Thirteen men in a boat - but don't rock it

FE Team | Published: September 15, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

Ben Nimmo
As the finance ministers of the 13 states which have joined the euro boarded a Portuguese river-cruiser Friday morning, their message was clear: don't rock the boat.
'Europe is that strong that we are able to handle situations like (the current economic uncertainty). The European economy is robust and stable,' Austrian Finance Minister Wilhelm Molterer told journalists, as the 13 gathered for a working breakfast on the mist-wreathed waters of the Douro river.
The impact of the global financial upheaval, sparked by the slump in the US market for poorly-secured housing loans known as subprime mortgages, 'will not be a huge one,' added the president of the Eurogroup, Luxembourg's Prime Minister Jean-Claude Juncker.
It has been a week of reassuring comments in European financial circles. On Tuesday, the European Union's Economic and Monetary Affairs Commissioner, Joaquin Almunia, launched a slightly weakened forecast for EU growth with an upbeat analysis.
'The fundamentals in the euro area and the European economies remain solid: profits in private companies continue to be high, balance sheets in the private sector are sound... and unemployment is at the lowest level in the past two decades,' he insisted.
On the same day, the head of the European Central Bank, Jean-Claude Trichet, analysed the situation in the European Parliament.
'We need to restore confidence, because we have a paradox that there are a large number of high-quality assets which investors are currently treating as if they were not credit-worthy,' he said.
That reassuring tone continued on Friday, as the news broke that British mortgage lender Northern Rock had been granted an emergency loan by the Bank of England to see it through the credit crunch.
'The atmosphere is relatively optimistic,' Spain's Finance Minister Pedro Solbes commented as his colleagues trooped into the cruiser's wood-panelled saloon and looked out at the Baroque tenements of Porto, teetering high above the river.
Confidence, or the lack of it, has already played a key role in the worldwide financial shakeout. Analysts say that the subprime slump has caused such waves not because banks have lost money in it, but because they are not sure whether they have lost money or not.
Under such circumstances, they have become wary of lending money out - spreading a creeping paralysis through world markets and threatening both financial stability and longer-term growth.
Friday's Eurogroup meeting, and the informal meeting of EU finance ministers which is set to follow it, will hopefully 'produce conclusions that will be useful to improve the situation and, first of all, to help to regain confidence,' Almunia said.
And given that it is confidence which is seen as being the key to restoring stability, the ministers' insistence on the strength of the European economy is perhaps not surprising.
But even as their breakfast boat chugged laboriously upriver, the pound fell to a 13-month low against the euro as the Northern Rock bail-out sparked fears over the strength of the British economy.
Eurozone ministers may not have rocked the boat on Friday, but it is beginning to look as if they may be steaming against the tide.