Euro ministers see minimal fallout from Dubai

BRUSSELS: European finance ministers said on Tuesday that Dubai's debt troubles would have little impact on their region, which is emerging from recession.

"What we understand today is there is no systemic risk," French Economy Minister Christine Lagarde said. "It's not a drama for the world of finance and the impact seems to be essentially regional."

She briefed reporters after a regular meeting with fellow ministers from the euro zone and said European Central Bank President Jean-Claude Trichet had reassured ministers that "there is little consequence for European banks".

Similar reassurances came from Luxembourg's Jean-Claude Juncker, chairman of the meeting.

"The fallout ... will be very minor indeed and there is no cause for concern there," he told a news conference.

"The events in Dubai are not going to stop the euro zone returning to growth."

Global markets took a pounding when news broke last week that state-controlled Dubai World, which led the emirate's transformation into a regional hub for finance, investment and tourism, was unable to pay its debt.

But on Tuesday, Asian, European and US stocks regained ground following the lead from Wall Street overnight as fears of contagion eased, despite further falls in stock prices in Dubai, Abu Dhabi and Qatar.

Dubai World has unveiled details of a restructuring that focuses chiefly on $26 billion of debt owed by its main property firms, Nakheel and Limitless.

The Euro zone finance ministers held a regular meeting of the so-called Eurogroup and were due to reconvene on Wednesday with ministers from the wider 27-country European Union for discussions on deficit reduction and financial regulation.

Juncker, a veteran in EU affairs, confirmed also that he was asking to be reappointed chairman of the Eurogroup until mid-2012, an issue ministers would decide in January, and that he knew of no other candidate for the job so far.

Other ministers also sounded cautiously confident about the likelihood of a limited impact from events in Dubai but said the situation remained fragile.

German Finance Minister Wolfgang Schaeuble told reporters Dubai's difficulties showed the world was not yet through the economic crisis that began in 2007 when a global credit boom turned to bust.

The blow-out sparked a recession in the industrialised world and beyond, including a tumble in house prices and the property boom that Dubai's extravagant construction projects came to symbolise.

"It shows the financial crisis is not over," Schaeuble said.

Looking for the exit

One key issue discussed on Tuesday and to be raised again by EU finance ministers on Wednesday was to cement commitments on deficit reduction targets following the crisis.

In the July-September quarter of this year, the Euro zone economy registered its first quarter of growth in gross domestic product since the first three months of 2008.

Ministers are seeking to reassure financial markets that they will make a serious attempt once the recovery is firmer to reduce budget deficits bloated by recession.

The European Commission, the EU executive, proposed deadlines on Nov. 11 ranging from 2012 to early 2015 for 13 EU countries to bring budget gaps back below 3% of GDP.

Greece is in the firing line after more than doubling its forecast shortfall for this year to 12.7% of GDP, but Juncker and European Commissioner Joaquin Almunia said there was no reason to believe the country was on the brink.

"There is no hint of bankruptcy as far as Greece is concerned," Juncker said.

The Commission expects the aggregate budget deficit in the euro zone to jump to 6.4 percent this year and 6.9 percent next year -- more than twice the EU limit of 3% -- from 2.0% in 2008.

This will boost euro zone debt to 78.2% of GDP this year, 84 percent in 2010 and 88.2 percent in 2011 in a trend that could undermine the value of the shared Euro currency.

Juncker also reported back on talks he and the ECB's Trichet held with the Chinese authorities over the weekend and where the Europeans said they wanted to see the yuan currency rise versus the euro, adding that the latter was overvalued.