At a weekend conference in Copenhagen, Europe's top finance officials have decided to make no adjustments in fiscal and monetary policy despite many gloomy economic reports. Hoped-for economic growth has failed to materialize.
The mood was grim at a two day meeting of European Union finance ministers at a luxurious convention center in suburban Copenhagen. Top EU economics official Pedro Solbes told the group that growth across the 12 nation euro zone this year would fall well below the predicted 1.4 percent. Mr. Solbes said the figure might wind up being below one percent.
Until recently, there had been talk that, with an expected recovery around the corner, the European Central Bank might raise its key refinancing rate, which now stands at 3.25 percent. However, with the recovery still some way off, there was speculation that it might be time to lower interest rates to give the economy a much-needed boost.
But with a European Central Bank meeting coming up Thursday in Frankfurt, Bank President Wim Duisenberg tried to reassure anxious investors as the Copenhagen meeting was ending.
He said despite the gloomy economic indicators, he remains confident that a strong recovery is just around the corner. He said any move to stimulate growth by tinkering with interest rates could backfire by destroying consumer confidence.
"The big question now is, how can you restore the confidence of the people in their own future?" asked Mr. Duisenberg. "Our answer is there's no room at this stage for activism, neither on the fiscal or monetary side."
Critics of the euro zone say it is proving to be ineffective in enforcing its rules on monetary stability. Partly because of recent devastating floods, Germany, the euro zone's largest economy, is in danger of breaching the three percent deficit limit. Officials in Copenhagen say they might be willing to allow flexibility for countries that suffer from natural disasters.
Also discussed at the Copenhagen was a move led by Britain, France and Germany to put sanctions on non-member Switzerland because of its bank secrecy laws.
But such a move requires a unanimous vote of the 15 EU members, and the proposal melted away when the finance minister of tiny Luxembourg, which itself has a bank secrecy policy, said Luxembourg would not want to touch off what he called a "political war" with the Swiss.