Economic recovery in danger due to war

Euro-zone finance ministers have warned that the war in Iraq is affecting consumer and investor confidence, and endangering prospects of an early recovery, writes Denis Staunton from Athens

The ministers were meeting in Athens yesterday ahead of today's meeting of all 15 EU finance ministers.

Their aim was to present a united front, with assurances to the markets that Europe would not use the war as an excuse to delay painful economic reform or to relax budgetary discipline, despite splits on the issue of the stability pact.

Greek finance minister Mr Nikos Christodoulakis said last night that it was too early to predict the effect of the conflict on the international economy but he said the war had already made its mark economically.

"The developments have had a negative impact on investor and consumer confidence. Lack of confidence is a serious obstacle to recovery," he said.

Mr Christodoulakis said there was no sign of recovery in the euro zone.

However, he said: "We do not expect a recession. . . Our economic policies are more or less moving in the right direction."

The Economic and Monetary Affairs Commissioner, Mr Pedro Solbes, said he hoped the economy would turn around in the second half of this year. He said, if the recovery begins before the end of 2003, economic growth in the euro zone could reach 2.25 per cent next year.

The European Commission and the European Central Bank (ECB) expect the euro-zone economy to grow by just 1 per cent in 2003.

Mr Solbes expressed concern over the growing current account and fiscal deficits in the US, an issue he said would be raised at this month's meeting of G7 finance ministers.

Earlier yesterday, German Chancellor Mr Gerhard Schröder suggested that the war in Iraq could lead to a more flexible application of the Stability and Growth Pact, although he stopped short of calling for suspending the 3 per cent limit on budget deficits.

"The stability pact allows for flexibility but I don't want to talk now about giving up on the limits because that would be wrong.

"We'll have to talk about the consequences in the European Union. This is not a debate isolated to Germany - it is a European-wide debate," according to Mr Schröder.