BRUSSELS, 21 March 2003 — The world’s rich nations went on red-alert yesterday for war-damage to their economies after dawn US strikes against Iraq signaled the start of fighting, but a further fall in oil prices eased immediate concerns.
From Tokyo, Japan pledged international cooperation to counter any economic fallout from war, while European officials said their tough budget rules might now be eased to allow governments to cope with the extra costs war might bring.
In Frankfurt, the European Central Bank took the unusual step of issuing a specific war statement, declaring that it “stands ready to act if necessary”.
It has already cut interest rates this month, by a quarter point to 2.50 percent, and more easing is seen in the pipeline.
After Sept. 11 attacks on the US it joined the Federal Reserve in pumping billions of euros to calm money markets.
The news was music to the ears of the bond market, where interest rate futures extended gains.
Governments and central bankers have been assessing the fallout after dawn strikes by the US against Baghdad, although the initial reaction of the oil market — the channel through which most damage to growth would be done — has been soothing.
Oil fell to three-month lows with OPEC exporters pledging to fill any supply gap caused by disruption in the Gulf. Brent crude futures have now shed 25 percent of their value in the last six days as markets bet on a swift US victory.
The fall was a relief, especially to energy-thirsty European and Asian economies who must import much of their fuel needs.
But policy makers across the globe — wary business and consumer confidence remains very fragile — expressed concern about a protracted war on an already battered world economy. William McDonough, president of the Federal Reserve Bank of New York, warned war was not the only thing standing in the way of a recovery, citing the damage done by corporate scandals.
And in Japan, Finance Minister Masajuro Shiokawa said he was worried about the effects on Japan’s economy and would contact other members of the Group of Seven in the event of major disruption in the world economic order. “Opinion is divided in the G-7 countries,” Shiokawa told reporters after an emergency Cabinet meeting.
European ministers and leaders, gathering in Brussels for a regular summit, have also vowed to work together. But they have been reluctant to spell out what this means or confirm that they actually have a blueprint for action in place. Pedro Solbes, the European commissioner for economic affairs, said the damage would not be too serious provided the campaign proved short and any spike in oil prices was brief.