War risk is hampering the economy, says Duisenberg

Date: 10/10/02

By Peter Chapman

WIM Duisenberg, the European Central Bank's president, this week blamed the threat of war and long-term structural problems rather than interest rates for the gloomy economic climate in the eurozone.

His comments to members of the European Parliament's economic and monetary affairs committee came as the bank prepares to decide today (10 October) on whether to change rates.

Responding to claims by MEPs that cuts were vital because the eurozone engine was still spluttering behind the US, where rates have been pegged back more aggressively, Duisenberg said: 'It's not all monetary policy - and it's even not fiscal policy [that are draining confidence]. It's the unusually large uncertainty prevailing in the world at the current juncture.'

The Dutchman said jitters over the possibility of war and the question of its duration were a key factor in the economic climate.

But he suggested that EU governments could provide a better platform to cope with such uncertainty by embarking on ambitious structural reforms, such as tackling labour markets so they perform more efficiently.

This approach would give the bloc more of a boost than short-term interest rate and tax cuts, he claimed.

Until these problems were dealt with, the US would continue to weather economic storms better than the eurozone.

Duisenberg also responded to claims that there was a danger of a Japan-style deflation if rates were not cut - despite low levels of inflation in Germany and Belgium, running at less than 1.

He said the inflation rate for the eurozone as a whole was still expected to hover around 2 for the rest of the year and that it will only fall below this in 2003.

Meanwhile, the central banker said he was pleased with the outcome of talks between eurozone finance ministers on the Commission's move last month to grant Germany, Portugal, France and Italy extra time to balance their domestic books.

France, which risks a warning from the EU over last week's budget, was the only dissenting voice as ministers pledged to keep spending in check.

Wim Duisenberg, the European Central Bank's president, has blamed the threat of war and long-term structural problems rather than interest rates for the gloomy economic climate in the eurozone.

http://www.ecb.int/press/key/date/2002/html/sp021008.html http://www.ecb.int/press/key/date/2002/html/sp021008.en.html

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