European Finance Minister to Study U.S. Economic Woes
From Staff Reports
European Union finance ministers open two days of talks today (Monday) to discuss how key U.S. problems as a slowing economy, a super-weak dollar and a huge-and-growing trade deficit will affect the European Union, as well as the rest of the world economy.
The falling dollar has made U.S. exports cheaper versus European counterparts. Plus, Europe is feeling the pinch as its own key exports - French wine, Italian fashions and German sports cars - are being priced out of the affordability range of American consumers.
BusinessEurope, the employers federation, last week said that the euro has risen past the so-called "pain threshold" for European exporters by crossing the 1.40 to the dollar level. The group is also arguing that the euro is rising too fast against the Japanese Yen and the Chinese yuan.
With the United States problems, the EU has throttled back on its growth forecasts - from the prior 2.6% to the current projection of 2.5 growth for the months ahead.
The finance ministers of the 13 euro-zone nations will express their intense concern but will also contend that Europe is an "innocent victim" of others. They will say that the euro and that the euro-dollar exchange rate issue is part of a broader set of problems - China’s huge trade surplus and massive $1.33 trillion in foreign currency reserves and the United States’ huge runup in debt, both in its current account and fiscal budget deficits. Some sort of formalized plan is needed to undo, or at least mitigate, these problems and their impact on European businesses, as well as on the market as a whole.
Luxembourg’s prime minister, Jean-Claude Juncker, set the tone last week when he said the Europeans should not have to bear the consequences of other countries’ inaction.
Finance ministers from all 27 EU nations on Tuesday will lift a caution for London that was imposed when it ran a budget deficit above the EU’s recommended 3% of gross domestic product. The recent economic surge should allow Britain to cut that to 2.4% in the 2008-09 financial year - but only if it avoids a U.S.-like collapse of is super-heated housing sector, which some experts (including several here at Money Morning).
The Czech Republic will see its budget warning stepped up, as it is told to cut its deficit to zero within five years. This year, the deficit is likely to overrun a forecast of 3.3%, as it counts the cost of higher social welfare spending by the previous government. The country needs to get well below 3% to join the euro as Prague plans for 2012.
Since the euro was launched as a currency five years ago, Europe’s commission has tried to get the countries using the euro currency to work harder to slash budgets and to do more to coordinate economic activity. It says the euro has made the European market less vulnerable to outside shock, such as the big jump in oil and energy prices of the past year.
With the United States problems, the EU has throttled back on its growth forecasts - from the prior 2.6% to the current projection of 2.5 growth for the months ahead.
the possibilities of a worsening U.S. slowdown, higher oil prices and tighter borrowing conditions could all risk derailing Europe’s first bloom of growth after several years of stagnancy.
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The Associated Press:
Finance Ministers Discuss Dollar Woes.