EU ministers bid to limit impact of attacks in US

European Union finance ministers and central bankers have agreed to take all possible action to limit the impact of the terrorist attacks in New York and Washington on Europe's economy.

But the Minister for Finance, Mr McCreevy, acknowledged that the Government would have less scope for increasing public spending and cutting taxes in December's Budget than in previous years.

The ministers and central bankers said after a meeting in the Belgian city of LiΦge that the fundamentals of Europe's economy remained sound and that there was no need to depart from the Stability and Growth Pact that obliges members of the euro zone to keep deficits low.

Three prominent German economists predicted yesterday that the attacks in America could damage consumer confidence so badly that up to 100,000 German jobs could be lost.

But Mr Vitor Constancio, a member of the governing council of the European Central Bank (ECB) expressed confidence that Europe could avoid a recession.

"In Europe, of course the events of September 11 had a negative impact but we are still thinking that we will have positive growth this year," he said.

Mr McCreevy said that much depended on the nature and timing of the US response to the attacks but he pointed out that the US economic downturn was having an impact in Ireland even before the attacks.

"Growth rates in Ireland this year will be less than expected and next year they'll be considerably less," he said.

The ministers have instructed financial investigators in all EU member-states to study market movements in the days surrounding the attacks to determine whether investors linked to the perpetrators may have benefited from prior knowledge of what was to happen.

The Bundesbank president, Mr Ernst Welteke, said that regulators had detected unusual movements in airline and insurance shares and in the gold and oil markets.

"There are ever-clearer signs that there were activities on international financial markets which must have been carried out with the necessary expert knowledge," Mr Welteke said during a break in an EU finance ministers' meeting.

"With the oil price we have seen, before the attacks, a fundamentally inexplicable rise in the price, which could mean that people have bought oil contracts which were then sold at a higher price," he said.

Swiss newspapers reported yesterday that the Swiss authorities are investigating a Lugano-based financial services company on suspicion of laundering money for Osama bin Laden.

Swiss authorities are also investigating all Islamic charities in the country.

The ministers sidestepped a discussion of the Tobin Tax, a proposed tax on international financial transactions that could fund aid to developing countries.

They asked the European Commission to prepare separate reports on how to curb financial market volatility and how to raise money for developing countries.

The French Finance Minister, Mr Laurent Fabius, whose prime minister, Mr Jospin, has expressed an interest in the Tobin Tax, indicated that there was little support for it among finance ministers.

"Many colleagues expressed reservations but it is normal that an objective study is carried out," he said.

The tax, named after US economist Mr James Tobin, who proposed its introduction in the 1970s, would impose a charge on global currency transactions.

It has been promoted by non-governmental organisations to curb speculation and to raise funds for developing countries.