EU leaders warn on euro, euro zone growth forecast

By David Milliken and Gavin Jones

VALLETTA/ST. JULIAN'S, Malta (Reuters) - The euro zone economy could slow more than previously forecast, a policymaker said on Saturday, as other EU leaders voiced worries about the weak U.S. economy and the strong euro currency.

Speaking on the sidelines of ceremonies to mark Malta's January 1 adoption of the euro, Luxembourg's Prime Minister Jean-Claude Juncker told reporters: "The European Commission is considering we could have (euro zone) growth of 1.8 or 1.9 percent."

The Commission's latest forecast, in November, was for 2.2 percent growth in 2008.

Juncker, who chairs the Eurogroup of euro zone finance ministers, declined to be drawn on the strength of the euro.

Some companies and politicians say the currency's appreciation is making it harder for the region's exporters to compete, adding to the drag on growth from a sharp U.S. economic downturn.

But France's EU affairs minister Jean-Pierre Jouyet told Reuters the euro was rallying too fast, and came close to renewing French criticism of interest rate hikes from the European Central Bank's last year which have increased the attractions of buying the currency.

Despite the rate rises, global food and fuel price increases have pushed euro zone inflation above the ECB's target ceiling, and Jouyet suggested the Eurogroup of EU finance ministers should "see if the (ECB's) inflation target is appropriate in the euro zone".

Although a global credit crisis has persuaded the ECB to keep interest rates on hold at 4 percent since last June, hawkish comments from ECB policymakers have spurred the euro's long-running rally against the dollar, especially since the U.S. Federal Reserve began to cut its benchmark rate in September.

The euro EUR= is not far off record highs it reached against the dollar last year and has hit record highs against sterling EURGBP= since the Bank of England joined the rate cutting cycle in December.

U.S. WORRIES

Jouyet's latest comments mark an adaptation of earlier calls from French President Nicolas Sarkozy to make growth part of the ECB's mandate -- proposals that fell on deaf ears in Europe and met with a particularly strong rebuff from Germany.

However, Jouyet also said he would not comment on the policy of the ECB, which defends its independence from politicians fiercely.

Andrej Bajuk, finance minister of Slovenia which currently holds the rotating presidency of the EU, said euro strength "is a concern to all of us because the exchange rate should reflect the economic fundamentals of different parts of the world."

But he defended the ECB's emphasis on fighting inflation as its 'raison d'etre', while EU Commission President Jose Barroso said the main risks to euro zone growth came less from the strong euro than from the United States.

"I appreciate the euro's strength causes problems and concerns to some sectors," Barroso told a news conference, but added that German export strength showed the euro zone economy remained competitive.