EU Economy Chief Blames Huge U. Debt for Plunging Shares.
The EU's economy chief on Tuesday blamed the United States' overspending for plunging shares on world stock exchanges, saying Europe was in better shape and could weather the storm despite the risk of its economy slowing.
"The main reason why the equity markets have this extreme volatile situation these days is the risk of a recession in the U.S., it's not about a global recession," EU Economic and Monetary Affairs Commissioner Joaquin Almunia. "Big imbalances have been created, have built over the years in the U.S. economy, a big current account deficit, a big fiscal deficit, a lack of savings," he said after he met with EU finance ministers. The current account is the broadest measure of foreign trade.
"This is not at all the situation in our European economies. Our fundamentals are solid," he said. "We have a positive current account position, we have a level of savings in our economies that is the level required to finance our investments. We have a sound fiscal position."
Shares -- that until now largely escaped the subprime fallout -- fell sharply worldwide Monday amid investor skepticism over U.S. President George W. Bush's multibillion-dollar (-euro) tax relief plan, which aims to increase consumer spending and prevent a recession.
Britain's benchmark FTSE-100 slumped 5.5 percent to 5,578.20; France's CAC-40 Index tumbled 6.8 percent to 4,744.15, while Germany's blue chip DAX 30 plunged 7.2 percent to 6,790.19. European stocks fell but recovered on Tuesday and were mixed in morning trading.
Almunia called for "calm and serenity" saying European officials would have to carefully watch markets and stand ready to act if necessary. "We are well prepared to weather this situation even if we cannot ignore the risks of our growth being affected by this turmoil," he said, acknowledging that the European economy will likely grow less than its potential this year.
Both British and German officials chimed in saying their economies were also sound. German deputy finance minister Thomas Mirow told reporters in Brussels that businesses' order books were full and banks were still enjoying strong demand for credit.
In London, British Prime Minister Gordon Brown's spokesman Michael Ellam said current financial turmoil was "clearly a global phenomenon originating in the U.S." He stressed that Britain was still enjoying low inflation and a steady growth trend.
But Almunia said it was obvious that Europe faced an uncertain period sparked by the emergence of huge losses in the U.S. housing market last August. It is still unclear how far tighter credit conditions will affect companies trying to secure loans and homebuyers seeking a mortgage -- factors which could brake the domestic demand that the European economy now largely rests on.
The U.S. Federal Reserve cut rates by three-quarters of a point Tuesday, and central banks in EU states Britain and Sweden have also cut borrowing costs to encourage lending -- a move the European Central Bank has so far avoided as it keeps interest rates on hold for the euro area.
The EU's economy chief insisted that EU nations needed in the meantime to push on with "clear and predictable" policies such as efforts to eliminate budget deficits and a three-year program to boost jobs and growth by reforming their economies and investing more in research and education.
The EU's economy chief on Tuesday blamed the United States' overspending for plunging shares on world stock exchanges, saying Europe was in better shape and could weather the storm despite the risk of its economy slowing.
"The main reason why the equity markets have this extreme volatile situation these days is the risk of a recession in the U.S., it's not about a global recession," EU Economic and Monetary Affairs Commissioner Joaquin Almunia. "Big imbalances have been created, have built over the years in the U.S. economy, a big current account deficit, a big fiscal deficit, a lack of savings," he said after he met with EU finance ministers. The current account is the broadest measure of foreign trade.
"This is not at all the situation in our European economies. Our fundamentals are solid," he said. "We have a positive current account position, we have a level of savings in our economies that is the level required to finance our investments. We have a sound fiscal position."
Shares -- that until now largely escaped the subprime fallout -- fell sharply worldwide Monday amid investor skepticism over U.S. President George W. Bush's multibillion-dollar (-euro) tax relief plan, which aims to increase consumer spending and prevent a recession.
Britain's benchmark FTSE-100 slumped 5.5 percent to 5,578.20; France's CAC-40 Index tumbled 6.8 percent to 4,744.15, while Germany's blue chip DAX 30 plunged 7.2 percent to 6,790.19. European stocks fell but recovered on Tuesday and were mixed in morning trading.
Almunia called for "calm and serenity" saying European officials would have to carefully watch markets and stand ready to act if necessary. "We are well prepared to weather this situation even if we cannot ignore the risks of our growth being affected by this turmoil," he said, acknowledging that the European economy will likely grow less than its potential this year.
Both British and German officials chimed in saying their economies were also sound. German deputy finance minister Thomas Mirow told reporters in Brussels that businesses' order books were full and banks were still enjoying strong demand for credit.
In London, British Prime Minister Gordon Brown's spokesman Michael Ellam said current financial turmoil was "clearly a global phenomenon originating in the U.S." He stressed that Britain was still enjoying low inflation and a steady growth trend.
But Almunia said it was obvious that Europe faced an uncertain period sparked by the emergence of huge losses in the U.S. housing market last August. It is still unclear how far tighter credit conditions will affect companies trying to secure loans and homebuyers seeking a mortgage -- factors which could brake the domestic demand that the European economy now largely rests on.
The U.S. Federal Reserve cut rates by three-quarters of a point Tuesday, and central banks in EU states Britain and Sweden have also cut borrowing costs to encourage lending -- a move the European Central Bank has so far avoided as it keeps interest rates on hold for the euro area.
The EU's economy chief insisted that EU nations needed in the meantime to push on with "clear and predictable" policies such as efforts to eliminate budget deficits and a three-year program to boost jobs and growth by reforming their economies and investing more in research and education.
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