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They are worried raising rates will further support the euro.

And they all seek a quick return to ‘fiscal responsibility’

This all should insure the Eurozone remains characterized by high unemployment and elevated systemic risk

EU Officials Say Stimulus Exit Unlikely Before 2011

By Svenja O’Donnell and Chris Burns

Oct. 1 (Bloomberg) — European Union finance chiefs said the pace of recovery means they probably won’t withdraw stimulus measures before 2011 as they grapple with rising unemployment and the effects of the euro’s gains.

“We look with concern to the exchange-rate developments and the impact of our ability to export,” Portuguese Finance Minister Fernando Teixeira dos Santos said today in an interview with Bloomberg Television at a meeting of European finance chiefs in Gothenburg, Sweden. “But we should expect markets to react appropriately to the fundamentals of our economy.”

The finance officials are discussing the form and timing of exit strategies after spending billions of euros in emergency measures to drag the economy out of its worst recession in 60 years. While there are signs the recovery is under way, it may not be sustained enough to permit a withdrawal of these measures before 2011, ministers said.

“We have to prepare exit strategies, of course, and we shall see if these strategies can be implemented then in 2011,” Luxembourg’s Jean-Claude Juncker said after leading a meeting of euro-area finance chiefs today. “We shall see whether this situation becomes more stable by then.”

The euro, which has gained 13 percent in the past seven months against the dollar, traded at $1.4544 at 2:10 p.m. in London today, down from $1.4640 in New York yesterday.

Euro’s Advance

The ministers discussed the euro’s advance in preparation for a Group of Seven meeting in Istanbul this weekend, European Central Bank President Jean-Claude Trichet told a press conference.

“We had a discussion as usual preparing for the meetings in Istanbul,” Trichet said. “There is very strong sentiment that we have a shared interest in a strong and stable international financial system and excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability.”

Trichet also said exit plans should be implemented once the recovery is under way, “in our own view the latest in 2011,” he said.

The euro-area economy may expand 0.2 percent in the current quarter and 0.1 percent in the three months through December, the commission said on Sept. 14. In the second quarter, the economy contracted just 0.1 percent as Germany and France returned to growth.

Jobless Rate

Europe’s unemployment rate rose to a 10-year high of 9.6 percent in August, data showed today, as companies continued to cut jobs even as the recession eased. The European Commission forecasts the euro-area jobless rate will reach 11.5 percent next year.

“It’s clear we have to keep economic policy very expansionary in the coming period to really be sure of establishing a recovery,” Swedish Finance Minister Anders Borg said today. “At the same time, this is the time to start designing and communicating exit strategies,” he said, adding that it’s “clear that fiscal policy in Europe is not sustainable.”

France’s budget deficit will widen next year to a record, the government projected yesterday, as President Nicolas Sarkozy cuts business taxes and spending on jobless benefits climbs. Spain this week posted the largest budget shortfall in at least nine years.

This afternoon the euro-area officials were joined by finance ministers from the rest of the European Union as well as central bankers from the 27 EU nations. Included on their agenda is the banking industry and financial- supervision proposals. The Committee of European Banking Supervisors is due to present the results of stress tests carried out on the banking industry.

Reducing Deficits

Officials should focus on reducing deficits over raising interest rates, Jean Pisani-Ferry, director of Bruegel, a Brussels-based study group, said in a presentation to ministers in Gothenburg today.

“In view of the public finance costs of large deficits, budgetary consolidation should be given priority over monetary tightening,” Pisani-Ferry said in the report, co-written with Juergen von Hagen and Jakob von Weizsaecker. “For this to succeed, governments need to start fiscal consolidation swiftly in 2011 with the withdrawal of the stimuli.”

This afternoon the euro-area officials were joined by finance ministers from the rest of the European Union as well as central bankers from the 27 EU nations. Included on their agenda is the banking industry and financial-supervision proposals. The Committee of European Banking Supervisors is due to present the results of stress tests carried out on the banking industry.

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