The 15-nation euro zone economy isn't on the edge of recession and doesn't need a major spending program to boost growth, Luxembourg Prime Minister Jean-Claude Juncker said Friday after leading talks between euro finance minister. Juncker said the economy's contraction in the second quarter took governments by surprise, but said some relief is coming as the euro sinks and oil prices tumble. “You shouldn't say that Europe is on the brink of recession: it's not true,” he said after euro nations met in Nice to discuss their slowing economy. “For months now we have ruled out a stimulus package.” Many officials have veered away from mentioning the “r-word,” preferring notions such as “a sharper-than-expected slowdown” for the European Commission and a “depressed episode” for European Central Bank President Jean-Claude Trichet. But EU forecasts this week pointed to a recession for Germany, Spain and Britain - predicting two consecutive quarters when the economy will shrink. Both the euro-zone and the entire 27-nation European Union are expected to escape a technical recession but will grow more slowly than expected. The EU predicts that the 15 euro nations will grow 1.3 percent - after a contraction of 0.2 percent in the second quarter - and the entire EU by 1.4 percent. “Everyone is surprised by the contraction of activity that we have seen since the summer after a dynamic quarter. We were expecting slower activity but not such a pronounced decline,” Juncker told reporters. Officials warn that Europe will suffer persistent high inflation and some countries will be hit hard by falling real estate markets and ongoing turmoil on financial markets. Bank of America economist Gilles Moec said a second quarter of negative growth “is a serious risk,” but such a technical recession would be “short-lived.” “Contrary to the gloomy times of the early 1990s recession, today we can already identify the sources of recovery before we are actually sure that a recession ever occurred.” The euro has fallen back against the dollar, providing some relief to exporters, and oil and commodity prices have decreased. Still, “the euro remains overvalued in our view,” Juncker said. The euro region “should escape a recession only by a hair's breadth,” said UniCredit analyst Marco Annunziata. In contrast to the US, where Democrats are trying to push a second stimulus package through Congress to follow the $93 billion (67 billion euros) package launched earlier this year, Juncker ruled out additional spending or tax breaks on an EU-wide level, but said countries running budget surpluses are free to spend their own cash. EU nations such as Spain are planning to spend billions to boost sluggish growth as tax revenues fall and job lines lengthen - although so far only Italy is calling for an EU-funded bank to spend billions on infrastructure projects. Spain this week announced a $4.3 billion (3 billion euros) credit line for the construction industry, hit hard by tumbling house prices as an overheated economy crashes. France last year launched a program of tax cuts that hit growth - and will likely worsen its deficit. But German Finance Minister Peer Steinbrueck, who manages the EU's biggest economy, warned Friday that an economic stimulus package for Europe “would only burn up money.” For European governments, slowing growth rather than inflation is their main preoccupation. Additional welfare spending is running up deficits and may see many governments turn back on a pledge made last year to reduce their budget gap. That reverses a major recent effort to bring the 15 euro economies in line and stabilize their shared currency by bringing yearly budget deficits under a limit that all of them met for the first time this year - ten years after the euro launched.
