Eurozone Watch

Third part of our series on the winners and losers of the current crisis

Despite certain doubts about the Eurozone's ability to tackle the crisis, the attraction of the Euro as a "safe haven" in an era of turbulence has risen considerably for the non-participating EU countries. Even the UK and Denmark, which have negotiated an Opt-Out in the Maastricht Treaty, debate a possible EMU membership.

Comments(5)

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.

Comments(2)

The results of the EU summit have been extensively commented since last Sunday. However, we at Eurozone Watch believe that a number of aspects which are relevant for economic governance in the EMU have not been elaborated in the debate so far.

The first concerns the decision to eliminate free competition from the European Union’s objectives. Firstly, we in principle agree that free competition need not necessarily be listed as an objective of the European Union. Free competition is an instrument to achive growth and international competitiveness, not an end in itself. Thus, the case for the elimination from the Union’s objectives can be argued, without necessarily questioning as such the concept of free competition within the Single Market.

Comments(0)

Last week, the EU commission confirmed what seemed to be clear for quite a while now (see our predictions for 2007 ): Malta and Cyprus managed to fulfill all of the Maastricht convergence criteria and will thus join EMU on January 1, 2008, taking the number of club members to 15. In both countries, inflation and budget deficits seem to be under control (an excessive deficit procedure against Malta has been ended) and the long-term interest rate suggests that financial market participants believe that this will remain so in the foreseeable future. With regard to government debt, both countries have debt-to-GDP ratios of above 60 percent, but profited from the rule that this is acceptable as long as the ratio is approaching this mark at a “satisfactory pace” which the commission judged to be the case now.

Comments(1)

This is the second part of our Eurozone Watch outlook on 2007. We discuss the impact of major political events in EMU member countries and assess potential developments in EMU economic governance in the next twelve months. Read our outlook on the EMU's economic developments in 2007 here.

Will the French Presidential elections have an impact on EMU economic governance in 2007?  

Comments(2)

When champagne bottles are opened to welcome the new year next Sunday night, the euro area will welcome member number 13: Slovenia. Unnoticed by most citizens of the currency area, the small country in southeast Europe has spent the past months preparing for the currency changeover and is now ready to forego its national currency, the tolar.

While the discussion about the euro introduction in Lithuania, Estonia and Latvia has been rather noisy (the Lithuanians did not want to take the EU commission's 'No' for a 'No', sending shock waves into the old member states), there was very little reporting about the actual steps taken in Slovenia to prepare for the euro introduction.

Comments(2)

Today, Hungary abandoned its quest to adopt the euro by 2010. As Bloomberg reported, economy Minister Janos Koka said that there was “no target date” for accession now, but only the target to push the budget deficit below 3 percent “as soon as we can”.

Hungary’s admission that it will fail to fulfil the convergence criteria anytime soon is another hint that EMU enlargement after 2007 will be rather rocky. EMU membership for Latvia, Estonia and Lithuania has already been postponed after these countries failed to meet the inflation criterion. Given their still booming economy, it is not clear at all whether they will be able to meet the criterion next year. In Poland and the Czech republic, political forces seem to push EMU membership further into the future even though both countries have made surprising progress in their budget consolidation.

Comments(2)