Almunia urges EU action to avoid long slump

Addressing a conference in Frankfurt, he said the European Commission's interim economic forecasts due on Wednesday would show growth prospects for the second half of this year were not very good, although inflation had probably peaked in August. “We need to take action that will return our economies to a path of strong and sustainable growth and there is little time to waste,” the commissioner said, according to a prepared text.

Almunia said the labor market had held up well until now but there could be little doubt that the resilience of the economy was set to be tested. He said the message from the Commission on Wednesday would be little different from the latest forecasts from the European Central Bank and the OECD, which showed the prospects for the H2 of 2008 and the start of 2009 were not very good.

The credit crunch would continue to hit the financial sector, with banks having already reported losses and writedowns of more than $500 billion, “and there is undoubtedly more to come”. There is little sign that the functioning of the interbank markets -- where banks lend to each other -- will return to normal in the near future, Almunia said.

There has been significant progress in improving transparency in the financial markets but further measures will be necessary, Almunia added. “Namely, financial institutions should meet the request by the Financial Stability Forum to disclose all turmoil-related exposures in their mid-2008 reports,” Almunia said. (Reuters)