Top European finance officials sounded the alarm on Monday about a possible US recession as fears about the health of the world's biggest economy plunged global stocks deep into the red.
"The situation is continuing to deteriorate in the United States," Luxembourg Finance Minister Jean-Claude Juncker said after chairing a meeting with counterparts from the 15 countries sharing the euro.
"In recent months, we have always ruled out a recession in the United States, but we cannot totally rule it out today," said Juncker, who is both Luxembourg's prime and finance minister.
Global stock markets registered sharp losses as US President George W. Bush's tax plans to revive the world's largest economy failed to convince investors.
"We are all concerned. We are following the events on a daily basis, we hope things will not be as bad as they may look," said Slovenian Finance Minister Andrej Bajuk, whose country holds the rotating EU presidency.
Despite mounting concern about the US economy, Juncker said: "We feel comfortable with our economic situation at the moment and we feel that consumers do not have a reason to lose confidence."
"It would be a mistake to fall victim to excessive pessimism," he said.
Likewise, EU Economic and Monetary Affairs Commissioner Joaquin Almunia said: "We can be optimistic as to how the European economies can face up to turbulence on the financial markets."
But Juncker acknowledged that if a US recession "materialized it would not be without consequences for the eurozone" and that in any case growth would be weaker this year than previously estimated.
Almunia voiced the hope that Bush's stimulus package, unveiled on Friday and consisting of US$140 billion in temporary tax cuts and other measures, could counter the risks of recession.
Fears that the package would not avert a US recession plunged Asian and European stock markets into losses running from three to more than 7 percent on Monday.
US markets were closed on Monday for the Martin Luther King holiday.
ALLAYING FEARS
Seeking to allay fears about the impact of US weakness on Europe, Dutch Finance Minister Wouter Bos said a US slowdown "will have an impact on the European economy but it will be moderate."
While warning against rushing to "excessive, permanent conclusions" about the outlook, Spanish Finance Minister Pedro Solbes said: "We are worried in the sense that we have to follow what's happening every hour and to try to understand what's happening."
Likewise, Almunia said that although the European economy depended less on US growth than in the past, a slowdown there could weigh on confidence and credit conditions in Europe.
"Our economies are not as dependent as they were in the past on the US economy but indeed through the financial or confidence channels they can be affected," he said.
The European Commission has said it will cut its 2.2 percent growth forecast for last year over concerns about a slowing US economy and record oil prices.
French Economy Minister Christine Lagarde said: "If ever growth weakened significantly, then the European Central Bank would take account [of that] in its monetary policy, I suppose."
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