Brussels, 07/11/2006 (Agence Europe) - With solid growth, lower than expected public deficits and inflation under control, the European Commission's autumn economic forecasts (see EUROPE 9300) will give finance ministers of the eurozone something to be cheerful about. They discussed the situation at length at the Eurogroup meeting on Monday evening. Jean-Claude Juncker, who chaired the meeting, said Eurogroup members had generally agreed with the Commission forecasts. Both Juncker and EU Economic and Monetary Affairs Commissioner Joaquim Almunia argued at the meeting for reforms to continue.
Luxembourg's prime minister and finance minister, Jean-Claude Juncker, said that European growth was on track and was stronger than the Commission had imagined a year ago or even a few months ago (the Commission is now forecasting growth of 2.6% of GDP this year and 2.1% in 2007). Economic prospects are good, despite a slight fall in 2007 because of a number of risks which cannot be assessed mathematically. The main risk is for rising oil prices to lead to a slow-down in the US economy which would impact on the EU, but Juncker said that even this would not be disastrous.
The slowdown in the US economy will not be as big as some had predicted a few months ago and since it mainly concerns construction, the slowdown is unlikely to spread too strongly to other areas, explained Juncker, predicting a soft landing for the US economy. With 2.3% growth forecast for the United States in 2007, the situation cannot be described as a recession, but the risk of a more drawn out slowdown cannot be ruled out either, said Almunia, adding that he remained confident. Given the fact that EU growth is based on domestic demand, the impact on the European Union will not be as strong as in previous US slowdowns. The global economy is expected to grow at a good rate but at slightly lower levels than in 2006.
Quizzed on their arrival at Eurogroup, the Austrian and Dutch finance ministers, Karl-Heinz Grasser and Gerrit Zalm, said that the prospects for 2007 could even be better than forecast by the European Commission. Grasser said the Commission's forecasts were too pessimistic for the eurozone and Zalm added that Dutch growth prospects were better than forecast by the Commission. Italian finance minister Tomaso Padoa-Schioppa said that his forecasts for Italy for 2008 were more optimistic than the Commission's.
Jean-Claude Juncker said that he shared the Commission's inflation forecasts but several of his colleagues felt they were rather too high. Asked how the inflation forecasts would impact on the ECB's monetary policy, Juncker took a prudent line, saying that it was true that inflation was on a downward trend but it was also true that some observers think inflation will remain above 2%. The European Central Bank calculates on the medium-term, he said, but everyone will have to pay very careful attention to what happens to inflation over the next few months and the ECB agreed to bear in mind the impact of any interest rate decisions it might made on growth. Almunia agreed that inflation was certainly not out of control but it had to be recognised that risks existed. He said he was forecasting 2.1% inflation in 2007 (as opposed to 2.2% this year).
Welcoming the clear improvement in public finance, both Juncker and Almunia said that the important thing now was to continue with structural reforms. The largely unexpected budget consolidation demonstrated that the revised Stability and Growth Pact was starting to have an impact, and was also working preventively, said Juncker, welcoming the German government's recent decision to use its 2006 budget surplus to cut the country's budget deficit and debt. Commissioner Almunia said the current economic situation was an opportunity to be seized and a new reform programme should be launched now, before the next round of recession. Juncker agreed, pointing out that in economic booms, budget consolidation and reform should continue. From January to March 2007, Eurogroup will be considering the impressive list of reforms already carried out, in order to ensure better but not excessive coordination, explained Almunia after Monday's meeting. Juncker said it was perhaps too ambitious to want to coordinate reform in the eurozone at all costs, because the same reforms were not carried out everywhere with the same intensity. (ab)