Brussels, 30/01/2007 (Agence Europe) - The Eurogroup meeting on Monday evening spent a lot of time discussing exchange rates, in particular that of the Japanese currency, whose fall against the euro is worrying eurozone finance ministers. Before the meeting of G7 finance ministers in Essen, Germany on 9-10 February, “we will say no more than excessive exchange rate volatility is not good for growth,” stressed Luxemburg Prime Minister and Finance Minister Jean-Claude Juncker. Prospects for growth for the eurozone are looking better this year, after better than expected results in 2006.
Mr Juncker, the president of the Eurogroup, said that the issue of exchange rates had been the subject of intense discussion. He explained that “intense means at length and at length means that we analysed all the issues relating to exchange rates particularly between the euro and the yen”. He re-stated “with perhaps greater intensity than before that we believe the current upturn in Japan should be reflected in the rate of exchange of the yen”. This is the self same message as was delivered at Singapore in September 2006, but the tone is a little stronger, reflecting European concerns over the under-valuation of the yen and suspected political influence over the Japanese Central Bank. Also worried by this volatility, Economic and Monetary Affairs Commissioner Joaquin Almunia remained cautious, saying that “exchange rates must reflect fundamental economic data”.
On the economic level, the current situation remains “very positive” and “the economic growth of the eurozone last year was at least as great as we forecast, coming in at 2.6% or maybe better,” said Mr Almunia. For 2007, too, “growth is expected to be better than we thought in November,” he added, with the risks appearing to have been brought under control for the moment. The slowing down of the US economy was in line with a “soft landing scenario” and oil prices “have fallen by a third since August,” he said. The Commission, which is currently predicting a 2.1% rise in GDP for the 13 member states of the eurozone next year, could increase this figure when it publishes its mid term forecasts on 16 February. Oil prices remain, however, “very volatile, sometimes irrational, meaning that it is impossible to be sure that prices will remain at similar levels for the rest of the year,” Mr Juncker warned. More generally, flexibility, mobility and wage settlements in line with productivity were needed to increase the competitiveness of the eurozone. “We have still to see any second round effects on wages but wage increases remain one of our concerns,” he also said.
The closure of the excessive debt procedure against France (see related article) and “soon against Germany” were important for two reasons, Mr Almunia then stressed. It showed that the two major eurozone economies were applying the budgetary discipline of the Stability and Growth Pact (SGP), and it was a step forward towards using the good times in the economy to move towards the medium-term sustainability of public finances. French Finance Minister Thierry Breton said, “It is important for the credibility of France, as an important member of the euro group to set an example”. France's budgetary performance is improving and a “reduction in the deficit to 2% in 2008” was expected, said Mr Juncker. Mr Almunia welcomed Mr Breton's initiative, which had earlier confirmed to him France's determination to stick to budgetary discipline. This was, Mr Almunia acknowledged, a much appreciated signal during an election period, and he said it was “important to know France's determination” to pursue budgetary consolidation. According to its stability programme, Paris plans to reach its medium-term objective and return to balance in 2010 (the programme provides for a surplus of 0.2% and a return to debt of less than 60% of GDP).
In periods of growth and given the efforts made until now, member states must concentrate on their medium-term objective, the Commission had stressed after assessing the first series of stability and convergence programmes (see EUROPE 9350). Consequently, the Eurogroup's work programme on the budgetary level for the next six months will focus above all on the “coordination of budgetary policies and assessment of progress with a view to reaching the medium-term objective as quickly as possible,” Mr Juncker said. “The idea being to define budgetary policies that are appropriate for the eurozone as a whole”, medium-term budgetary objectives will, therefore, “play a central role”. (ab)