EU-DIGEST

Dutch Finance Minister Bos: "No Risk Of Economic Recession In Europe"

"There is no risk that Europe's economy will experience a recession this year, Dutch Finance Minister Wouter Bos said Tuesday. And speaking to reporters ahead of a meeting of finance ministers from the 27 members of the European Union, Belgian Finance Minister Didier Reynders concurred, but added there is a risk of a slowdown. Reynders added that the E.U. finance ministers, known as Ecofin, will monitor developments in global financial markets "very closely." European and Asian stock markets plummeted Monday, and Asian markets lost further ground Tuesday. But Jean-Claude Juncker, who heads the Euro Group of finance ministers from the 15 E.U. members that use the euro, repeated his view that the euro-zone economy is in better shape that its U.S. counterpart, and added that "it won't happen that we in Europe" have to resort to launching fiscal stimulus packages, as the U.S. administration did last week. Asked if E.U. economies would enter recession, Bos said "no, no." He added that the Dutch economy was well positioned to deal with the turmoil in financial markets, which he attributed to "uncertainty" about the outlook for the U.S. economy. "The fundamentals are very good," Bos said. "We can take a blow and still be healthy."

Editorial Note EU-Digest: "Mr. Wouter Bos probably is right, based on the actual situation. Euro area's GDP in 2007 will be about $11.9 trillion(according to IMF estimates). U.S. imports from the Euro area have totaled $245 billion in 2007 through November; let's say $267 billion for the full year. So the Euro area's exports to the U.S. account for just two and a quarter percent of its GDP. How much of a drop in US imports (Europe's exports) might we have in a U.S. recession? Last recession US imports fell by 5.5 percent. If with the fall of the dollar, US imports really drop, by say ten percent. That would cut 0.2 percent off Europe's growth rate, plus multiplier effects if any. That by itself does not send Europe into recession. As for the echo effect, U.S. exports to the Euro area amount to about 1.3 percent of US GDP. So by taking 1.3 percent of a 0.2 percent drop and you get a trivially small number, less than three thousandths of one percent. So forget an echo recession in Europe. That is if we base it only on what is happening in the US."

Labels: EU Economy, US recession, Wouter Bos