Brussels, 04/03/2008 (Agence Europe) - At its meeting on Monday 3 March, the Eurogroup endorsed the European Commission's growth forecasts, predicting growth of 1.8% in the eurozone in 2008 (see EUROPE 9607). At a press conference, Jean-Claude Juncker expressed concern at the strong rise of the euro on the world's currency markets against the dollar.
After the Eurogroup meeting he had been chairing, Jean-Claude Juncker said that the meeting had agreed with the European Commission's forecast, expecting a slight slowdown of world growth in 2008. The forecast for the eurozone, just under growth potential, is 0.5% down on the Commission's autumn forecasts but Juncker, who is Luxembourg's prime minister and finance minister, said he still thought the fundamentals of the eurozone were sound. He said economic growth remained sufficiently robust to inspire confidence and he hoped consumers would feel the same confidence, despite household spending falling in several countries of the eurozone. Against this backdrop, the Eurogroup is sending out the same message - continue to correct the budget and ensure eurozone member states reach their medium-term objectives (MTOs) in 2010. At the same time, Juncker again rejected the idea of a plan to stimulate the economy in the eurozone. We don't need a US-style plan in Europe because Europe still demonstrates quite good resistance to external shocks, said EU Economic and Monetary Affairs Commissioner Joaquín Almunia, adding that the eurozone would not be totally impervious to the negative impact of the US economy but that at the same time, there was great resilience in eurozone economies although the indicators were currently sending out mixed signals.
In the face of high levels of inflation (3.2% in February 2008), the eurozone will inevitably have to avoid 'second round effects,' explained Juncker. Explaining that he had great understanding of the concerns echoed by the European Trade Union Confederation (ETUC) in their calls for pay rises in Europe to cope with rising oil and food prices, Juncker was adamant that wage moderation remained the order of the day. It is not possible to issue recommendations without nuances for the whole of the eurozone economy, he pointed out, so that if pay can rise following an industry-by-industry assessment, this rise must remain in sync with gains in productivity.
The euro reached a new record high against the dollar on Monday (above €1.52 per dollar) and the chair of the Eurogroup repeated the G7's standard message about exchange rates while adding an extra area of concern. Excess volatility and unpredictable currency shifts did not benefit economic growth, but Juncker recognised that for the first time, the Eurogroup was saying that they were concerned in the current circumstances by over-large shifts in currency exchange rates, noting that the markets have been over-reacting to short-term indicators and should give more credit to the economic fundamentals. Juncker said the current exchange rates did not reflect fundamental data to a sufficient extent. He expressed impatience at the continued fall of the US currency, saying he had noted in statements by the US authorities the significant and oft-repeated refrain that a strong dollar was in the interest of the US economy. By this, Juncker hoped to urge the United States to take more significant action to increase the value of the dollar, sentiments shared by the president of the European Central Bank, Jean-Claude Trichet, who said before the meeting that what had been hammered home by the US authorities was very important.
Reviewing the stability programmes of eight eurozone countries to be discussed by the full ECOFIN meeting on Tuesday, Juncker said he had not spotted any great risks to their budget adjustment trajectory. He said that all the countries examined on Monday had to reach their medium-term objective in 2010. Commissioner Almunia shared this view, recommending that countries which have already reached their MTO (Ireland, Spain, Slovenia and Germany) ensure that they stick to their MTO in order to ensure the long-term viability of their public finances. Almunia seemed happy with the efforts by countries aiming to reach their MTO before the end of 2010 (Portugal, Malta and Austria), despite a few dangers and occasional low levels of ambition (see EUROPE 9601). In Greece, the authorities have avoided rectifying the budget too fast in order to reach the MTO by the end of 2010. The Greek authorities are planning to cut their deficit to 1.6% of GDP in 2008 (from 2.7% in 2007), but the Commission noted a degree of risk for this trajectory (see EUROPE 9605). The commissioner said that any changes would be reflected in the spring forecasts. (A.B.)