncker's message was simple: don't give into panic, and take the fundamentals into account.
On Monday evening he told the press that “the least one can say is that we live in interesting times. This is practically the only positive remark I can make this evening”, and he cautiously added, “the economic situation and that on the financial markets is very volatile, very uncertain. It's much more uncertain than what we're used to and therefore we have to avoid making too hasty comments”. He said that they should “not respond in an exaggerated way to events on the stock markets today…and should strike the right balance between the rational and irrational”, between what is a legitimate correction on the markets and following “the herd instinct”.
Mr Juncker pointed out that it is true that “the economic situation in the US continues to deteriorate” and recognised that although “we had always ruled out a recession over the past few months in the US, we cannot totally exclude this possibility now”. If this risk does materialise, it will “not be without consequences for growth in the eurozone”. Until now there has not been any major impact for the eurozone economy, but the next intermediate forecasts from the Commission (in February) are expected to reveal “growth that is slightly below potential, whereas the contrary was the case over the last two years”. This prospect was confirmed by the commissioner for economic and monetary affairs, Joaquin Almunia, who acknowledged that the November forecasts will not be reached (2.2% in 2008 as opposed to 2.6% in 2007) but did say he hoped that the figures would not be too far off those previously forecast (EUROPE 9540).
Mr Almunia insisted that “our fundamentals are solid” and he was echoed by Mr Juncker who affirmed: “Our fundamental data are healthy, budgetary reorganisation is progressing, employment levels are increasing, unemployment continues to fall”. Juncker warned against excessive pessimism and asserted: “We are comfortable in our current economic situation and therefore think that consumers in Europe have no reason to lose confidence” because the situation in Europe appears “decoupled” from that in the US. He also thought that “given the origins of the financial turbulence, it's up to the US to respond to this threat…Europe has so far been doing its work”. He also appeared to suggest that the American recovery plan should go further.
Mr Juncker repeated that with regard to inflation “we are convinced that everything must be done to prevent the effects of a second round” and that “a certain number of explanations regarding the recent price hikes should be resolved in 2008” which would allow for “a return to a more normal situation in 2009”. Whatever happens, if growth does slacken, the eurozone does have the amended Stability and Growth Pact (SGP) within its arsenal of new rules and all the necessary mechanisms to respond to the situation. Mr Juncker explained that, if required, they would apply the SGP rules and automatic stabilisers. He also pointed out that the budgetary correction objective was 0.5% of GDP per year in structural terms. Mr Almunia had four recommendations to make in the context of market volatility: medium-term budgetary consolidation; improved public finance quality; implementation of measures improving competition in services; and the introduction of greater flexibility into member states' labour markets.
In preparation for the next G7 meeting on 9 February in Tokyo, eurozone finance ministers stuck to their previous message on exchange rates. Mr Juncker explained that at this juncture it involved a “repetition of what had already been said”, especially in October 2007 (EUROPE 9583).
Asked about the meeting in London on 29 January for heads of state or government from the United Kingdom, Germany, France and Italy, as well as José Manuel Barroso, the president of the Commission, Mr Juncker said he did not feel offended about not being invited (EUROPE 9583).
The discussions, devoted to financial stability, will focus on issues which are not the exclusive concern of Eurogroup, which suggests why it is not taking part, he said, pointing out, nonetheless, that it will be up to the Ecofin Council to decide on any initiative discussed. The Commission will be there, so there will be no detriment to the institutional framework, he said, adding, however, “Four is better than three. Twenty seven would perhaps have been better still”.