PARIS, March 20 - European Monetary Affairs Commissioner Pedro Solbes said in an interview published on Thursday that a war in Iraq constituted an "exceptional situation" under the European Union's Stability and Growth Pact. The interview with French daily Les Echos on Wednesday was published after the United States began a war to oust Saddam Hussein with targeted strikes around Baghdad. "We considered, for example, that last year's floods in Germany constituted an exceptional situation. A war clearly fits into this category," Solbes told the newwspaper. "The problem is to understand how to take this into account for deficits. There can be different interpretations," he said, adding that the EU would examine the situation in countries with excessive deficits at the appropriate time.
Germany, France and Portugal have broken the EU's deficit limit of three percent of gross domestic product, triggering disciplinary action whose ultimate sanction is a fine. The Stability Pact was designed to impose fiscal discipline on member countries from the launch of Europe's single currency in 1999. "If the main result of the war is a temporary rise in oil prices for one or two quarters, the impact will be relatively weak: half a (percentage) point in growth at the most with a return to nominal inflation," Solbes told Les Echos, asked about the risk of recession in the euro currency zone. "For me this is the most probable scenario -- a short war and a temporary impact on oil prices before they come down.
"If prices are sustained at high levels and market confidence is affected, then there is a risk of recession or at least economic stagnation. This is the blackest scenario, but it is not the one I consider most likely." In early market reaction after the U.S.-led assault on Iraq began, however, crude oil futures fell five percent to three-month lows with dealers in Asia betting that the war would be short and decisive. European Union finance ministers vowed on Wednesday to act together to cope with possible economic fallout of a war in Iraq but signalled the time was not ripe yet for a detailed game plan. European Commission President Romano Prodi urged EU leaders ahead of a two-day summit starting on Thursday to consider "urgent measures" in the face of the Iraq crisis and said they should agree on active economic coordination if needed. The Commission this week slashed its euro-zone growth forecast to around one percent this year from 1.8 percent previously and said in a worst case scenario a protracted conflict could tip Europe into recession.//