Economic impact of war on Iraq worries EU

BRUSSELS, Belgium (AP) - Overshadowed by the European Union's emergency summit on Iraq, finance ministers were assessing Monday what a war would do to their already shaky economies. 

Finance ministers gathering for their regular monthly meeting Monday night and Tuesday were to take stock of the economic climate, which is already playing havoc with efforts by some of the biggest countries to stick to deficit targets set under the EU's euro rules. 

"Geopolitical uncertainties'' and their impact on the 12 euro-using countries will be of particular interest, said Gerassimos Thomas, an EU spokesman. 

The EU head office announced Monday it will cut its autumn forecast of 1.8 percent growth for the eurozone in 2003, although fresh figures aren't available yet. 

It has refused to rule out a softening of budget rules, intended to support the single currency, if a war against Iraq leads to further weakening. 

The rules already allow for breaching the deficit limits - 3 percent of gross domestic product - when it results from an "unusual event outside the control of the member state.'' 

"If a war is not an exceptional circumstance, I wonder what is,'' EU Monetary Affairs Commissioner Pedro Solbes told reporters at the European Parliament in Strasbourg, France, last week. 

That loophole could give breathing room to countries like Britain, Germany and France, which are facing varying degrees of reprimands from the EU over their high budget deficits. 

Thomas stressed that Solbes was simply suggesting taking advantage of built-in flexibility. "It does not mean loosening the rules,'' he said. 

German Chancellor Gerhard Schroeder, already under fire for breaking EU budget rules with last year's deficit, has hinted at easing budget targets in case of a war. 

British Treasury chief Gordon Brown said last week he was setting aside an additional 750 million pounds (US$1.2 billion) in this financial year for possible military action in Iraq, on top of 1 billion pounds (US$1.6 billion) already allocated. 

A review of Britain's spending plans were also on the meeting's agenda, along with a proposal for an EU framework on energy taxation, which faced stiff opposition from Italy in particular. 

The European Commission last month approved Britain's budget plans, ignoring a rising public deficit by pointing to strong underlying finances. But the gentle report faced dissent from some countries' finance ministers. 

Italy wants to maintain reduced rates on diesel for truckers until the end of 2004, which are intended to compensate truckers for the costs they face in crossing the Alps. 

Rome introduced the measures in response to protests by truckers at soaring fuel prices in late 2000. 

Any agreement on taxation requires unanimous approval by the 15 member countries. - AP 

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