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Flowers on a meadow

July 2007 | Issue 7
Blue skies ahead for EU economy

The EU economy is set to grow faster than previously expected, according to the Commission’s spring economic forecasts. Growth is forecast to hit 2.9% in 2007, despite high oil prices (US$65-70 per barrel in April) and a slowdown in the US economy (expected to drop to 2.2% this year, from 3.3% in 2006). This more vigorous growth rate is partly due to the fact that the economy has performed, on the back of robust domestic demand, better than expected since the last forecast was conducted in the autumn of 2006. This healthy growth is expected to have welcome effects in terms of employment and public finances. The EU is on course to create 9 million new jobs for the 2006 to 2008 period, with two-thirds of these in the euro area. The average budget deficit of the EU’s 27 Member States is expected to slip to 1.2% of GDP this year, far below the 3% target set by the Maastricht Treaty.

Joaquín Almunia, European Commisioner for Economic and Financial Affairs © European Communities

July 2007 | Issue 7
EMU: “A European success story”

In a keynote speech at the Athens Economist Conference in April, Commissioner for Economic and Monetary Affairs Joaquín Almunia assessed the successes of EMU and the challenges ahead in the coming years. “EMU has been a European success story,” he said. “The positive impact of the euro on macroeconomic stability and economic integration are among [its] many tangible benefits.” The Commissioner spoke of five main achievements of EMU and the euro. It has provided economic protection and stability; low and stable inflation rates; and a dramatic fall in interest rates. It has also fuelled European economic integration – boosting intra-euro-area trade by 5-15%, according to conservative estimates. And the euro has also emerged rapidly as the second most important global currency, just behind the dollar. “These achievements notwithstanding, it is clear that the euro and EMU as a whole face challenges,” the Commissioner noted. These include disappointing euro-area economic growth, although this is currently being turned around.
People at a street market in Slovenia © Vasiliki Varvak

July 2007 | Issue 7
Slovenia: euro changeover “swift and smooth”

Commissioner Joaquín Almunia described the changeover to the euro in Slovenia in January as “a swift and smooth affair”. “This once more underlines the importance of early and careful preparations and of timely information and communication on the euro,” he noted. The Commissioner was speaking on the occasion of the publication of a new Commission Communication assessing how successfully the euro was rolled out in Slovenia. Despite consumer fears, preliminary analysis reveals that the impact of the changeover on prices was marginal. Two separate analyses conclude that the overall one-off impact will be in the range of 0.2-0.3%. In fact, inflation in Slovenia has been lower this year than in the comparable period of 2006. A survey of the general public conducted in April 2007 revealed that 83% of Slovenian citizens had no problems adjusting to the new currency and 91% felt well informed.
Discussion panel at the Brussels Economic Forum 2007 © European Communities

July 2007 | Issue 7
The Brussels Economic Forum

This year’s BEF, organised by DG ECFIN on 31 May and 1 June, brought over 1,000 participants together to hear about global imbalances, adjustment dynamics under EMU, and the economic catching-up and convergence process in the EU. President Barroso launched the conference with the headline ‘Reform is the name of the game’ and the WTO Director General, Pascal Lamy, gave the closing keynote address on the benefits of trade opening. In between, delegates heard a variety of speakers, including Wu Xiaoling, Deputy Governor of the People’s Bank of China, on that country’s view on solutions to global imbalances, and Marek Belka, Executive Secretary of the UN Commission for Europe and former prime minister of Poland, on the new Member States’ approaches to the convergence criteria. Presentations given at the BEF can be downloaded from the ‘events’ section of the DG ECFIN website.
A euro banknote and a toy house in the pans of a scale © Emrah Turudu
© Emrah Turudu

July 2007 | Issue 7
Time to put the macroeconomic house in order

The European Commission’s ‘Annual statement on the euro area’ describes the healthiest economic growth for the 13 countries using the single currency since the turn of the millennium. It urges them to use these ‘good times’ to put the macroeconomic house in order by slashing public deficits and debt. “Policy-makers must strike while the iron is hot, and step up their efforts to put public finances on a sound footing," said Commissioner Joaquín Almunia at the launch of the yearly report. In 2006, economic growth in the euro area was at its most robust since 2000, reaching 2.7% and creating some 2 million new jobs. Healthy growth is also expected this year. However, euro-area governments should not see this as an opportunity to relax. Instead, they must avoid expenditure overruns and use unexpected extra revenues to reduce government deficit and debt. They should also implement further structural reforms, including addressing the issue of wage-price stability. To read the full statement, see 'publications' on the DG ECFIN website.

Economic chart

July 2007 | Issue 7
Measuring euro-familiarity

A new Eurobarometer survey, carried out in March 2007, reports on the degree of familiarity with the euro felt by citizens of the new Member States that are not yet part of the euro area. While many have seen and used the euro, a large number are unclear on the finer design points. Disconcertingly, a majority in all candidate countries think their country can choose whether to adopt the euro or not and do not know that this was a condition of EU accession. However, the number who think this way is slightly less than in 2006. Another worrying figure is that 44% of respondents do not feel well informed about the euro, although this is dependent on how close their country is to euro adoption. Overall, a small majority believe that adopting the euro will have positive consequences for their country, and a larger majority agree it will make them feel more European. The Eurobarometer surveys can be found on the ‘euro-related publications’ section of the ECFIN website.
Flags of Cyprus and Malta in front of a euro banner © European Communities

July 2007 | Issue 7
Welcoming Cyprus and Malta

A welcoming celebration on 10 July marked the ECOFIN Council’s confirmation of 1 January 2008 as the date for Cyprus and Malta’s entry into the euro area. After the press conference announcing the decision, a celebration was held on the esplanade of the Commission’s Berlaymont building in Brussels. Organised by DG ECFIN, the event included a banner of the Cypriot and Maltese 1-euro coins on the Berlaymont building, a huge book representing a new chapter for the euro area, children carrying flags, euro-cocktails and live music and dancing. The Commission, the Portuguese Presidency, EU finance ministers and, most importantly, Cypriot and Maltese officials and representatives took part and celebrated this second enlargement of the euro area. More information on Cyprus and Malta’s entry to the euro area can be found under ‘hot issues’ on the news section of ECFIN’s website as well as on the websites of the Bank of Cyprus and the Bank of Malta.
Euro banknote and the European stars © Emrah Turudu
© Emrah Turudu

July 2007 | Issue 7
The euro area’s “solid expansion”

The European Commission released this year’s 2nd issue of its ‘Quarterly Report on the Euro Area’ on 3 July. The report finds that the solid economic expansion continued in the first quarter of 2007, driven by domestic demand and in particular by strong spending on investment. It then goes on to analyse in more depth the recent economic developments in the euro area as well as the short-term prospects. It also assesses the effects of the euro appreciation on household purchasing power and on euro-area exports, revisits the link between fiscal policy and inflation, and presents the midterm review of budgetary policy in the euro area. Finally, a focus section analyses EU financial integration and its role in euro-area adjustment. The next report for 2007 is due out in October. The QREA can be found under 'publications' on the DG ECFIN website.

 
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