/www.bloomberg.com/ (Bloomberg) -- The debate over whether the U.S. should invade Iraq or give United Nations weapon inspectors more time has some business leaders favoring conflict.
Expectations the U.S. will attack Iraq and concerns about when it will happen and how long war will last are preventing companies from investing and consumers from spending, some chief executives say. Though Iraq isn't the only reason for the sluggish global economy, they say improvement can't occur until the wait over a decision is out of the way.
``War isn't politically desirable and it isn't a good way to resolve things, but the economy needs to emerge from this long period of uncertainty,'' said Philippe Houze, co-chairman of Galeries Lafayette SA, France's largest department-store chain. ``Investment decisions are frozen, consumers are wary. We need to get this over with, even if that means war.''
While some chief executive officers are personally opposed to military action against Iraq, they say that at this point war may be the best option for the economy.
``Putting the crisis behind us certainly would mean strong momentum for the economy,'' said Dieter Zetsche, chief executive of DaimlerChrysler AG's Chrysler unit. ``As long as all of this uncertainty is in front of us it is certainly somewhat slowing down consumer confidence and the overall potential of the economy.''
Sluggish Growth
``At this point most companies have discounted that there will be a war,'' says Vittorio Merloni, chairman of Merloni Elettrodomestici SpA, Europe's third-largest appliance maker. ''What's hurting consumer and business confidence is the uncertainty about when it will happen and how long it will last.''
The world's seven largest economies grew 0.6 percent in 2001 and 1.3 percent in 2002, the worst two-year showing since the early 1980s, the Organization for Economic Cooperation and Development said. German business confidence is near a one-year low and the combined economies of the 12 European countries sharing the euro will contract 0.1 percent in the first quarter, according to the European Commission.
The U.S. economy has lost 1.6 million jobs in the past two years, and consumer confidence is at a nine-year low.
Oil Prices
Oil prices have risen 35 percent in the past three months, the highest since Nov. 27, 2000, partly on concern that war with Iraq could disrupt Middle East oil production. Iraq pumps 3 percent of the world's oil supply and has the second-largest oil reserves behind Saudi Arabia.
``We saw a 5 percent decline in passenger car traffic in the fourth quarter and I think a large part of that is that many people just don't want to make travel or other plans right now,'' said Richard Shirrefs, chief executive officer of Eurotunnel Plc, which operates the tunnel under the English Channel.
The alternative to war is containing Iraq by using sanctions and United Nations weapons inspectors to rein in Saddam Hussein's weapons programs. Some business leaders say it's the least costly solution.
``There is nothing that Saddam can do as long as the inspectors are running around and he's under close observance,'' financier George Soros said in an interview. ``That really immobilizes Saddam as a threat to the world.''
Containment
Military analysts say war may now be inevitable anyway after U.S. Secretary of State Colin Powell warned Feb. 5 that the UN will become irrelevant if it doesn't sanction action against Iraq.
Containment hasn't been much of an option since Nov. 8 when the UN Security Council passed resolution 1441, said Jacques Beltran, a military analyst at the French Institute of International Relations. The unanimously approved measure warns Iraq of ``serious consequences'' if it lies to or impedes the work of weapons inspectors.
UN chief weapons inspector Hans Blix will present a report Friday to the Security Council that some diplomats say may prove decisive in making the case for war or containment. In an initial report to the council on Jan. 27, Blix said: ``Iraq appears not to have come to a genuine acceptance, even today, of disarmament.''
He said UN monitors have evidence Iraq is developing nerve gas and hasn't acknowledged all its anthrax stockpiles. Faced with a U.S. military buildup, Iraq last November allowed in UN weapon inspectors for the first time since 1998.
Powell told the Security Council that ``deeply troubling'' evidence shows that Iraq has chemical weapons, that it has prevented UN weapons inspectors from carrying out their work, and has links to terrorist groups. Powell called on the UN to deal with Iraq ``effectively and immediately.''
``We've gone too far for containment,'' said Beltran. ``By agreeing to submit ourselves to the conclusions of the inspectors, we entered a different logic.''
Bush's Stance
A Gallup poll published Monday said 54 percent of Americans think the U.S. has exhausted diplomatic efforts to disarm Iraq, and 63 percent favor sending ground troops.
