Brussels, 17/09/2008 (Agence Europe) - Do not change policy, do not follow the United States (and its economic recovery plan) do not panic, continue to consolidate public finances, combat inflation and second round effects and, in the long term, increase growth potential (through reforms that make labour markets more flexible and improve competition in services). These are the responses put forward by Eurogroup President Jean-Claude Juncker to relaunch euro area growth. The impact of the financial crisis on the real economy remains uncertain, but the latest developments in the United States will certainly not be the last.
Refusing any pessimism, Juncker said, on Wednesday 17 September, that the euro area “is not on the brink of the black hole of recession,” despite the threat of a possible technical recession (two consecutive quarters with negative growth). He said that “growth in Germany was going rather well”, with an expected 1.8% increase in GDP in 2008, according to the European Commission (see EUROPE 9737). The main danger continues to be inflation, which is for the European Central Bank (“I have nothing critical to say about the ECB's present policy,” he said), governments and social partners to combat. An effective economic policy response requires that short-term action cannot be separated from desired longer-term action. In the long run, the euro area's growth potential is still too low to meet future problems and challenges (especially the ageing population), he noted. “It cannot be ruled out that we may have to begin new excessive debt procedures over the coming months,” Juncker said, underlining his belief that budgetary consolidation was “essential”.
Speaking only a short time after the insurance company AIG was bailed out by the US Federal Reserve (which poured in USD 85 billion in exchange for a 79.9% equity stake) and two days after Lehman Brothers filed for bankruptcy, Juncker opined that the situation had probably not yet run its full course. He cleverly sidestepped the issue of whether he foresaw other problems in the United States related to the financial crisis, but was, nonetheless, eloquent in his comments. “If I say yes, I can see what the journalists will publish tomorrow. If I say no, I could easily see what they would publish in two weeks from now,” he said. International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn also thinks that the consequences of the crisis for a number of financial institutions “may still lie ahead”. Quoted by Reuters, following a meeting with Gulf states finance ministers and bankers in Jeddah, he said that “We have to expect that there may be in the coming weeks and coming months other financial institutions with some problems”. (A.B./transl.rt)