ECONOMY

Inflation and growth worry Ecofin

BRUSSELS – Fear of inflation and concerns about growth in the midst of an otherwise positive overall picture of the European economy cast a shadow over the meeting of European Union finance ministers (Ecofin) in Brussels on Monday evening, where Greece’s Giorgos Alogoskoufis said the government remains vigilant. Both the International Monetary Fund and the European Commission now project the eurozone’s growth rate at less than 2 percent this year, with Economic and Monetary Affairs Commissioner Joaquin Almunia noting at a press conference that if he knew last month what he now knows about oil, the subprime loan crisis in the US and the appreciation of the euro, he would not have forecast a 2.2 percent growth rate but lower. For his part, the Eurogroup president, Luxembourg’s Prime Minister Jean Claude Junker, noted with satisfaction recent US arguments in favor of strengthening the value of the dollar. On the other hand, he warned China that the present difficult circumstances «are strengthening protectionist trends» in Europe. Alogoskoufis said the government was ready to adopt measures to stem the side effects on the Greek domestic market of a phenomenon that was mostly imported, being primarily due to rising international prices of oil and cereals. He emphasized that the main concern was to avoid an inflationary spiral that would create pressures for larger wage claims, in turn fueling the spiral even more. «In any case, the euro is the most important bulwark against an inflationary explosion,» Alogoskoufis said. He added that he wanted a three-year pay pact between unions and private employers, instead of the usual one or two, and that pay raises in the public sector would be the «largest possible.» Concerning growth prospects, Alogoskoufis said the Greek economy was least dependent on its meager exports, as opposed to public investment, which will remain the main driving force for growth under the EU-subsidized National Strategic Reference Plan for 2007-2013. Additionally, he said, there are private investments totaling some -8 billion, planned public private partnerships worth about -3 billion and positive regional prospects with high growth rates in neighboring Balkan countries. Cyprus’s Sarris says ECB mustn’t neglect prices to spur growth Cypriot Finance Minister Michalis Sarris, whose country will adopt the euro next year, said the European Central Bank is right to make the fight against inflation its priority even as the region’s economy slows. «The focus is on inflation and that’s right,» Sarris said in an interview at a meeting of European Union finance ministers in Brussels yesterday. «There may be a price to pay in terms of loss of output and employment, but it’s preferable to pay a relatively modest price by putting the brakes on the European economy in a relatively soft way now to having to slam them on later.» European growth is slowing more than forecast by the EU and may drop below 2 percent in 2008 for the first time in three years, EU Monetary Affairs Commissioner Joaquin Almunia said. The slowdown comes as inflation accelerates, posing a quandary for the ECB, which has refrained from following the US Federal Reserve in cutting interest rates. Consumer prices in the 13 nations using the euro jumped 3 percent in November from the year-earlier period, the biggest increase in six years, as global demand boosted the cost of food and oil. Cyprus and Malta, two Mediterranean islands, will bring the number of nations sharing the euro to 15 next year. «We will see a significant hike in inflation,» which will be «unsettling» for Europeans who have been used to 2 percent inflation, the Cypriot finance chief said. The adoption of the euro will lure more foreign investment in Cyprus, Sarris said. The Cypriot economy will probably expand «about» 4.3 percent this year, before returning to a pace of 4 percent later as Europe’s economy slows. Cyprus, whose current currency is the Cypriot pound, has a -14.5 billion-euro ($21.4 billion) economy, according to 2006 figures from the ECB. (Bloomberg)