Strasbourg, France, April 9 (Bloomberg) -- Europe will escape a recession since the Iraq war is likely to end soon and oil prices are stabilizing, European Union Monetary Commissioner Pedro Solbes said. Recession ``is quite unlikely a scenario,'' Solbes told Bloomberg Television a day after cutting the EU's growth estimate. EU forecasts ``are based on the idea that the war will be relatively short and afterwards the oil prices will be stabilized.'' The economy of the 12 nations using the euro will expand 1 percent in 2003, the EU said yesterday, retreating from November's forecast of 1.8 percent. Growth may slide to 0.2 percent in a ``worst-case scenario'' should the Iraq war escalate. Solbes said the European Central Bank, which pared its main interest rate to 2.5 percent last month, is ``doing its job well'' with inflation-adjusted borrowing costs close to historic lows.
The EU's decision to postpone ECB President Wim Duisenberg's term indefinitely and leave his successor open doesn't undermine the bank because it makes ``collegial decisions and not the decisions of a single person,'' Solbes said. Investors expect another rate reduction in the next two months. The rate on the three-month euro deposit maturing in June is 2.34 percent, compared with a three-month money market rate of 2.53 percent. A basis point is 0.01 percentage point.
Trailing U.S.
European growth will trail the U.S. pace of 2.4 percent, the forecasts showed, lagging the U.S. for the 10th out of 11 years. Solbes called on governments to erase their budget deficits and scale back regulation to reach the EU's stated goal of surpassing U.S. competitiveness by 2010. Reaching that goal is ``possible but we have to double our effort to get the results,'' Solbes said. Solbes repeated that France faces a deadline of next year to get its budget deficit below the EU's limit of 3 percent of gross domestic product. France's deficit went over that limit last year and will stay there in 2003 and 2004 unless the government cuts spending or finds a way to raise revenue, yesterday's forecasts showed. Tax cuts such as those planned by French Prime Minister Jean- Pierre Raffarin in 2004 ``need to be financed,'' Solbes said. ``You have to reduce your deficit and cut spending to have the margins to cut taxes.'' Solbes also said he expects Britain to eventually adopt the euro, even though the forecasts show the U.K. economy growing twice as fast as the euro area. '`I hope and I expect at a certain moment the U.K. decides to join us,'' Solbes said///www.bloomberg.com