The worst part of the economic crisis in the euro zone is over, but it is still too early to end financial stimulus, a top European economic official said on Wednesday.
"The worst is over for the time being," Luxembourg Prime Minister Jean-Claude Juncker, who is also the chairman of eurozone finance ministers, told reporters before an informal meeting of the ministers here on Wednesday.
Official figures released by the European Union (EU)'s statistics office Eurostat showed that the eurozone economy shrank at a slower pace in the second quarter of this year, confirming the optimism expressed by Juncker.
In the second quarter of 2009, the combined economy of the 16- nation bloc sharing the euro fell by 0.1 percent quarter-on- quarter after contracting sharply by 2.5 percent in the previous three months, according to Eurostat.
Despite the improvement of the economic situation, Juncker said it was still too early to carry out an exit strategy to phase out economic stimulus.
"The time has not yet come to withdraw the fiscal stimulus. We have to continue this effort in the course of this year and next year, then we have to agree on an exit strategy," he said.
So far, EU countries have spent billions of euros on their stimulus packages in the face of the worst economic crisis since the Second World War.
With economy showing early signs of recovery, there is an increasing call for gradual withdrawal of fiscal stimulus for fear of the inflation risk and heavy burden on public finance.
"While countries around the world continue their effort to promote economic recovery, there is a clear understanding that international coordination is necessary both to consolidate public finances from the moment the recovery takes hold and to pave the way towards a more sustainable global growth model," the EU said in a press release ahead of the special meeting of its finance ministers.
Swedish Finance Minister Anders Borg, whose country holds the rotating EU presidency, said after the meeting that the ministers agreed there should be plans to end fiscal stimulus at some point, but it was not now.
Analysts said the timing is essential since removing the stimulus too soon would be detrimental to the momentum of economic recovery, while a slow withdrawal would increase the risk of inflation.
"We need to be prepared not to start the withdrawal of the stimulus tomorrow, but to know before the moment arrives ... how to do it, when to do it and what is the degree of coordination that we need," EU Economic and Monetary Affairs Commissioner Joaquin Almunia told reporters after attending the meeting.
French Economy Minister Christine Lagarde warned it was still difficult to say that the eurozone economy is recovering.
"The decline has stopped, but we are not yet in a situation of recovery or turnaround, at least not everywhere in the euro zone," she said after the meeting with her EU counterparts.
"I do not use the words recovery, turning point or turnaround because we decided this morning that we are not there yet," she added.