E.U. urged to launch economic reforms

By Batuk Gathani

BRUSSELS, NOV. 10. These are ominous days for the global economy, as the latest economic indicators reveal that the U.S. economy has shrunk by 0.4 per cent and that economic slowdown is paralysing Europe.

The terrorist attack in the U.S. on Sept. 11 has had a cataclysmic effect on the economy with the spill-over effect on the global economy, with what observers describe as the ``worst drop'' in the U.S. growth for decades.

Simultaneously, Japan, the world's second largest economy, is mired in a slump which has dominated its economy now for a decade with little prospects of revival as unemployment in hits a post- War high. The only silver lining on the otherwise depressing global horizon is that the U.S. economy has dropped by only 0.4 per cent against the widely predicted 1 per cent. This has given a temporary boost to the value of the dollar on the currency markets.

With the U.S. and Japan in economic doldrums, accusing fingers are being pointed at the European Union for lacking the political will to launch key economic reforms. The U.S. considers the E.U. countries as lacking in strategic panache on economic and fiscal fronts, to jumpstart their stalling economic engine. The European economic scene, according to American critics, is ``adversely'' influenced by the conservative policies of the European Central Bank which has not lowered the euro interest rates in tandem with the U.S. Federal Reserve.

With the U.S. borrowing costs slashed to the lowest possible level, the business and Government establishments expect the U.S. industry to spend substantial sums to ease unemployment and boost the domestic economy. The European policy-makers have hence argued that the so-called ``artificial revamping'' of the U.S. economy may not yield dividends as consumer confidence is at its lowest ebb. Although in the E.U. consumer confidence is low, the reality is that Europe may not yet be ``paralysed'' as some U.S. observers suggest.

There is much confusion all round as European policy- makers point accusing fingers at one another. The ECB executives remain cautious and despite much criticism on both sides of the Atlantic, the bank is pursuing its tight monetary policy.

Mr. Wim Duisenberg, president of the ECB, has instead urged the euro-zone Governments to take practical measures towards basic economic reforms by deregulating the E.U.'s tight labour laws and pruning the excesses of the socialist-oriented welfare states.

Such ideas are not rated as an ``appealing alternative'' to politicians who are facing major parliamentary elections next year. The emerging perception at the Government level is that much about European unity, economic resolve and fiscal management may depend on how efficiently the euro currency notes and coins are introduced on Jan. 1, 2002. A successful launch of the euro could boost consumers' confidence, and this may bring about the desperately anticipated economic revival of the E.U.

On the social and political front, the most worrying consequence of the poor economic growth is that the European unemployment rate may grow to two-digit figures. According to latest statistics, the unemployment rate in France in October rose to a 10-month high as struggling companies announce lay-offs amid slowing French economy.

In Germany, the unemployment rate has reached 9.4 per cent. Mr. Horn, chief economist at Berlin's prestigious German Economics Institute, was quoted as saying: ``Now that the economy is weakening across the board, it is becoming a big problem.'' The 12 euro-zone Governments have structured a ``stability pact'', but it has yet to deliver amid growing pessimism that the growth rate could fall significantly.

The ECB has consistently argued for basic reforms, leading to liberalisation of tight employment procedures but this is not possible as Germany and France - the euro-zone's leading economies - face parliamentary elections next year. Germany, the E.U.'s ``locomotive economy'' has the biggest budget deficit and the slowest economic growth of the region's countries. How the Chancellor, Mr. Gerhard Schroeder, will extricate his country out of economic quagmire remains to be seen as he tries to raise Germany's global profile with a stint of globetrotting.

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Section  : International
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