EU finance officials are confident that the impact of the turbulence in Europe will be
The EU finance ministers (Ecofin) will discuss on Tuesday the effect of the financial crisis on the European economy and the most appropriate response to the current situation of uncertainty, and will assess the risks arising from the appreciation of the single currency.
In their first analysis of the problems in the US mortgage market, carried out in Porto, Portugal, last month, the EU's top economic policymakers were convinced that the impact on Europe would be "limited".
The European Commission insisted this week that the turbulence will have a "moderate" effect on euro zone growth in 2007, but acknowledged the increased downside risks due to greater uncertainty, particularly looking ahead to 2008.
Furthermore, in the three weeks since the Porto meeting, the European currency has followed an upward path that has taken it to successive historical highs (reaching above 1,41 dollars per unit), with the consequent increase in the cost of European exports.
This latest surge in the single currency has set off alarm bells in Europe, and new voices have joined the usual one of French President Nicolas Sarkozy to warn about the impact of a strong euro on growth.
Thus, both the European Commission and the Spanish and Italian governments have acknowledged their growing "concern" about the evolution of the euro, and the European employers' federation has called for urgent measures to readjust exchange rates.
Even the president of the Eurogroup (eurozone finance ministers), Jean-Claude Juncker, has abandoned his moderate tone to urge the United States to take measures to reduce its trade and current account deficits, and allow the dollar to appreciate.
On Monday, the Eurogroup will try to establish a common position on this issue ahead of the next G-7 ministerial meeting (the seven most industrialized countries in the world, including Germany, France and Italy, partners of the euro).
From the European Central Bank (ECB), which this week again postponed the interest rate hike, its president, Jean-Claude Trichet, asked the governments of the area for "verbal discipline" and reminded them of the advisability of speaking with one voice on exchange rates.
Regarding mechanisms to protect the European economy against financial turbulence like that experienced last summer, the Twenty-Seven will insist, as they already did in Porto, on the need to increase transparency, especially in the functioning of the most complex financial products.
The ministers will also use their meeting in Luxembourg to discuss funding possibilities for the European satellite navigation project, Galileo, following the withdrawal of private companies due to doubts about its profitability.
Brussels proposed making additional EU funds available to advance Galileo, but Germany is strongly opposed to this option and wants member states to be able to contribute money as well.
The aim is to reach an agreement before the end of the year, but sources from the Portuguese EU presidency acknowledge that Ecofin is unlikely to make "major progress" this week.
The ministers also plan to confirm the closure of the procedure opened in 2005 against the United Kingdom for its excessive deficit, after noting that in 2006/2007 (in that country the fiscal year does not coincide with the calendar year) it was less than 3% of GDP and that it will remain below that threshold in the coming years.
They are also expected to support the Commission's proposal to ask the Czech Republic to correct its excessive deficit before 2008, an achievable goal given the country's strong growth.
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