Brussels, 04/12/2007 (Agence Europe) - Just as he had done after the previous Eurogroup meeting (see EUROPE 9542), on Monday 3 December, Jean-Claude Junker said that there were risks for growth in the euro area. European Economic and Monetary Affairs Commissioner Joaquin Almunia was less optimistic than he had been last month. Since there are also greater risks for inflation, it will be difficult for euro area finance ministers and the European Central Bank (ECB) to solve the equation.
According to Michael Deppler, Director of the European Department of the International Monetary Fund (IMF) euro area growth will remain dynamic and robust, but will be “around 2% or slightly below” in 2008, Almunia told press. This is slightly lower than the figures in the last IMF report, published in mid-October (2.5% in 2007 and 2.1% in 2008), and is also lower than the Commission's economic forecast of a 2.6% rise in GDP this year and 2.2% next (see EUROPE 9540). “We cannot neglect the negative risks for growth,” Almunia said, noting that if data that became available after the publication of the autumn economic forecast (price of oil, state of the US economy, situation of financial markets, changes in exchange rates) had been taken into account, “our growth forecasts would have been lower”.
There is also a real risk of a rise in inflation, although the factors contributing to price increases have to be separated, Juncker said, indicating that there were “temporary factors”, the consequences of which “can be absorbed in the short term”, and “factors which risk being more long lasting”. No matter what, developments in the cost of energy and other raw materials were likely to lead to second round effects and “wage restraint in line with productivity remains key”, he added. Risks for price increases were mainly external, although there were also internal factors, Almunia went on, presenting the Commission analysis of how productivity will develop in the euro area and the issue of competition in the services sector. “It would appear that most of the productivity gains of the last two years are the result of cyclical factors”. The services sector is suffering from obstacles to competition, resulting either from governmental decisions or from oligopolistic situations, which, if they are the result of company stances, can be removed by governments. For Almunia, then, it is necessary “to increase our efforts to implement the services directive”, to continue to pursue the better regulation initiative and ensure that the sectors affected are monitored, in order to “counter this inflationary pressure and improve the productivity levels of our economies”.
Following his trip to China last week with Messrs Almunia and Trichet, Juncker set out the main thrust of the message to the Chinese authorities, “calling on them to consider the need, for both the world and China, for the yuan to rise in value gradually but faster with regard to the euro, since we feel that a gradual rise in value would not be enough and that the rate of increase in value of the yuan has to be speeded up”. Their attention was drawn to “the risk of seeing protectionist trends materialise if there were to be no rebalancing in exchange rates”. More generally, “We still believe (that exchange rates) should reflect the basic data of the various parts of the world economy,” Juncker went on, welcoming the latest comments of the US finance secretary. This latter, who had hitherto said that a strong dollar was in the interests of the US economy, now adds that “the US economy will continue to grow and the fundamental advantages of this will be reflected on the exchange markets,” highlighted Juncker, who believed that these words showed movement in the right direction. (A.B.)