By
The Associated Press
PALERMO, Sicily - What a difference a few months make.
The last time the Group of Seven guardians of the global economy gathered for their regular meeting, the European finance ministers were craning their necks in awe at the soaring U.S. economy.
When the ministers meet here tomorrow, they will be facing an entirely different economic landscape.
A sudden squall has sent the U.S. rocket into a downward spiral, with new U.S. Treasury Secretary Paul O'Neill scrambling to prevent a crash landing.
After years of lagging behind, economists predict Europe will catch up or even overtake the United States this year with growth of between 2.5 percent and 3 percent.
The single European currency is also on the rebound, after a freefall that prompted bankers to intervene in currency markets just before the G7 met in September.
"You might certainly see a few sort of satisfied faces among European finance ministers in the sense, 'We're going all right, thank you very much, slow and steady wins the race,'" said Peter Dixon, economist at Germany's Commerzbank in London.
"But I don't think the European economy is strong enough at the moment that European finance ministers can turn around and say, 'We told you so.'"
European leaders, noting that 85 percent of their trade is with each other, consider themselves largely insulated from the troubles on the other side of the Atlantic.
Demand is expected to remain strong in the two biggest euro countries - France and Germany - due partly to tax cuts taking effect this year.
Belgian Finance Minister Didier Reynders, who holds the rotating chairmanship of the 12-nation "euro group," reiterated Europe's optimism Monday.
"We can confirm our confidence in the euro area and our confidence in the euro as a strong currency," Reynders said after a meeting of euro-zone finance ministers.
Yet not all the signs are positive.
The European Union reported last week that overall confidence in Europe's economy fell slightly in January.
Germany this month lowered its growth forecasts for 2001 from 2.75 percent to 2.6 percent, and France has given indications it may follow suit.
Following the U.S. Federal Reserve, both Britain and Japan cut interest rates last week.
Yesterday, however, the European Central Bank left its interest rates untouched. The decision was taken despite a recommendation by the German Institute for Economic Research that the ECB cut interest rates to spur the European economy.
In light of economic jitters elsewhere, the European Central Bank's insistence that "everything is fine in Europe ...sounds incredible," said Han de Jong, economist at ABN-Amro Bank in Amsterdam.
"It can't be that global economy is slowing very rapidly, triggering around the globe rate cuts, and the euro area would remain unaffected," he said. "The ECB seems a little out of touch."
Economists said, however, they did not expect O'Neill to come with any specific pleas for European rate cuts to keep global growth on track.
O'Neill, who will be making his first overseas trip since being appointed, has pledged to do more listening than lecturing in Palermo.
The Europeans - Germany, France, Italy and Britain - are expected to renew their concern that, despite the welcome cooling-off of equity markets, the U.S. economy still has two major weaknesses, the ballooning trade deficit and a low savings ratio.
The United States, Japan and Canada are expected to urge their European counterparts to keep their economic engines running sweetly.
"Europe still isn't as flexible as the United States" in such areas as labor markets, meaning it may not be able to recover as quickly from any slowdown, De Jong said. "To feel smug about Europe's performance, that would be typical famous last words."
