(THIS ARTICLE IS MACHINE TRANSLATED by Google from Norwegian)
"The EU is the world's new growth locomotive," said German Chancellor Gerhard Schröder. "Europe is becoming the world's strongest economic power," said Swedish Prime Minister – and host of the meeting – Göran Persson.
But at the same meeting, Europeans could not agree on anything. They did not agree on a free and liberalized energy market; France was stiff and received support from Germany. They failed to agree on a common airspace, and they failed to agree on common patent systems or a common satellite network. Nor did they manage to agree on how to deal with various types of animal madness and plague.
In the last case, after all, the EU has gone to great lengths to convince the rest of the world that the union for is a unifying community, but different countries and regions need to be addressed individually. With regard to a free energy market, the failure shows that the EU just cannot put in place the internal market needed for the euro to gain credibility as a single currency.
Considering that Europe's top politicians left the massive reform meeting in Nice in December amid complete chaos, it's no wonder the world's economic players are still swearing to the dollar, triumphs in the United States. There, in the yard, people are surprised that the dollar stays so strong despite market panic and recession alerts.
A strong dollar and a weak euro; this has been the case in recent years and it is the case now. In the United States, Treasury Secretary Paul O 'Neill claims that the economy will soon begin to grow again. In that case, it is “bye, bye” for Europe's airy visions of 'no one over; no one next door. ”
Writes down the forecasts
Europe thought for a while that they would not notice the effects of the slow crash in the United States. The Union boasts the world's largest domestic consumer market and is more dependent on its own consumption than on exports to third countries.
Therefore, the European Central Bank did not cut interest rates. It still hasn't.
France has written down growth for this year to 2.9 percent; from 3.3 percent. Italy has done the same, from 2.9 percent to 2.6-2.7 percent. Ditto with Germany, where Finance Minister Hans Eichel maintains a growth of 2.75 percent while he says that a growth of only two percent "will not be a bad result."
"There is no doubt that the international economic climate has worsened since we presented our forecasts in December last year," admits the central bank's chief financial officer, Otmar Issing. He does not rule out that growth in Europe may fall to 2.8 percent for the current year against 3.4 percent last year.
Investors, for their part, fear new turbulence in the European economy in line with the one experienced at the beginning of 1999. They are therefore holding on to the dollar. Statements from European politicians that the world must now understand its own best and buy the euro instead of the dollar are met with a shrug – and lots of sarcasm.
"The euro is certainly a 'safe heaven' in relation to a currency like the peso," a representative of the US Treasury Department told the French newspaper Le Monde – under "cover of anonymity," as it is called. "But in relation to the important currencies, the euro has had an incredibly bad year."
Therefore, the flow of capital still goes the wrong way; out of Europe and the euro, and into the United States and the dollar. This is partly explained by the fact that European companies have acquired and merged with a number of American companies – transactions that take place in dollars – and partly by the fact that confidence in Europe is low, and declining as forecasts are downgraded.
In January alone, 45.5 billion euros "disappeared" from European markets. In short, the latter means that Europeans buy foreign shares and bonds, while foreigners sell their shares and bonds in euros.
To squeeze together
While the European Central Bank is stumbling, the US Federal Reserve chief Alan Greenspan has been very active. Since January, the interest rate has been reduced three times by a total of 1.5 percentage points. It is now only 0.25 percentage points above the European – compared to 1.75 percentage points six months ago.
This means that the United States has laid the foundation for new growth, and this growth will come towards the end of the year, Finance Minister Paul O 'Neill claimed as late as last week. He has already raised its growth for the first quarter to 0.75 percentage points; from 0.25 percentage points in the original forecasts.
Investors do not place too much faith in O 'Neill's optimism.
At the same time, one message about mass redundancies comes after another in the US and the rest of the world. Mass layoffs lead to reduced growth in the economies, which in turn leads to pressure on profits and even more layoffs.
That cycle has not yet manifested itself, it is said from the American side, but "the picture is ugly." Last year, the value of US shares was 186 per cent of the real values in the economy, while the figure is now 140 per cent – in other words still high. In comparison, the Japanese stock values were 120 percent of the real value in the economy when the bubble burst there ten years ago.
Precisely Japan is an additional source of trouble for Americans. The country has not managed to bring about new growth, and now it may face a new recession in the world's second largest economy. What the Americans are afraid of is not only that the US economy is going to hit on its own, but that a new decline in Japan will cause the two economies to collapse.
New interest rate cuts
Most of it is therefore uncertain, and much also depends on how quickly George W. Bush's solid tax cuts – $ 1.6 trillion over a ten-year period – arrive, and how quickly they begin to work. What is clear, however, is that European assurances that the euro area will be the world's next growth engine are facing increasing skepticism as forecasts are written down and stock markets go on new slams here as well.
As a result, the European Central Bank is under increasing political pressure to cut interest rates. At a meeting on March 29, central bank governor Wim Duisenberg failed to do just that, and the result was that the euro fell again like a stone against the dollar – to 0.87 cents.
The ESB will now meet again in April, well in advance of the next Federal Reserve meeting. Then interest rates may come in Europe, but it will probably be eaten up by new interest rates in the US in May.
In the fight to get out of the financial handicap, the United States is leading several horse lengths ahead of Europe. But ultimately, some of them may not win.
