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Last Updated: Friday, 9 September 2005, 06:43 GMT 07:43 UK
EU faces Katrina economic effect
UK Chancellor Gordon Brown
The UK's Gordon Brown will host the Manchester meeting
Limiting the economic impact of soaring fuel costs in the aftermath of Hurricane Katrina is top of the agenda for European Union talks.

Finance ministers and central bankers are meeting in Manchester in their first talks since Katrina pushed crude oil prices to record levels.

The EU policy-makers are expected to look at how to limit the impact of high petrol, diesel and raw material costs.

They will also discuss ways to increase development aid and best use subsidies.

Areas of interest will be how to increase help to the West Bank and Gaza Strip, as well as the best way to proceed with the international financing facility (IFF) promoted by UK Chancellor Gordon Brown.

Mr Brown is expected to make a separate announcement on Friday morning about the extension of the IFF, which aims to borrow money against aid budgets, to fund vaccines and medicines for developing countries.

Talking shop

A number of business leaders have been lined up to address the ministers and central bankers about the importance of reform and generating economic momentum.

Taking part in the meeting are Arun Sarin, boss of phone firm Vodafone, Patrick Cescau, head of consumer goods maker Unilever, and Bart Becht, chief of household cleaner manufacturer Reckitt Benckiser.

Belgian economist Andre Sapir, who has called for the radical reform of the EU's budget, also has been invited to speak.

But the embattled Bank of Italy president Antonio Fazio has decided not to attend the meeting.

Mr Fazio is under increasing pressure to resign and would have had to come face to face with Italy's Economy Minister Domenico Siniscalco, one of the people calling most loudly for his resignation.

No clear picture

Recent reports have shown a mixed picture emerging from some of the EU's largest economies.

Attendant at a Japanese petrol station filling up a car
Record oil, petrol and diesel prices are getting economists worried

Companies, by and large, have seen profits grow as measures such as price increases and staff cuts have lifted the bottom line.

However, the cost cutting has had a negative effect and the unemployment rate in France and Germany is stuck close to 10%, while consumer and business confidence is proving fragile and fickle.

Italy is struggling and the stagnant state of its economy is putting pressure on the government of Prime Minister Silvio Berlusconi.

And all three countries are in breach of the eurozone's 3% budget deficit limit.

Conditions in the UK are better, but alarm bells have been sounded by some analysts, worried that high levels of personal borrowing, a slowdown in house price growth and high petrol prices will combine to hamper growth.

Price impact

On Thursday, the Bank of England left its benchmark interest rate at 4.5%, having cut it by a quarter of a percentage point the previous month.

The European Central Bank has held its rates at 2% for more than two years, and President Jean-Claude Trichet recently reiterated his view that borrowing costs are at the right level.

Industry groups have increased calls for an interest rate cut, and analysts said ministers and bankers should have plenty to talk about in Manchester.

"Ministers will discuss the development of oil prices and its implications for growth and they will try to identify policy responses," a diplomatic source told the Reuters news agency.

"They will discuss if it is necessary to compensate for the impact of oil prices in the short-term, and talk about energy policy in the long term," Reuters quoted the source as saying.

"They will also talk about how to handle sectors of the economy that are regularly asking for interventions."


SEE ALSO:
Vaccine plan 'will save millions'
09 Sep 05 |  UK Politics
Oil shock threatens world growth
06 Sep 05 |  Business
Is Germany's economy recovering?
05 Sep 05 |  Business
French economy grinds to a halt
12 Aug 05 |  Business


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