By Swaha Pattanaik
LUXEMBOURG, Oct 15 - Verbal sniping between the European Central Bank and the common currency bloc's finance ministers spilled into the open on Monday ahead of their meeting here to review the threat facing euro zone growth.
ECB chief economist Otmar Issing said that there was "no basis" for emergency spending to support flagging growth. He was speaking just a short while after a French government source said it was poised to unveil new economic protection measures.
The monthly gathering will also back tough anti-money laundering rules as part of the global fight against the funding of groups blamed for suicide attacks on the United States.
But the state of the economy will be a key issue, which has already prompted calls from several ministers for the ECB to cut interest rates again.
A French government source said that Finance Minister Laurent Fabius would publish a stimulus package on Tuesday. He attends the Monday evening meeting of his euro zone colleagues and this will be his last chance to brief them on his plans.
ECB PRESSURE
Fabius and his Luxembourg host Jean-Claude Juncker have both said they feel the ECB has scope to ease following its decision to leave rates on hold after its council meeting on Thursday.
They will be able to press their case with ECB Vice President Christian Noyer, who will attend the meeting carrying the bank's message that euro zone nations should stick to their own rules of budget control despite an uncertain growth outlook.
Issing underlined this position to reporters in Frankfurt, saying that eurozone governments should not seek to weaken the their 1997 Stability and Growth Pact in the face of the current growth slowdown.
"There is no basis for emergency (fiscal) policy setting," he said, speaking on the sidelines of an event to launch his new book on monetary policy.
The ECB elected to keep its powder dry on rates last week but Issing repeated recent comments of bank President Wim Duisenberg that this stance was flexible and would depend on the evidence from economic data as it emerged.
"So far we are still waiting, but a quick reaction, if needed, we can deliver that," he said.
Shock from the attacks on Washington and New York risk toppling the world into recession. Issing said third quarter euro zone growth would not be good, but would recover next year.
FISCAL OPTIONS
The Handelsblatt newspaper reported on Monday that Germany would cut its growth 2002 forecast to 1.5 from 2.25 percent, a report which German officials declined to confirm or deny, and European officials acknowledge that growth risks have risen. Underlying the threat to the country's growth, Commerzbank said it will cut 3,400 jobs by end-2003 and German electrical giant Siemens announced a further 2,000 job cuts at its mobile telephone business. The group has already cut 10,000 jobs so far this year.
Economists say that the United States will almost definitely slip into recession and Washington has already unveiled a $75 billion fiscal boost worth more than one percent of GDP which it hopes will kick-start the economy next year.
The euro zone has less room for manoeuvre because it is already in deficit and has strict limits under the Pact, which caps budget deficits at 3.0 percent of GDP.
But its politicians, some of whom face re-election in 2002, show no intention of sitting tight while growth ebbs away.
German Chancellor Gerhard Schroeder was reported as saying on Friday that he will review fiscal measures at year-end.
The French source said Fabius' package would include a rise in income support to low wage earners and measures to spur company investment. This could raise slightly the 2001 budget deficit, initially set at 32 billion euros, the source said.
Prime Minister Lionel Jospin will detail the measures to his Socialist Party on Tuesday morning before Fabius unveils them to parliament, the source said. The National Assembly is due to debate the 2002 budget from 4 p.m. (1400 GMT) on Tuesday.
The euro group will also spotlight Austria, Finland, Netherlands, and Spain as part of the usual rotating examination of members' budget positions.
CLAMP DOWN
As well as money laundering, finance ministers will also be updated on investigations into whether there was insider trading in financial markets before the September 11 destruction.
EU states and the European Parliament this week struck a deal that paves the way for laws obliging financial firms to report on money laundering to be extended to all professionals likely to come across large sums, including lawyers.
Ministers will give their backing to the compromise, which was reached by their Brussels-based national representatives and is still waiting for European Parliament approval.
They are also set to receive a report from Belgium, the current president of the EU, on curbing the financing of terrorist activities.
A senior Belgian diplomat said his country's report would deal with whether insider dealing may have been used to fund terrorist activities, which was still unclear.