Volcano casts cloud over European economy

The cloud of ash from an Iceland volcano is casting a shadow over the nascent economic recovery in Europe as the cancellation of flights in key markets entered its fifth day.

By the end of the day on Sunday, a total of 63,000 flights had been canceled in the four days since ash from a volcano under the Eyjafjallajokull glacier in Iceland closed the airspace of a large swath of Europe, according to air traffic authority Eurocontrol. The air travel and freight disruptions are costing airlines at least $200 million a day and perhaps billions more to the affected economies, one industry group warned.

European Commission President Jose Manuel Barroso ordered formation of a group to study the impact of the volcanic ash cloud on the European economy. “The volcanic ash cloud has created an unprecedented situation,” Barroso said in a statement Sunday. “I have asked Vice President Kallas to coordinate the Commission’s response and fully assess the impact of the situation created by volcanic ash cloud on the economy, and the air travel industry in particular.”

The Eurozone — the 16 European nations united under the euro currency — is in the midst of a shaky recovery. After shrinking 4 percent last year, the Eurozone is expected to grow only 1 percent this year, according to a forecast by Ernst & Young released last Friday.

“The key is how long this eruption and the disruption last,” said Frederic Neumann, an HSBC economist in Hong Kong. “If it’s just a couple weeks, from a macroeconomic standpoint it’s just a blip on the radar … if it lasts for months and months, then it’s a different story.”

Right now, how long it will last is anyone’s guess.

“Each day we’ve gone to check out Virgin (Atlantic Airlines) and each day they just tell us to keep checking on the Internet,” said Andy Loftus, who is stranded in New York. “But when we check the Internet, the Internet doesn’t tell you anything. So you have to keep going back to the airport.”

The last time the volcano under Eyjafjallajokull glacier blew was 1821 and continued for two years. The amount of ash and its concentration over European flight paths is constantly changing due to geological and meteorological forces.

EU Transport Commissioner Siim Kallas said Sunday if the ash cloud continues “moving as it moves, then tomorrow almost 50 percent of European [Union] space will be risk free.” That would allow more flights to resume, he said. “But we’ll see [Monday] what the picture shows.”

The ash cloud is delaying key talks on the issue most troubling the Eurozone — Greece’s mounting debt woes. The Greek Finance Ministry issued a statement that talks with European officials and the International Monetary Fund over details of a $40 billion bailout for Greece is delayed at least until Wednesday, Dow Jones Newswires reported.

Meanwhile, the air industry in Europe — already battered by the financial crisis and labor disputes such as strikes at Lufthansa and British Airways this year — is putting on pressure to reopen the skies.

“This crisis is costing airlines at least $200 million a day in lost revenues and the European economy is suffering billions of dollars in lost business,” said Giovanni Bisignani, director general and CEO of the International Air Transport Association. He told CNN on Monday that if flight restrictions continue, some small and medium-sized airlines could be put in jeopardy.

IATA criticized European governments “for their lack of leadership in handling airspace restrictions” and “urged a re-think of the decision-making process” for closing European skies.

Even airlines based far from the ash face a financial knock-on effect: Thai Airways, based in Bangkok, estimates the cloud is costing the airline $3 million a day and has stranded 6,000 of its passengers.

Tags: Ash Cloud, World