Nine leading European economists called today on the European Central Bank and EU governments to consider changing their policy yardsticks as they forecast euro zone growth would fall flat for a third year.
The European Economic Advisory Group said even without a war in Iraq the euro zone economy would grow at most 1.4 per cent in 2003, below potential for the third year in a row and a rate too slow to cut unemployment.
"The scenario used in the above growth forecast is somewhat optimistic and may fail to materialise," the group, set up by Germany's influential Ifo institute, said in a report.
Growth could be as low as 0.9 per cent if an Iraq war led to high oil prices and hit confidence, it added.
The group partly blamed the European Union's policy-making framework for weak growth, suggesting the ECB consider redefining its "price stability" goal as a rate of inflation of 2.5 per cent rather than zero to two percent as currently. The group argued this could give the ECB greater leeway to cut interest rates.
The group also called on European Union to amend its Maastricht treaty rules on budget deficits, so that countries with a public debt ratio of below 55 per cent of gross domestic product could borrow more than the bloc's three percent of GDP limit.