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EU says bush tax cut endangers world { February 23 2003 } Original Source Link: (May no longer be active)
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Europeans attack US tax cut plan at G7 forum
By Alan Beattie and Christopher Swann in Paris
Published: February 23 2003 20:58 | Last Updated: February 23 2003 20:58
The heads of the European Central Bank and eurozone finance ministers have expressed deep scepticism about the US administration's $690bn tax cut plan.
Wim Duisenberg, ECB president, and Nikos Christodoulakis, the Greek minister who chairs the "eurogroup" of eurozone finance ministers, attacked the plan at the meeting of the Group of Seven leading industrialised nations in Paris at the weekend, saying it endangered the world economy.
Mr Christodoulakis said the re-emergence of "twin deficits" - fiscal and balance of payments - "may create sustainability risks, which in case they materialise would have significant ramifications well beyond the US itself". The tax proposal "in terms of size, composition and timing" did not dissipate these concerns.
Gordon Brown and John Manley, the UK and Canadian finance ministers, said deficits were appropriate during weak growth. Hans Eichel and Francis Mer, their German and French counterparts, were less committal.
John Snow, US Treasury secretary, pushed hard for international support for the Bush administration's tax plan during Saturday's meeting of finance ministers and central bankers.
He said the move, criticised in the US for pushing up deficits, would benefit global growth, especially in view of the uncertainties over Iraq.
Mr Duisenberg hinted heavily that the ECB was preparing to cut interest rates to stimulate growth. He appeared to reverse course from his previous argument that uncertainties would probably make rate cuts ineffective. "The prospect of an economic recovery to potential growth this year is not supported by the latest information," he said. "Whatever the events in this world of uncertainty, if we get new information or make new assessments about the medium-term outlook for price stability or the economy, we will not hesitate to act."
Inflation would drop below the ECB's 2 per cent target during the course of the year, despite volatility induced by oil price movements, he said.
The ministers said there was no pre-ordained global strategy such as releasing global oil stocks to cope with the effects of geopolitical tension.
Mr Mer said: "We have no hidden plan. What counts is that we are sufficiently reactive together if there were a need." Strategic government stocks of oil "are not in place with a view to influencing market prices".
Mr Duisenberg denied he had come under pressure from G7 finance ministers during the meeting to cut interest rates. But there was implied criticism afterwards from Mr Brown, who said there "remained issues on the demand side in Europe" which needed to be tackled.
The final communiqué issued by the G7 - who were joined by Russia for discussions on combating terrorist finance - largely comprised a reiteration of previous statements.
It said the European economies would accelerate labour, product and capital market reforms, Japan would commit to restructuring its banking sector and the US would boost savings and capital formation.
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