UPDATE 1-Europe closer to recovery, EU's Almunia says

Thu Apr 23, 2009 11:54pm BST

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By Jan Strupczewski and Anna Willard

WASHINGTON, April 23 (Reuters) - The European economy is showing some positive signs that it is closer to a recovery than before, Economic and Monetary Affairs Commissioner Joaquin Almunia said on Thursday.

"Looking at some indicators in Europe, some of them are sending us some positive signals, (but) it is not yet evident that we will start a recovery tomorrow. We still have a lot of difficult tasks ahead of us, but some positive indicators are indeed welcome," Almunia told a seminar.

The euro zone's services and manufacturing sectors posted their best performance in six months in April, key surveys showed on Thursday, suggesting the severity of the recession may have eased.

"If we are not yet in a recovery, at least we are closer to the bottom, and closer to the beginning of the recovery than we were," Almunia said.

He was speaking a day before Group of Seven finance ministers and central bankers from the United States, Canada, Japan, Britain, France, Germany and Italy meet in Washington to discuss the global economy.

The G7 meeting will be followed by a meeting of finance ministers from the G20, which includes major emerging market economies.

He said Europe had been slow to react to the financial crisis, but added the size of stimulus packages put in place in Europe should not be underestimated and was not much smaller than in the United States.

European leaders should assess at their next meeting in June whether their stimulus measures are enough to cushion the economy from the financial crisis, he said.

"European governments should discuss now in June at the next European Council if the stimulus is adequate," Almunia said.

He said the fiscal and monetary measures would work faster in the United States than in Europe because the economy was more flexible.

Almunia said that in the short term, Europe needed to focus on cleaning up balance sheets of banks of and move more quickly to deal with impaired assets and bank recapitalization in order to restore credit flow to the economy.

Responding to a question on whether a euro zone country in trouble should seek financial help from the International Monetary Fund, Almunia said: "From a political point of view, it is not acceptable that a (euro zone) country would go to the IMF."

He added that were such a situation to arise, the euro zone would find a solution.

He said European countries would one jointly issue debt, although there was opposition to the idea now, he said.

"I think we will see it in the future," Almunia said.

He also said it was essential for policymakers to be on guard against inflation in the longer term and withdraw fiscal and monetary stimulus as soon as the economy starts recovering.

"If we are not able to put forward a sensible strategy to consolidate public debt and to regain our finances on a sustainable path, inflation will emerge," he said.

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