Brussels, 07/12/2004 (Agence Europe) - Analysis of the economic situation has led ministers of the euro zone to declare themselves, "confident that improvement in the euro zone will continue at a strong pace, although it will be more moderate". They were pleased with the fall in oil prices and formed the same opinion on the currency rates a month ago but launched an appeal to the "large economies". In connection with the Greek statistics case, ministers from the Twelve briefly discussed the Commission communication but it was during the Ecofin Council on Tuesday with the 25 Member States that they adopted conclusions on sharing responsibilities on the matter. In an effort to prevent any reoccurrence, the Commission will come up with proposals on strengthening statistical governance on 22 December, announced the Commissioner for economic and monetary affairs. Joaquin Almunia also indicated that excessive deficit procedures against ten Member States were going to be suspended for ten of them (Poland, Czech Republic, Slovakia, Malta, Cyprus and Netherlands) and that the Commission would finish examining the situation of the other four by the end of the year (France, Germany, Greece and Hungary). The Commission has doubts about the figures of the Italian deficit since 1997.
"We were rather concerned that during our October forecasts we noticed certain downward pressures" (EUROPE 28 October for forecasts) acknowledged Commissioner Almunia, underlining the slowdown in growth in the third quarter (+0.3%) and the fall in net exports. Nevertheless, he did say that condition for a recovery in internal demand were in place and his overall feeling is backed up by recent ECB forecasts which have predicted lower growth, around 1.9% in 2005 (EUROPE 3 December p 11). In a new declaration on the rise in the euro, ministers, the Commission and the ECB reaffirmed that "the recent brutal movements in exchange rates are unwelcome". They launched a joint and more direct appeal to the large economies, especially the USA, "All countries and major economic zones should play a more active role in reducing significant imbalances and adopt appropriate economic policies". Without suggesting any possibility of an intervention, they did add that they would be following the situation very closely. The new minister for the economy and finance in France, Hervé Gaymard, said that things were clear, "it is not a matter of a strong euro but a weak dollar…and the close link between the dollar and the Asian currencies has made the situation worse". Asked about developments in the situation, Jean-Claude Trichet and Gerrit Zalm both highlighted the "consensus on the work" . the president of Eurogroup affirmed that the "USA had to increase their savings and the EU had to progress with more fundamental economic reforms" and legitimise the ECB's policy by affirming that "Eurogroup supports the ECB's position on rates".
In the context of excessive deficits, the Netherlands had already obtained the assent from the Commission and ministers on measures that would allow to revise them to below 3% in 2005 (EUROPE 22 October p 8). Commissioner Almunia announced that before the end of the year, five of the six new Member States were expected to have rectified their situations. By not taking part in Economic and Monetary Union, they are exempt from the rule for a return to balance within a year and have more flexible timetables. According to the deadlines planned in their convergence programmes (EUROPE 25 June), Cyprus should return to balance in 2005, Malta in 2006, Poland and Slovakia in 2007 and the Czech Republic in 2008.
Hungary had expected to remain within the 3% threshold by 2008 is not yet there but is expected to be, together with Greece by the end of the year. As for the six new Member States, the Council observed an excessive deficit at its July meeting (EUROPE 6 July). Taking into account the scale of the revision of the figures since then, government measures will have to be exemplary if minister George Alogoskoufis is going to succeed in his objective of brining the deficit of 5.3% in 2004 to less than 3% in 2005.
Procedures against France and Germany (under scrutiny since November 2003)will be examined by the Commission next week. Mr Almunia indicated that they had to see whether these countries were on track. During a separate press conference the French minister announced that the Commissioner had informed them of his intention to suspend this excessive debt procedure on 14 December. Gaymard also reiterated his objective of 2.5% growth next year and explained that they had all that was needed to achieve this.
On the other hand "Italy and Portugal are not on the list, but their deficits were dangerously close to 3% and forecasts for 2005 were not rosy", announced Mr Almunia, alluding also to his concerns about the Berlusconi government's tax reduction measures.
More serious still is that Italy's budgetary figures are in turn brought into question in a report that the Commission presented to the Eurogroup. As for Greece, the document notes that the Italian deficit was regularly above the 3% mark between 1997 and 2003, The Financial Times stated on Tuesday. Without for now mentioning under-evaluation to the same degree as in Greece, the Commission is taking time to go into the matter in greater detail with the Italian authorities (EUROPE will come back to this).
Finally, ministers settled the question of one and two euro centime coins, stressing that they will continue to be legal tender but that an agreement between buyers and sellers may allow prices to be rounded off to the closest figure. This procedure is currently used in Finland and in the Netherlands, but, if a country wants to bring it in with legislation, then "it will be necessary to take the matter before the Eurogroup again", Mr Zalm said.