UPDATE 2-Europe's Barroso seeks 'living' trade pact with U.S.

Fri Apr 12, 2013 5:37pm EDT

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By Daniel Bases

NEW YORK, April 12 (Reuters) - European Commission President Jose Manuel Barroso said on Friday that he seeks to negotiate a "living agreement" to help deepen economic and trade ties with the United States.

"If we manage to come to a comprehensive agreement, the overall gains could add up to a 0.5 percent increase in GDP for both sides," Barroso told investors and diplomats at an event co-sponsored by the European American Chamber of Commerce New York and Bloomberg LLP.

A "living agreement" means trying to work toward the prevention of regulatory barriers, Barroso said.

The United States had a deficit in goods trade with the European Union of $115.7 billion in 2012. So far in 2013 the deficit is running ahead of last year's pace, according to U.S. government data. In the first two months of this year the 27-nation EU sent $17.4 billion more in goods than it has received from the United States.

Barroso noted that tariffs between the United States and the EU are low, with an average trans-Atlantic tariff of 5.2 percent for the EU and 3.5 percent for the United States.

"Because of massive flows, even the slightest reduction has a considerable impact," he said.

"We will not be able to eliminate all regulatory divergences in one round," he said.

The euro area economy is expected to contract by 0.2 percent in 2013 before rebounding with a 1 percent growth rate in 2014, according to the latest estimate from the International Monetary Fund. In contrast, the U.S. economy is expected to grow 2 percent this year and 3 percent in 2014.

"We had to build a lifeboat in the middle of the storm and while not entirely finished yet, it is sufficiently strong to face the headwinds," Barroso said of Europe's fiscal and economic situation.

Barroso said that fiscal stimulus alone will not pull the European Union's economy, as a whole, out of its decline.

"Trade is the cheapest way to promote growth," he said.

Barroso reiterated that he expects conditions for trade talks to be in place within the next few weeks. He said in February that they may start by the end of June.

REGIONAL FIRES

Barroso told reporters after his speech that Europe could not be complacent despite less severe crisis rhetoric and progress in slowing the fiscal bleeding and alleviating the debt burden.

"For instance, these latest developments regarding Cyprus should be a warning to Europe that we need to go faster and deeper in the banking union. This is the lesson to draw. We have not yet completed all the arsenal, the tool kit we need to face crisis," he said.

Earlier on Friday, euro zone finance ministers backed a 10-billion-euro bailout for Cyprus while the European Commission said it would try to help the island's economy grow again with better use of EU structural funds.

The EU is providing 9 billion euros while the IMF is contributing 1 billion.

To cover its financing needs over three years, Cyprus will have to come up with 13 billion euros of its own, with the bulk coming from the closure of its Laiki bank and the restructuring of the Bank of Cyprus.

Slovenia, the first state to break away from the former Yugoslavia in the 1990s, is struggling to avoid following Cyprus into a bailout. The question is whether it has enough cash to roll over a large tranche of debt maturing in June to stay afloat.

The European Commission, the executive arm of the EU, on Wednesday published the results of an in-depth review of 13 EU countries identified last year as showing signs of macroeconomic imbalance in areas such as debt management, banking sector reform and labor markets. It said Slovenia needs to repair its banking sector and should consider an eventual privatization of state-owned banks.

Barroso would not be drawn on what odds he gives for Slovenia avoiding a bailout.

"I never make this kind of prediction. What I think is that Slovenia has to face in a decisive manner all those challenges that were now identified in our macroeconomic imbalances (report)," he told Reuters.

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