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Eurozone still exposed to US fallout: Stark PDF Print E-mail
Wednesday, 27 February 2008

Agence France-Presse . Frankfurt

The 15-nation eurozone economy is still vulnerable to effects of the US housing and financial crises, European Central Bank board member Juergen Stark said in an interview on Monday.

'We have become more resistant to external shocks, but we are not immune to what is happening in the United States,' Stark told the German business weekly Wirtschafts Woche.

With respect to trade, 'the importance of the United States has been tempered somewhat because other markets have become more important for European exporters,' he said.

Central and eastern Europe were prime examples. But 'financial markets are interconnected in such a tight way that there is no question of de-coupling,' Europe's economy from that of the United States, he added.

Meanwhile, eurozone inflation that hit 3.2 per cent in January was 'a temporary phenomenon caused by strong increases in the cost of energy and food items,' Stark reiterated.

'This phenomenon could be more persistent than we thought at the end of last year,' he said. 'But during the course of this year inflation will likely be back near 2.0 per cent if food and energy prices ease, as expected,' he added.

In early February, the ECB repeated its focus on fighting inflation, while raising its level of concern over growth, leading many to expect an interest rate decrease this year.

Some see a rate decrease from the current level of 4.0 per cent as early as April, in the wake of repeated cuts by the US Federal Reserve, which has now slashed its main lending rate to 3.0 per cent.

The most recent estimation for eurozone growth by the European Commission fell meanwhile to 1.8 per cent from 2.2 per cent previously.

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