Europe braced for U.S. slowdown

LONDON, England (CNN) -- European businesses and investors are anxiously analysing Wall Street following the sudden cut in U.S. interest rates.

Wednesday's move by Federal Reserve Chairman Alan Greenspan has important implications for a growing European economy.

But there are high hopes that Europe will be able to sustain growth despite fears of a slowdown in America.

AUDIO Todd Benjamin discusses Greenspan's motives 358K / 32 sec. AIFF or WAV sound

"Greenspan made a bold and dramatic move to make sure the U.S. does not go into a big slump and the world has given a huge sigh of relief," said CNN Financial News correspondent Todd Benjamin.

"When the Fed speaks, everyone listens."

Wednesday's cut of half a percentage point to six percent was the first time the Federal Reserve had shifted interest rates in between scheduled policy meetings since the Russian debt crisis in 1998.

Underpinning the decision was the fear of a slowdown in the U.S. after years of prosperity.

The European economy is seen by many analysts as being in better shape than America's, with some predicting higher growth rates this year.

U.S. bank Bear Stearns has predicted the eurozone's GDP for 2001 will rise by 3.5 percent, and forecasts a two percent GDP increase for the U.S. in the first half of the year.

But despite talk among economists of Europe "decoupling" from the U.S., a slowdown on the other side of the Atlantic would have a major impact across Europe.

There would be fewer exports to the U.S. and Asia, which would also feel the heat.

But Europe's economy is more robust than a decade ago, says Jeremy Hawkins, an economist with Bank of America in London.

"Decoupling certainly has been taking place, it's one reason to be cautiously optimistic," he told CNN.

Hawkins said growth across Europe is now being driven domestically rather than relying on exports, which it did for much of the 1990s, while tax cuts could soften the blow of a downturn in the U.S.

QUOTE "Greenspan made a bold and dramatic move... and the world has given a big sigh of relief." Todd Benjamin, CNN Financial News

Investors needed "to look over their shoulders", added Hawkins. "They really want to see how the U.S. markets react over the coming days and weeks."

But the eurozone -- the 12 nations signed up to the single European currency -- is insulated with exporters less dependent on U.S. markets than they were a decade ago, he added.

"Europeans have to have a very wary eye on what's happening in the States. At the same time there's reason for supposing Europe can withstand the U.S. slowdown."

The European Central Bank met on Thursday and announced that it was holding its short-term interest rates unchanged at 4.75%.

Fed makes surprise cut
January 3, 2001

ECB - European Central Bank
Federal Reserve System

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