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Market turmoil threatens EU recovery

By Gabriele Steinhauser

Associated Press

Published: Monday, Aug. 29 2011 9:43 a.m. MDT

BRUSSELS — The recent turmoil on financial markets threatens economic recovery in the European Union, the bloc's top economic official said Monday.

The warning from EU Monetary Affairs Commissioner Olli Rehn came after a turbulent summer for markets across the globe, as investors worried about a potential new recession in the United States, the eurozone's ability to resolve its debt crisis and the health of European banks.

"The financial markets and the real economy move now more in synchrony, which makes me seriously concerned about continued financial turbulence spilling over to and potentially harming the recovery of the real economy," Rehn told European lawmakers.

That statement is a sharp turnaround from comments in recent months, when Rehn pointed out that growth in the EU was strengthening despite the market jitters.

As a result, the European Commission now has a bleaker view of economic growth in the EU than this spring, Rehn said, adding that a new forecast will be released Sept 15. This spring, the Commission, the EU's executive arm and economic watchdog, predicted the 27-country bloc would grow 1.8 percent this year.

The European Parliament's economic affairs committee had called Rehn, as well as the head of the European Central Bank President Jean-Claude Trichet and Eurogroup Chairman Jean-Claude Juncker, to an emergency hearing on the eurozone's recent problems.

Investor concerns over the currency union have been worsened by delays in implementing a recently agreed second bailout for Greece as well as changes to the eurozone's bailout fund.

Eurozone countries have been locked in discussions over a demand from Finland to receive collateral to secure its contributions to the new Greek rescue package.

Juncker, the prime minister of Luxembourg who also chairs the meetings of eurozone finance ministers, said the collateral issue won't scupper the bailout deal and that he expected a solution within days or weeks.

"The Eurogroup is working on a proposal, which I hope all eurozone member states will be happy with," Juncker told lawmakers.

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