Duisenberg upbeat on euro-zone economy

 

European Central Bank (ECB) president Mr Wim Duisenberg said he was reasonably optimistic about the euro-zone economy and saw domestic spending as the main impulse for recovery.

"I'm not really gloomy. I'm reasonably optimistic. But it is \ very slowly," he said yesterday.

"We [the ECB\] expect that the most important impulse will come from domestic demand in Europe," he said. Given expectations that inflation will slow, among other things, "we think that people will have more purchasing power and spend more," Mr Duisenberg said.

The Dutch-born ECB president was quoted on Saturday as telling German newspaper Bild am Sonntag that euro-zone economic growth should pick up in 2003, with inflation slowing towards a rate below the ECB's self-imposed limit of two per cent in 2003 and 2004.

Euro-zone inflation fell to 2.2 per cent year-on-year in November from 2.3 per cent in October.

Duisenberg told Dutch television, however, that the threat of a possible US-led war in Iraq was not doing the economy much good, and added that his view was shared by US Federal Reserve chief Mr Alan Greenspan.

"The threat of war makes people uncertain. If people are careful they spend less. As an economist, I told him \ this war threat shouldn't be there. And he said he totally agrees," Mr Duisenberg said.

The ECB president said that in the event of a war, oil prices would rise and have a negative impact on the world economy, but the overall economic impact was unpredictable.

He repeated his call that the 12 countries of the single-currency area should stick to the goals of the Growth and Stability Pact.

"Don't underestimate the effect of mutual pressure by countries to stick to the rules. The majority of smaller countries, which by now meet [the goals\], will of course not tolerate that the larger players back out of the rules," Mr Duisenberg said.

Eight of the euro zone's 12 member countries have met the pact's target of bringing budgets close to balance or in surplus, but Germany, France, Italy and Portugal are still struggling to bring their deficits below three per cent of gross domestic product.

"If you just started a game, you should not change the rules. If somebody is offside, the referee should not change the rules but should whistle," he said.

The ECB president repeated earlier comments that he was willing to stay in office longer if there wasn't a successor by the time he wishes to leave in July, on his 68th birthday.

"If this is the case, which I do not presume, this would be a short period," Mr Duisenberg said.

French central bank head Mr Jean-Claude Trichet remains the frontrunner to replace Duisenberg, but Trichet's ongoing trial related to a bank scandal in France might force European Union leaders to appoint someone else.

In answer to questions about Mr Trichet, Mr Duisenberg said his successor did not necessarily have to be French, although he added they probably would.

"In the agreement which regulates this it says that the ECB president should be somebody with international experience in finance and banking. The nationality is not mentioned so it doesn't have to be a Frenchman," he said.

"But there was an informal agreement between the heads of state in 1998 that the second president will be somebody of the French nationality. So it doesn't have to be [a Frenchman], but it probably will," he added.

"But I don't want to say anything about my friend and colleague Mr Trichet. It is a very unpleasant case which he is involved in. Let's just await what the investigation concludes."

- (Reuters)