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Vienna (pte025/04.03.2003/12:26) - War in Iraq would devastate the European economy while providing a vital shot in the arm to businesses in the United States, according to researchers at a top European economic research institute.
In a recently released report, the respected Austrian Economic Research Institute WIFO http://www.wifo.ac.at said that a war in Iraq would have a negative effect on the European economy.
In general, the international economy would be slowed down by restraint in private consumership, firms delaying their investments, and further losses on the stock exchanges. Europe would be hit by all three factors, WIFO's chief analyst Markus Marterbauer said while unveiling the report.
"Cautiously estimated", this year's oil price could be one quarter higher than last year's. That would drive consumer prices up half a per cent, and discourage spending. Households would have less income in real terms, and gross domestic products could be depressed by 0.25 per cent.
"Europe will the one to suffer greatly under this geopolitical development, and a possible Iraq war," he said.
In contrast to Europe, the United States could expect positive effects. There would be a great increase in military spending, which would have an expansive effect on demand in general.
But Europe had committed itself to the strict savings rules of its Stability and Growth Pact http://www.eurotreaties.com/stabilitygrowth.pdf , Marterbauer pointed out.
He said European policy makers should "try and press at European level for a more active policy to stimulate the economy." As for the European Central Bank (ECB) http://www.ecb.int he said: "I believe there should be a larger-scale lowering of interest rates very quickly."
The WIFO researcher said he expected the ECB to lower its rate by 0.5 per cent as early as this week. If an Iraq war started, the current basic interest rate of 2.75 per cent could "certainly be halved", said Marterbauer. (newsfox-special Iraq)
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