Luxembourg, 11/10/2005 (Agence Europe) - Last week, the European Commission had disclosed the mitigated quarterly results, full of uncertainty, on the economic situation of the euro zone. It did not, however, officially review growth prospects downward (EUROPE 9043). On 10 October, the twelve finance ministers of the euro zone, meeting in Luxembourg, above all noted the “positive signals” for growth during the second half of 2005, Eurogroup Vice-President Karl-Heinz Grasser of Austria stressed. “I believe we can be more optimistic than we have been recently”, Mr Grasser told the press in the absence of Jean-Claude Juncker, Eurogroup President, who left immediately after the meeting on Monday evening. Many indicators point to a more marked recovery during the second half of the year, Mr Grasser commented, saying: “Things are better than we could have expected”. Joaquin Almunia, also, gave details of the reasons for hoping that the rest of the year would be better, despite low consumer demand and the ever-high oil prices. “Growth should be stronger during the second half of the year”, the Commissioner for Economic and Monetary Affairs analyses, saying that the “international economic environment should be to the euro zone's advantage”. According to the estimates of the last quarterly report on the euro zone economy, growth could be between 0.2 and 0.6% during the third quarter 2005 and between 0.2% and 0.8% during the fourth quarter. Not noting any second round effect on salaries at the present time, Commissioner Almunia nonetheless warned: “We should not be complacent when it comes to combating inflation”. With a 2.5% rate of inflation in September, the vigilance that the president of the European Central Bank, Jean-Claude Trichet, is pushing for seems to be divided (see EUROPE 9043). Upon arriving at the Eurogroup meeting, Jean-Claude Juncker nonetheless sought to be reassuring, saying: “Underlying inflation is largely under control in the different countries of the euro zone”.
Without giving any further details of the anticipated results of the autumn forecasts that the Commission is to publish on 17 November, Commissioner Almunia confided that the estimates of budgetary notifications showed that some Member States will not achieve the targets announced one year ago. “In the euro zone, this is the case of Germany, Italy and Luxembourg”, he said, refusing to specify which other countries could enter into this category. The Commission felt the German deficit would reach 3.9% this year, thus exceeding the 3% threshold for the fourth year running, although Germany hoped to fall below 2.9% in 2005. It is therefore very likely that the excessive deficit procedure will be reactivated, the main uncertainty being the time granted for complying with the rules of the Stability and Growth Pact. For other euro zone economies, figures are relatively in line with objectives or have been improved, Mr Almunia simply said. Although, as the Commissioner stresses, these three countries deviate significantly from the targets they had set themselves early this year, the situation is nonetheless different for Luxembourg. Mr Grasser said priority should be given to those whose budgetary situation is really difficult, as “when one knows that eleven countries out of twenty-five have deficits of over 3% of GDP, one should focus on these countries”, he confided in journalists.
On the subject of the different growth rates within the euro zone, Messrs Almunia and Grasser mainly urged Member States to implement long-recommended structural reforms. Mr Almunia stressed it is only possible to increase the euro zone's growth potential by closing the gaps and by tackling the problems of competitiveness. One must not simply insist on completing the internal market, increasing research and development funding and on sound public finance, one must “also work on it”, Mr Almunia said. Discussions have mainly been on the different trajectories taken by some countries in terms of unitary salary costs. The Commissioner was thus able to explain that, thanks to major structural reforms of the labour market and reduced unitary salary costs, Germany seems to be better placed than a few years ago, with wage moderation having contributed to restoring competitiveness.
The question of euro zone external representation was also tackled from the angle of better efficiency and greater coordination of the Eurogroup's work, Mr Grasser stressed, delighting in the fact that the future Austrian President was willing to deal with the subject in the spring. The impact of oil prices was not looked at again in detail, said Mr Almunia who simply passed round a description of the measures taken at the level of the euro zone Member States. Speaking at the Eurogroup, the Commissioner highlighted the fact that the measures envisaged were of a different kind but did not cast judgement on their possible distortionary effect. The measures most frequently mentioned were aimed at working on excise and VAT - Poland, Hungary, Belgium, United Kingdom, Estonia, France, Latvia and Malta - while others concerned the reduction of heating bills - Belgium, Estonia, France, Lithuania, Luxembourg, Malta and Slovakia. New actions are envisaged in favour of energy efficiency and saving.