EU's Almunia sees Europe's economy weathering market turmoil

(STRASBOURG) - The European economy should weather recent turmoil on financial markets although the turbulence could become worse, the EU's Economic and Monetary Affairs Commissioner said Wednesday.

"The economic fundamentals of Europe are solid (and) should not be significantly affected by the recent turbulences and are capable of overcoming the ongoing uncertainties," Joaquin Almunia told EU lawmakers in Strasbourg.

But he warned that growth this year would not top the 2.6 percent the European Commission forecast in May for the 13-member eurozone and the 2.9 percent projected for the 27-nation European Union.

While an update of those forecasts next Tuesday would offer an "initial indication of the possible impact of the crisis," he said that "it is still too early to quantify the possible impact on the real economy."

Global financial markets have been gripped since early August by fears of a credit crunch, sparked by concerns about subprime, or high-risk, home loans in the United States.

"The impact of this market turbulence could go beyond what we have seen so far and, therefore, merits all our attention and fully justifies today's debate," Almunia told a European Parliament session looking at the crisis.

Similarly, Socialist EU lawmaker Robert Goebbels said that the "true cost" of the turbulence on financial market would not be known for months as "losses suffered by banks and other financial actors will become clear with the closure of the annual accounts."

He blamed the rarefied world of high finance for the crisis and in particular a boom in recent years in the use of financial derivatives, which are "restructured and reinserted into other products so that nobody really knows what the original risk is."

EU Internal Market Commissioner Charlie McCreevy acknowledged that light needed to be shed on the complex securities which transmitted the crisis from the US mortgage market to the global financial system.

"We certainly need to look closely at the mechanisms at play ... and their relevance for European banks," he told the European Parliament.

But he said that blame for the current crisis could not be placed on the shoulders of hedge funds and their speculative bets, although he stressed that the "role of credit rating agencies needs to be clearer."