European economy at crisis point

By Fergal O'Brien  |   2008-11-4  |     NEWSPAPER EDITION

THE European Commission said yesterday the region's economy probably entered a recession this year and will barely grow in 2009, increasing pressure on political leaders to work out a plan to combat the financial crisis at summits later this month.

Economic growth in the euro area will slump to 0.1 percent next year, the worst performance since 1993, the Brussels-based commission said in a report yesterday. It lowered its forecast for this year to 1.2 percent from 1.5 percent in April.

Europe's economy, which has grappled with record oil prices and the euro's strength already this year, is now heading into 2009 mired in the credit crisis that has closed off funding to companies and sent consumer and business confidence plunging. European leaders will meet this month to try to hammer out a coordinated EU plan before a summit of world leaders hosted by President George W. Bush on November 15.

"The economic horizon has now significantly darkened as the European Union economy is hit by the financial crisis that deepened during the autumn," EU Economic and Monetary Affairs Commissioner Joaquin Almunia said in the report. "We need a coordinated action at the EU level to support the economy similar to what we have done for the financial sector."

Central banks across the world have already taken steps to try to limit the economic damage. The European Central Bank is set to cut its benchmark rate this week for the second time in less than a month after the United States. Federal Reserve lowered its rate to match the lowest level in half a century and policy makers in Japan, India and Norway cut borrowing costs.

While governments have joined forces to bail out banks and have committed around 1.3 trillion euros (US$1.65 trillion) to protect financial institutions by guaranteeing bank loans and taking stakes in lenders, they have yet to hammer out a package for the wider economy.