Europe's central bank - already battling an economic slowdown - said Thursday it is ready to take action if need be to offset the impact of military action in Iraq.
The European Central Bank issued the statement following the start of military action by the United States in Iraq aimed at forcing Iraqi President Saddam Hussein from power.
The ECB's comments also came alongside similar efforts by its counterparts in Japan and Switzerland to ease investor worries at the outset of the conflict.
“Military action in Iraq has started,” the central bank said in a three-paragraph statement posted on its Web site.
“The governing council has again discussed the economic situation in light of the tense geopolitical environment. It stands ready to act if necessary.”
Financial markets can rely on the “provision of sufficient liquidity” even under exceptional circumstances, the bank said.
The announcement comes as world markets nervously watch the first day of the conflict, sending Asian markets up but European and North American indexes into negative territory.
The ECB - guardian of the euro - cut interest rates by a quarter percentage point about two weeks ago in an effort to bolster waning economic growth in much of the region.
“The impact of this military confrontation on the global economy can vary significantly in scope and size, depending on the extent and duration of the conflict,” the bank said.
“It is therefore not possible at this juncture to conclusively assess the short and medium-term implications for the euro area. In times of severe tension, it is of the utmost importance that policymakers do not lose sight of their primary responsibility, so as to reduce uncertainty and strengthen confidence.”
The Swiss National Bank announced Thursday it was keeping interest rates in that country at record lows but also said it would take action if economic uncertainty caused a spike in the Swiss franc.
“After the outbreak of the Iraq conflict, the economic and political environment remains extremely uncertain,” the bank said.
“The economic recovery in Switzerland expected for 2003 may be delayed.” “...Given this difficult environment, the National Bank wishes decisively to counter the tightening of monetary conditions that would arise from an appreciation of the Swiss franc.”
In Japan, that country's top banker kicked off his first day in officer Thursday with a promise to aim for stability in financial markets and battle agains “shocks” from the war in Iraq.
“The base of Japan's economy is especially weak, and we must recognize it is weak to such shocks,” Bank of Japan Gov. Toshihiko Fukui said at a press conference, according to Associated Press. “We hope war will be over quickly but we will take appropriate action.”
The central bank also pumped an $8-billion (U.S.) into the financial system Thursday to raise the amount of excess cash to $200-billion, the highest in a year. Earlier this week, the powerful U.S. Federal Reserve again left interest rates unchanged in that country, despite calls from some corners that lower borrowing costs were necessary to fend off a double-dip recession.
In a surprise move, the Fed also said uncertainty in the days leading up to the war in Iraq made it impossible to say specifically where that economy is heading in the immediate future.
Some economists read that remark as opening the door for a rare inter-meeting interest rate cut by the Fed, which doesn't make its next scheduled announcement until May.
By contrast, the Bank of Canada raise interest rates by a quarter percentage point earlier this month in a bid to fight rising inflation. Speaking since then, Bank of Canada Governor David Dodge has also said further rate hikes are necessary although the timing would depend at least in part on world events.
With Associated Press
© The Globe and Mail
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