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Volcano casts cloud over European economy

By Kevin Voigt, CNN
Volcanic ash spewing from underneath southern Iceland's Eyjafjallajokull glacier is casting a long shadow across the European economy.
Volcanic ash spewing from underneath southern Iceland's Eyjafjallajokull glacier is casting a long shadow across the European economy.
  • Ash from Icelandic volcano is casting a shadow over the European economy
  • More than 63,000 flights have been cancelled, disrupting global travel and freight
  • IATA: Cloud costs airlines around $200 million a day and "billions more" to local economies

(CNN) -- 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.

Should the airlines be bailed out?

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.

Get the latest information on travel disruptions

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."

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  • Volcanic Eruptions
  • Air Travel
  • Iceland
  • Europe

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.

British Airways, whose CEO Willie Walsh has called the UK's blanket airspace ban unnecessary, has said it expects financial assistance from the European Union to help it cope with the impact on its profits.

"To assist us with this situation, European airlines have asked the EU and national governments for financial compensation for the closure of airspace," it said in a statement.

"There is a precedent for this to happen as compensation was paid after the closure of US airspace following the terrorist events of 9/11 and clearly the impact of the current situation is more considerable.

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.

How stranded passengers are coping

Two key air travel groups issued a joint statement pushing authorities to ease flying restrictions. Airports Council International (ACI) Europe, a group that represents airports, and the Association of European Airlines (AEA) said they question "the proportionality of the flight restrictions currently imposed." Both KLM and British Airways conducted test flights over the weekend and reported the conditions were safe to fly.

Test flights show European skies may be safe

"While safety remains a non-negotiable priority, it is not incompatible with our legitimate request to reconsider the present restrictions," said Olivier Jankovec, director general of ACI Europe. Airports have lost close to 136 million euros ($184 million U.S.) so far. More than 6.8 million passengers have been affected, he said in a statement, adding that the effect is worse than after the September 11, 2001, terrorist attacks on the United States.

Meanwhile, train, bus and seafaring companies in Europe can expect an increase in business as a result of the flight disruptions, analysts said.

How volcanoes can change the world

The butterfly effect of the Iceland volcano cloud is stretching from stranded flyers in Hong Kong to spoiling food in Africa. About 200 tons of produce sit aging at a warehouse in Kenya awaiting export to Europe. "I've seen severe floods, severe droughts -- I haven't seen anything like this before," said Edward Karanu, manager at Vegpro Ltd. in Kenya. "This is a catastrophe ... because it doesn't have an end time."

Exporting horticulture is Kenya's highest foreign exchange earner -- more than $1 billion, according to analyst estimates.

"What will I do. What will I have in my house?" said Lucy Wanjiku, who fears she may be out of a job if the planes don't take off soon.

In Hkolvollur, Iceland, farmer Olafur Eggertson's 2,500 -acre farm is covered in ash -- a mucky, muddy ash that blankets the field where he was about to plan his wheat and oats, and covers the red roofs of his house and barn.

The farm has been in Eggertson's family for 104 years. The volcano had been quiet for 189 years.

"This has been in my family for three generations," he said. "Me, my father, my grandfather. That's why it hurts so much.

Eggertson said he and his family always knew the nearby volcano could hurt them.

They just hoped it would be quiet for another century or two.

CNN's Zain Verjee, Arwa Damon, Pat St. Claire and Gary Tuchman contributed to this report.

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