BARCELONA, March 16: European Union officials were upbeat about the region’s growth prospects on Friday but said the US economy held the key.

Finance ministers from the 15-member bloc believe the region’s economy has turned the corner after slowing last year and is now on the mend, their current chairman, Rodrigo Rato, told journalists during a two-day EU summit in Barcelona.

The deceleration hit bottom in the last two weeks of 2001 and the first indications and real indicators seem to show signs of recovery in the first two months of 2002, the Spanish Economy Minister said.

European Economics and Monetary Affairs Commissioner Pedro Solbes was also inclined to be more optimistic, particularly if the unexpected strength of recent US economic reports turned out to be more than a flash in the pan.

We are surprised with the results of the fourth quarter which were very good, Solbes said.

We are more optimistic (about Europe’s economic prospects) in the sense that if the US figures are not temporary and are permanent, it is very positive.

Solbes repeated a recently expressed forecast that the European economy could be growing at or even above the potential rate of expansion it can manage without stoking inflation by the end of the year.

The European Central Bank estimates this rate to be about two to 2.5 per cent.

Rato and Solbes both said Europe’s economic fundamentals were sound but Solbes added that the euro was not getting credit for this from the foreign exchange market.

We have always considered our fundamentals are good. We expect this to be reflected in the foreign exchange market — this is not happening, he said.

But the best thing to do is to continue to be confident and remain committed to our objective on inflation.

The European Central Bank is required to ensure price stability in the 12-member euro zone.

Rato said EU countries and the European Commission agreed that monetary and fiscal policies had been appropriate for the needs of the economy in the last quarter of 2001 and the first three months of this year.

The economic output of the dozen members of the euro zone shrank for the first time in nearly a decade in the fourth quarter but a European Commission model predicts that it could already be recovering.

Asked if trade tensions with the United States over steel import tariffs had been due to an excessively strong dollar, Solbes said European exports to the world’s largest economy had stabilised some time ago.

Solbes said he knew of no new developments in the race for the ECB vice presidency, which falls vacant at the end of May when Christian Noyer steps down.

Asked about one of the candidates, Greek central bank Governor Lucas Papademos, he said: I think the Greek candidate is a very strong one a man with good technical expertise, with a good economic background.—Reuters