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Eurozone finance chiefs meet amid brighter economy

Eurozone finance chiefs were opening talks Monday on the currency bloc's improving economic prospects but also amid fears the stronger euro would dampen exports, thereby hurting recovery.

The monthly meeting followed a new European Commission economic survey which said eurozone economies were set to grow by 2.6% of GDP in 2007 and 2.5% in 2008. The commission - eurozone financial watchdog - said growth in the 13-nation currency bloc was due to solid investment and strong private consumption. Officials said that in addition to favorable domestic conditions, Europe's economic upturn was due also to strong global growth. They added that European economies had largely escaped the negative impact of high oil prices and the slowdown of the US economy. „The European Union and the euro area remain on a brisk growth path,” said EU monetary affairs chief Joaquin Almunia. He said the bloc was also creating more jobs and inflation was under control.

The commission - acting as the EU's financial competition office - said that the bloc would create almost 9 million new jobs over the period 2006- 2008, of which 6 million in the euro area alone. The economic recovery will continue to improve public finances, with the general government deficit forecast to fall to around 1% of GDP in both the EU and the euro area, a level not seen in many years. Inflation is expected to remain under control, although officials said they expected a slight pick-up of underlying inflation due to a renewed increase in oil prices. „We must help sustain the economic recovery by putting public finances firmly on a sounder footing and by pursuing the reform process,” Almunia said. This, in turn, would cut public debts and help increase the growth potential before the problem of an aging population kicked in, said Almunia.

The commission said European economies would continue to perform „above potential” for several years but growth would fall marginally from 3% in 2006 to 2.9% in 2007 in the EU and from 2.7% to 2.6% in the euro area. It said the stronger outlook was partly explained by a better- than-expected performance in 2006, which marked the strongest pace of European economic expansion in six years. „Domestic demand has proven more dynamic, with investment supported by high corporate profitability, still-benign financing conditions, a high rate of capacity utilization and optimistic business sentiment,” the commission said. It added that private consumption was being spurred by a substantial improvement in the labor market situation.

EU growth also continued to be supported by a solid outlook for the world economy, especially the emerging economies, which largely compensates for the US slowdown, the commission underlined. The expected deceleration of the European economy in 2008 would be due to „somewhat lower external demand,” it added. Public finances in the EU have also turned out markedly better than expected, with the average budget deficit in the bloc falling from 2.3% of GDP in 2005 to 1.7% last year. The average eurozone budget deficit fell from 2.4% in 2005 to 1.6% last year, mainly because of higher tax revenues. The commission said that while the global economy would grow stronger, in particular in Asia, a more marked slowdown in the US housing market could have a negative impact on global growth. A „disorderly unwinding of global current account imbalances” - reference to the high US budget deficit and Asian surpluses - was also a risk for European economies, the commission said. Further geopolitical tensions could also lead to new oil-price hikes, it warned. (