ASEM upbeat about weathering U.S. storm

ASEM upbeat about weathering U.S. storm

KOBE, Japan (AFP): Finance ministers from Asia and Europe on Saturday shrugged off the potential damage posed by the wheels coming off the U.S. economic juggernaut, saying both regions should weather the slowdown.

But on the first day of weekend talks in the western city of Kobe, participants at the Asia-Europe Meeting (ASEM) of 25 nations also expressed caution about prospects for rapid growth in the two regions.

The European Union said its economy was on the right track as falling oil prices and stable inflation offset the negative impact of the U.S. deceleration.

"The EU side raised the U.S. economic slowdown as a negative factor" for Europe, a Japanese finance ministry official said after talks between Japanese Finance Minister Kiichi Miyazawa and officials including European Central Bank vice president Christian Noyer.

"But they said there are some positive aspects, such as a recent decline in oil prices, stable inflation and the positive impact of the currency unification," the official said.

Miyazawa also underscored his concern, expressed in earlier talks with South Korean counterpart Jin Nyum, about the U.S. economic slowdown's impact on the Japanese and Asian economies, but said the US would escape a hard landing.

"Asia as a whole may be affected and Japan may be affected too," Miyazawa told his European partners, according to the official.

"But the chances of successfully achieving a soft landing appear to be higher than the possibility of a hard landing," Miyazawa said, citing the U.S. Federal Reserve's aggressive reduction of interest rates this month.

Finance ministers were, however, guarded in their discussions about the Asian and European economies.

"There was surprisingly a tone of realism," Etienne Reuter, the European Commission's chief spokesman in Japan, told reporters.

"We had the feeling that some people thought maybe that the Asian crisis is not over yet," he added.

The free-falling Japanese yen loomed large over the ASEM meeting as East Asian economies debate what kind of currency regime they should inaugurate to avoid a repetition of the 1997 market panic.

The yen has slid to its lowest levels against the dollar since July 1999, reviving memories of the extreme volatility in the yen-dollar rate that preceded the crash of the Thai baht in July 1997.

Most East Asian currencies at the time were pegged against the dollar, but are now free-floating.

The International Monetary Fund's managing director, Horst Koehler, told the ASEM meeting that crisis-hit Asian countries should stick with floating currencies.

"On balance, we have a responsibility to advise our members that while such regimes can succeed, the requirements for a country to maintain a pegged or heavily managed exchange rate are daunting -- especially when the country is strongly engaged with international capital markets," he said.

"There is essentially no room for error."