Brussels, 03/05/2007 (Agence Europe) - “We must strike while the iron is hot” - such is the message repeated on Thursday by the Commission in its second annual declaration on the eurozone. Over the past twelve months, the economic situation in the eurozone has clearly improved, said Joaquin Almunia on Thursday during a press conference. In 2006, growth in the 13 eurozone countries reached 2.7%, the commissioner for economic and monetary affairs confirmed, intimating that recovery will continue for the current year also. A good growth trend should be confirmed next Monday when the Commission presents the spring economic forecasts. In February this year, during an intermediary seasonal forecast (EUROPE 9368), the Commission had set its expectations for 2007 at 2.4% in the eurozone and at 2.7% in the EU27 (compared to 2.1% and 2.4% in its autumn economic forecasts - EUROPE 9300). In addition to its enhanced performance since 2000 for growth, the eurozone also notched up for 2006 a large number of newly created jobs (around two million) and was able to keep inflation under 2%. Although the price level, which stood at 1.8% in April, is expected to increase, “we do not see any strong inflationary pressure at the moment”, said the commissioner, who appreciated the efforts to improve the budgetary situation in member states, although he does call on them to keep up the effort.
From 2.5% in 2005, the average deficit fell to 1.6% in 2006 but the situation makes it a necessity to keep the commitments of the Stability and Growth Pact (SGP). “We are in a phase of cyclical upturn, a robust phase” and structural reform is having a positive effect, he stressed, calling for further progress likely to raise the eurozone's growth potential. Given population ageing, in the next half-century, we will have only two persons of working age for every senior citizen (compared to four at present), the Commission press release points out, saying: “if the current trends and policies continue, potential growth in the euro area will be reduced from above 2% in the period up to 2010 to around 1% on average over the period 2031-2050”. This means everything should be done to achieve lasting budgetary positions, attaining mid-term objectives defined for each member state (in 2010 at latest) and by allocating the additional income coming in because of the economic upturn to reducing the deficit and debt, as the Eurogroup ministers had unanimously pledged to do during their informal meeting in Berlin on 20 April (EUROPE 9411). The March European Council had not contradicted this when adopting specific recommendations for the eurozone, and heads of state and government stressed that cautious budgetary policies should be carried out and the working of the Economic and Monetary Union improved (EUROPE 9383). A report will be published on 28 May to launch discussions on the future working of EMU.
After Slovenia became a eurozone member in January, enlargement of the eurozone must continue, Mr Almunia said. On 16 May, he is due to take a stance on adoption of single currency by Cyprus and Malta. On Friday, the Commission will also speak of the Slovenian experience, drawing lessons from the recent transition to single currency. “Perfectly satisfactory” at technical level, the changeover nonetheless showed a number of failings that one must seek to avoid repeating by informing citizens, stressed Mr Almunia. An essential point for the commissioner who is “not pleased” with the gap between the results of EMU and the negative perception of part of public opinion in some member states. And yet, he stressed, with single currency, “we are living better now than we did before we had it”. He did not wish to see the developments in euro exchange rates as having a negative impact on the European economy.
Although the Commission admits there is a risk if exchange rates are upset, and taking up the customary G7 wording, which calls for all excessive volatility and disorderly movements to be avoided, it does not see any direct link between these developments and possible export difficulties. In 2006, the euro grew around 11% in value compared to the US dollar and by around 12.5% compared to the Japanese yen taking the euro's effective exchange rate to just below its long-term level, but eurozone exports towards the United States have not been injured. An analysis of the impact of exchange rates on our exports and imports (as well as on interest rates or the climate of confidence in the eurozone, shows in fact that the “euro protects us against external volatility”, noted Commissioner Almunia. The euro now accounts for a substantial share of foreign exchange transactions and acts as a reference currency in the managed exchange rate regimes of about 50 countries. The share of the euro in the gross issuance of short-term international debt securities also surpassed the share of the US dollar in the third quarter of 2006. However, as the euro's global weight grows so too must its role in global economic governance. In addition to the eurozone's participation in recent IMF multilateral consultations on global imbalances, it should in future have a single seat in bodies of this kind. This is not a question that can be settled overnight but the Commission will continue to stress the need to do so, the Commissioner said. (ab)