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European Markets Prepare to Weather U.S. Recession

February 07, 2008 11:24 AM
by findingDulcinea Staff
European policy makers are unlikely to coordinate global economic remedies with the United States at the G7 meeting this weekend. Europe believes it can withstand a U.S. recession.

30-Second Summary

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Although the United Nations has warned of a "domino effect" if the U.S. economy enters a recession, not everyone is convinced that the world is still dependent on America's financial well-being.

The attitude of European policy makers, and the behavior of European stocks, are a case in point.

U.S. stocks suffered their worst single day fall in almost a year on Tuesday. The next day, Asian markets reflected these losses while European shares posted modest gains.

The U.S. Federal Reserve has already cut interest rates twice this month in an attempt to stave off economic recession and is expected to take further action.

The European Central Bank has not made a similar move. In the meantime, a $156 billion economic recovery package awaits Senate approval.

David McCormick
, U.S. Treasury Undersecretary for International Affairs, told reporters that he expects the United States to call on its partners at this weekend’s G7 meeting in Tokyo to adopt some sort of global economic stimulus plan to boost demand worldwide. Such a move could make up for reduced consumption in the United States.

However, the Financial Times reported that it is unlikely the G7 countries will agree on concerted action. These nations have different economic problems and, therefore, different priorities. The finance ministries of Japan, Germany and Britain have said they do not plan to issue fiscal stimulus packages.

Discussions at the World Economic Forum at Davos two weeks ago reflected similar doubts about continued U.S. leadership of the global economy.

Headline Links: U.S. market falls but global stimulus package unlikely

Reactions: Asian markets down while Europe makes modest gains

Background: UN warns of domino effect but Europe remains positive

Opinion & Analysis: ‘Is America History?’

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