Eurozone Watch

Last Friday, Ulrich Fritsche and I presented the results from our analysis of unit labour costs in EMU compared to regional unit labour cost developments at a workshop in Cambridge (see paper here). When we remarked that Portugal had lost roughly 17 percent competitiveness between the start of EMU and 2006, more than has been ever observed in any German Land or US state within any 8-year-period, one discussant remarked that Portugal has actually improved competitiveness in 2007 and is set to do so again in 2008. So, is Portugal actually turning the corner after years in the doldrum?

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Today, GDP figures for Germany, France and the Euro-area as a whole were published. While the figures by itself might have been distorted by some one-off factors, the underlying divergence in the data is rather frightening. What has for quite a while been one of the top issues on Eurozone Watch is increasingly taken up by bank analysts: The growind divergence within EMU.

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The past week or so has brought a mixed bag of indicators for the euro-zone with both sceptics and optimists finding bits of their likings. Among the most important positive (and surprising) developments were:

• Business climate actually recovered somewhat in November. Both the German ifo index as well as the French INSEE index recorded increases in November. Manufacturing PMIs for the Eurozone also recorded some slight gains, moving for the whole of the area further away from the 50-points-mark a fall below which would mean an outright contraction of the sector. Companies were even reporting renewed growth momentum in export orders.

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In a new NBER working paper, Barry Eichengreen presents an in-depth analysis of the odds and possible consequences of a break-up of the euro area. (Unfortunately, the full-text is only available to subscribing institutions, but you can find a draft version on Barry Eichengreens's personal website.) The paper is the most comprehensive and coherent analysis of the political economy of a possible EMU break-up so far, even if one concludes studies distributed by investment banks such as HSCB, Société Générale, Morgan Stanley or Deutsche Bank to their clients only.

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Yesterday, statistical offices all over the eurozone published GDP figures for Q2. As had already been harbingered by the Italian GDP figures, growth slowed significantly in the euro-area from 0.7 percent quarter-on-quarter at the beginning of the to only 0.3 percent, the slowest quarterly growth rate since 2004 (see here for Eurostat details).

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Yesterday, we had our long-time announced conference on EMU divergences in Berlin, sponsored by Nouriel Roubini's RGE monitor , the Stiftung Wissenschaft and Politik and the Arbeitskreis Europäische Integration.

From early morning until the evening, the day was packed with presentations and discussions whether certain economic developments in the euro area since its start have been pathological (see the programme and papers here). For us from Eurozone Watch, it was especially interesting to see how many serious economists, political scientists and policy makers are now interested in the topic of cyclical divergences, the discussion on which Eurozone Watch has been pushing since its launch a year ago.

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Air travel in Europe can be extremely exhausting. Delayed departures, hours of waiting in airport lounges, some more hours of waiting on the tarmac. However, I often manage to do a good deal of reading, taking all those papers with me that I wanted to read in the months before, but which I just had not managed to have a good look at.

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The editors of Eurozone Watch cordially invite you to the conference

The Eurozone under stretch?
Analysing regional divergences in EMU: Facts, Dangers and Cures

Conference date: June 19, 2007 9 a.m. – 6 p.m.
Venue: Berlin, SWP (German Institute for International and Security Affairs)
Ludwigkirchplatz 3-4, 10719 Berlin

The conference is co-organised by the SWP (Stiftung Wissenschaft und Politik, German Institute for International and Security Affairs), by the Arbeitskreis Europäische Integration (AEI) and RGE Monitor.

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On Friday, the German metal workers’ union and the metal employers’ reached a wage agreement for the next 19 months. Wages will rise by 4.1 percent effective in June; a year later, another 1.7 percent will be added. If the upswing is still intact at that time, there will be another 0.7 percent bonus paid from June 2008 on. In addition, some one-off payments will be paid for April and May 2007.

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We are inviting submissions for the following conference:

The Eurozone under stretch
Analysing regional divergences in EMU: facts, dangers and cures

Conference date: June 19, 2007
Venue:   Berlin, SWP – German Institute for International and Security Affairs

The German Institute for International and Security Affairs (Stiftung Wissenschaft and Politik SWP), the Arbeitskreis Europäische Integration (AEI) and RGE Monitor organize a one-day workshop on economic divergences in the European Monetary Union (EMU). The conference brings together top researchers (economists, political economist, political scientists) and practitioners working on economic governance of the Eurozone in order to provide a state-of-the art analysis of the magnitude and consequences of economic divergence in the EMU, to assess the capacities of the current governance structures to deal with regional divergences and to discuss potential ways forward to improving the governance mechanisms in the EMU.

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