McCreevy and ECB differ on US downturn

The Minister for Finance has dismissed as simplistic claims by the European Commission and the European Central Bank (ECB) that the euro zone can escape the worst effects of an economic downturn in the United States.

Mr McCreevy, who is attending a meeting of EU finance ministers in the Swedish city of Malmo, avoided direct criticism of the ECB. But the ECB president, Mr Wim Duisenberg has consistently maintained that, because the euro zone depends overwhelmingly on domestic demand, it is largely isolated from external events.

"I have never shared that view. To think that a serious, long and sustained downturn in the US would not have an effect on the rest of the world's economy is not dealing with reality," Mr McCreevy said.

A number of EU finance ministers have called on the ECB to follow the example of the US Federal Reserve by cutting interest rates without delay. But Mr Duisenberg, who is also attending the meeting in Malmo, indicated last week that the Bank remains committed to its "wait and see" policy.

The president of the European Commission, Mr Romano Prodi, denied that Mr Duisenberg was under pressure from finance ministers to cut rates.

"There is no pressure. We are not asking Mr Duisenberg here to justify and explain. The autonomy of the central bank is real," he said.

The Commission is expected to revise its 2001 prediction for euro-zone growth next week, reducing its forecast from 3.2 per cent to 2.7 per cent. But even the new figure remains more optimistic than forecasts by other analysts.

"I do hope the US economy will start to grow again. But our figures are real and accurate," Mr Prodi said.

Mr McCreevy suggested that it was too early to say whether the US was experiencing a brief downturn or was on the verge of a lengthy recession. And he played down the impact of the US economy on Ireland's prospects.

"You shouldn't overstate the importance of US companies in Ireland. Out of 1.7 million people employed in Ireland, less than 100,000 are employed by US companies," he said.

Despite growing evidence that Europe's economy is slowing down, few analysts expect the ECB to cut interest rates when its Governing Council meets in Frankfurt next Thursday.

EU finance ministers remained divided last night over the need to increase the minimum taxes charged on oil and gas throughout the Union. Mr McCreevy indicated that, as one of the most geographically peripheral member-states, Ireland would resist any measures likely to increase fuel prices.

The euro rose last night against the dollar, reaching its highest level since March 20 on the back of the US interest rate cut and strong European industrial data. The single European currency bought $0.9031, from $0.8973 overnight in New York.

The euro was firm in late trade following unexpectedly strong industrial production data for the euro zone which was seen as vindicating the European Central Bank's refusal to cut interest rates, dealers said.