Brussels, 02/09/2008 (Agence Europe) - The fall in a whole series of indicators and recent economic forecasts by several organisations confirm the decline in economic activities in Europe. After having recorded a fall in its GDP of 0.2% during the second quarter of the year, the eurozone is technically not yet sheltered from recession (which is characterised by a negative annual rate of growth over two consecutive quarters). Although such an eventuality was ruled out by Jean-Claude Juncker, growth results are not brilliant and the room for manoeuvre is limited. Unless monetary policy reveals itself in the near future as a privileged instrument for stimulating growth, the outlines of an answer to the worsening in the current economic situation will be discussed during the informal meeting of finance minsters in Nice, on 12 and 13 September this year. The French EU Council presidency hopes to reach consensus to strengthen the coordination of economic policies in Europe.
Economic forecasts published on Tuesday 2 September by the Organisation for Economic Cooperation and Development (OECD) confirm the trend observed in recent weeks, mainly in the latest estimates of the International Monetary Fund (IMF), which reviewed growth forecasts for the eurozone downwards (-0.3 percentage point) for 2008 (1.4%) and 2009 (0.9%). For the OECD, the eurozone should stagnate on the whole until the end of the year to reach growth at an annual rate of 1.3% (compared to 1.7% according to its previous forecasts). The forecast for Germany is down to 1.5% compared to 1.9% in the May forecasts. France is doing less well (1% compared to 1.8%) and Italy is dragging behind with expected growth of 0.1% for this year compared to 0.5% before. The OECD does not predict negative growth figures for the whole of the zone during the third and fourth quarters of the year but zero growth is expected in Germany, and hardly more than that in France and Italy.
In August, Jean-Claude Trichet had confirmed his fears for growth during the third quarter of the year (EUROPE 9720) and the deterioration of growth should be confirmed with the publication, on Thursday 4 September, of new projections from the services of the European Central Bank (ECB). The Governing Council, however, is not expected to move towards a fall in interest rates, economists say however. Banking on a message of firmness towards inflationary risks, they do not predict that, in the immediate future (i.e. for the rest of the year), there will be any relaxing of credit conditions likely to sustain growth.
The Commission, for its part, will publish its interim economic forecasts on 10 September and its autumn economic forecasts on 3 November. It would, however, be surprising if it were to keep its spring forecasts unchanged as the effects of the financial crisis and the uncertainties persist (1.7% in 2008 and 1.5% in 2009 in the eurozone and 2% and 1.8% in the EU -EUROPE 9652). However, although the situation is not very reassuring, Joaquín Almunia, Commissioner for Economic and Monetary Affairs, is not inclined to pessimism. Depreciation in the price of crude (about $105 per barrel) and the strengthening of the dollar ($1.45 for one euro) give rise to hope despite their volatility. “It is difficult to foresee when the markets will become stable”, Mr Almunia declared last weekend in Italy, but “I do not believe that we should necessarily show pessimism about the economic outlook”.
“I do not see the risk of real recession in Europe”, Mr Juncker said on Monday 1 September, stressing the difficulties and specifying future stakes. “We are aware of the fact that the economic slowdown is on a downward slope which means that the risks are greater than the chances of recovery, since these chances do not exist”, the Eurogroup president said on the sidelines of the extraordinary European Council in Brussels, considering however that it is pointless to set up a plan for economic recovery, that no-one is asking for and that no-one wants as far as he can see. Rather than this kind of measure, the Luxembourg prime minister and finance minster prefer measures aimed at improving economic policies in Europe.
In Mr Juncker's view, the informal meeting of Nice on 12 and 13 September will above all specify “what can be the means that Europe, and the Eurogroup, can align to better coordinate its economic policies in order to define a strategy for overcoming a risk that is not a risk of recession but of economic slowdown”. It must be noted, however, that budgetary margins are “very limited” almost everywhere. To counter this, “we shall see in what conditions European savings, which are important, can be used to promote a firmer economic situation in Europe” and also “what means can be aligned by the European Investment Bank (EIB)”, he said.
French Finance Minister Christine Lagarde will point out to her counterparts, first of all within the Eurogroup and then the Ecofin, the elements that she believes are solutions to counter the crisis - elements that come within the framework for debate on improving the Economic and Monetary Union and which, for some, are in line with the proposals made by the European Commission in its communication (EUROPE 9656). A powerful message will be on continued structural reforms with a view to adapting the European economy to globalisation. Emphasis will be placed on strengthening coordination in the implementation of existing instruments such as the Broad Economic Policy Guidelines (BEPG). Another element on which consensus is wanted is the continuation of the strategy for consolidating public finance. It should be recalled that, depending on their results when it comes to budgetary improvements, member states of the eurozone may adopt different strategies. Those which have reached their Medium Term Objective (MTO) and find themselves in a surplus situation, have more room for manoeuvre and may envisage plans for budgetary recovery, whereas those that have not yet reached their objective have less leeway. Coordination of economic policies must also be based on strong dialogue with the European Central Bank (ECB) within the framework of the Eurogroup, the French Presidency will state. Such dialogue exists but aims to be strengthened by more coordinated work on structural reforms or competitive differences between member states (Eurogroup took a stance on this in July - EUROPE 9699). On the external front, the French Presidency will also call for more organised dialogue with the other major monetary zones, such as China. (A.B./transl.jl)