Tags: europe | economy

EU Official: Europe Must Brace for Action on Overspending

Tuesday, 29 September 2009 09:49 AM

BRUSSELS -- The eurozone economy is in fragile convalescence from the economic crisis and should be given another 15 months to prepare for tough action on overspending, a leading finance minister said on Tuesday.

The warning came just after German Chancellor Angela Merkel was re-elected with Germany's public deficit high on her pile of problems and on the eve of the French budget announcement.

Neither of the eurozone's two biggest economies is ready for rigour, despite the size of their budget deficits.

"Today I can say that the situation has broadly stabilised," Jean-Claude Juncker, chairman of the eurogroup as well as finance minister and premier of Luxembourg, told members of the European parliament.

We can express "moderate optimism for the second semester" regarding growth in the eurozone, he said.

But he tempered the good news with a warning that the "situation remains fragile and flaky" and that a European economic upturn could be limited, with a long period of weak growth unlikely to ease budgetary woes significantly.

He stressed that eurozone economies, starting in 2011, would have to take action against debt and public deficits, which have expanded sharply as governments spent heavily on crisis-driven stimulus measures and social welfare programs.

The European Stability and Growth Pact, designed to limit public deficits, "must not be interpreted as offering one-way flexibility," that is, toward a widening of the shortfall, he maintained.

"The scope of the deficits requires the drafting of a realistic and ambitious consolidation plan."

But he said the time had not yet come to apply strategies aimed at ending stimulus measures.

"We haven't reached a point of maturity where we should launch" such policies, he said, but stressed: "We can't just be satisfied with taking small steps."

Juncker said the 16-nation eurozone growth potential -- the maximum possible growth without sparking excessive inflation -- "is going to seriously decelerate."

"We already had growth potential that was quite low before the crisis, in the order of 2.5 percent (a year), and it seems that the growth potential will hover around 1.5 percent (annually) between 2010 and 2020," he said.

"And timid growth goes hand in hand with tighter budgetary margins for manoeuvre."

In a sign that economies are looking brighter, European business and consumer confidence firmed in September for a sixth month running, according to an EU survey on Tuesday.

The European Commission's economic sentiment indicator for the 16 nations using the euro single currency rose to 82.8 points in September from a revised 80.8 in August, continuing a climb away from a record low 64.6 points in March.

However the rise remains below long-term averages and was the smallest recorded over the last six months.

In the 27-nation EU, the indicator rose to 82.6 points from a revised 81.0 points in August.

Among the biggest EU nations, France and the Netherlands saw the biggest rises, up 4.7 and 4.6 points respectively, while Germany posted a moderate increase of 1.5 points.

Sentiment worsened in Italy and Spain, down 1.3 points and 1.2 respectively, while confidence in Britain and Poland remained largely unchanged, the commission survey said.

Juncker also urged the United States to encourage a "strong dollar."

"We (in Europe) like the sentence" often used by US authorities, he said, "that says a strong dollar is in the interest of the American economy."

"But I have to draw your attention to the fact that I haven't heard that sentence recently, and I would like to hear it again in coming days," he said.

Copyright © 2009 Agence France Presse. All rights reserved.

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BRUSSELS -- The eurozone economy is in fragile convalescence from the economic crisis and should be given another 15 months to prepare for tough action on overspending, a leading finance minister said on Tuesday.The warning came just after German Chancellor Angela Merkel...
Tuesday, 29 September 2009 09:49 AM
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