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EU complacency over Asia masks growing worries
Copyright ) 1998 Nando.net
Copyright ) 1998 Reuters
LONDON (January 8, 1998 09:07 a.m. EST http://www.nando.net) - Asia's
financial crisis has sparked open dismay in the U.S. but Europe has
maintained an apparent complacency that masks concern about
destabilizing currents from the Far East, analysts said on Thursday.
In the United States, there has been a steady outpouring of concern and
sometimes anxiety over the efforts by Asian governments to bolster
investor confidence and put their economies on a solid footing.
American officials have not been shy to warn that Asia's crisis, if
prolonged, could spill over and harm U.S. growth prospects and possibly
lead to a sharp decline in asset prices.
Federal Reserve Chairman Alan Greenspan has even gone so far as to raise
the risk of global deflation. He stopped short of predicting an outright
fall in goods prices, but many say he would not have broached the
subject unless there was some legitimacy to this threat.
In Europe, however, the angst level has been more muted.
Publicly, EU central bankers and finance officials have shown little
concern that Asia's problems will either curb European growth or hamper
the steady march toward a single currency, due to be launched in less
than 12 months.
On Wednesday, EU monetary affairs commissioner Yves-Thibault de Silguy
summed up the views of many when he said he was sticking to his three
percent GDP forecast for the 15-nation bloc, adding that nothing could
delay the euro's timely arrival.
Why the disparity?
Part of the answer, say officials, lies in the way such a potentially
global problem is resolved at the diplomatic level.
The United States has historically been, because of its superpower
status, the lead negotiator with Asia.
"I think traditionally, when dealing with countries like Japan, Europe
tends to keep a somewhat lower profile," said one EU diplomat.
This is not to suggest that European officials are entirely sanguine or
not privately beginning to assess how Europe might be hurt. But to do so
publicly would risk inflaming an increasingly delicate situation.
"I know they are lying through their teeth," said one London-based
economist. "They are taking this issue far more seriously than they are
letting on."
At the centre of their concerns is the single currency. Given the
relative calm among currencies within Europe's Exchange Rate Mechanism,
the last thing anyone wants to do is to incite speculation that Asia's
woes might have a destabilising effect on European markets.
Still, cracks in the placid facade are beginning to emerge, and analysts
say the hard evidence of Europe's financial and trade exposure cannot be
ignored.
After a sharp 0.8 percent decline in German industry orders for
November, Westdeutsche Landesbank in Duesseldorf on Thursday issued a
warning to clients:
"The argument that the portion of exports directed to east Asia is too
small to affect German exports is not convincing as the crisis ...
reduces growth expectations in all countries.
"Since German exports largely consist of capital goods, any
deterioration in business sentiment will hit hard."
What has been most disturbing about Germany's expansion, say economists,
is the lack of a pickup in domestic demand. With virtually all of the
economy's growth being export led, any adverse external developments
will have a direct impact on total output.
From the financial side, the picture is also bleak.
A report from the Bank for International Settlements released earlier
this week showed European banks were the most aggressive lenders to Asia
in 1997, led by German and French banks which had a share of 12.1 and
10.4 percent respectively of $389.4 billion in outstanding loans.
By HENRY ENGLER, Reuters
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