``The risks of doing nothing far outweigh the risks of whatever it takes to disarm Saddam Hussein,'' U.S. President George Bush said Monday night in response to a reporter's question.
Powell Tuesday rejected a French-Russian-German proposal to beef up arms monitoring in Iraq, saying the issue isn't increasing the number of inspectors but getting Iraq to cooperate with those that are already there. Today, the North Atlantic Treaty Organization failed to reach an agreement on providing military assistance to Turkey. France, Belgium and Germany have opposed deploying forces in Turkey because they say that would suggest war is inevitable.
More than 225,000 U.S. and British soldiers are already deployed or on their way to the Persian Gulf to strike if Iraq is shown to defy UN disarmament resolutions. Even France, which opposes an imminent war, is sending an aircraft carrier to the Eastern Mediterranean.
``From an economic point of view, may it be very swift and very clinical,'' said Alan Sparks, regional general manager for Philips Consumer Electronics in Asia, the Middle East and Africa, who says he's personally against the war. ``The quicker this thing comes to resolution and is finalized, from an economic point of view, the better.''
A quick war may be wishful thinking. Although the U.S. has overwhelming military superiority, its troops could get bogged down in urban fighting and imminent defeat could encourage Hussein to use some of the biological and chemical weapons the U.S. claims he has, said Steven Miller, director of the International Security Program at Harvard University.
And even if the U.S. wins the war easily, it could result in the disintegration of Iraq, a long occupation and a costly reconstruction. In addition, terrorist groups could accompany the war with attacks in the U.S. and Europe, Miller said.
Cost Estimates
Containment may be cheaper.
The U.S. Congressional Budget Office presented various war scenarios last fall, with costs ranging from $21 billion to $272 billion, depending how long the fighting and occupation lasted.
Blix said that inspections require, ``250 men perhaps and $80 million and no injuries so far.''
Mitchell Daniels, director of the U.S. Office of Management and Budget, said Dec. 31 that the cost of war with Iraq would be roughly the same as the 1991 Gulf War, which cost $61 billion, or about $80 billion in current dollars.
In 1991, the U.S. ended up paying only about $8 billion because allies such as Saudi Arabia and Germany sent only modest forces and reimbursed the U.S. This time, German Chancellor Gerhard Schroeder has said he'd oppose a war even if approved by the UN, and Saudi Arabia is leading efforts to find a diplomatic solution. In addition, some countries such as Turkey may ask for more U.S. economic aid in return for backing the war.
The U.S. and its allies in 1991 didn't occupy Iraq, leaving the defeated country, itself, to pay for reconstruction.
North Atlantic Treaty Organization countries sent 50,000 soldiers to Bosnia in 1995 to enforce the peace treaty that ended the Balkans war. A similar-sized force in Iraq would cost about $25 billion a year, estimates Mark Stoker, a defense economist at the London-based International Institute of Strategic Studies.
Reconstruction
There's also the expense of reconstruction, especially if Hussein orders his retreating troops to sabotage oil facilities. The war could also start a refugee crisis.
``The potential after-costs make the actual war costs look like chicken change,'' the IISS's Stoker said.
William Nordhaus, a Yale University economics professor, said in a study published in December by the American Academy of Arts and Sciences that the 10-year cost of occupying and reconstructing Iraq could range from $100 billion to $600 billion, depending on the length and intensity of a conflict.
``There's pretty clearly already some drag on the economy from the fear of war,'' Nordhaus said in an interview. ``You can see it primarily in oil prices but there's also been some effect on business investment. The current level of anxiety probably is costing the U.S. about $100 billion a year and that's probably pretty widespread around the world as well.''
Nordhaus said removing ``the fear factor'' could lift business confidence. ``The problem is, it's a roll of the dice,'' he said. ``When you roll the dice of war you have an enormous uncertainty about the outcome.''
Those sorts of arguments against the war are unlikely to win out, political analysts said. Powell's presentation to the UN last week indicates that unless Hussein capitulates, the U.S. appears determined to take the military route.
``A U.S.-led invasion of Iraq is now all but inevitable,'' said Shannon Kile, a researcher at the Stockholm Institute for Peace Research. ``The containment option was eclipsed by events some time ago.''