Eurozone Watch

My last post on exit options for EMU has caused quite some stir in the blogosphere. Not only the new blog on Roubini’s RGE Monitor, “Economonitor” by Felix Salmon, but also Edward Hugh on “a fistful of euros” and Claus Vistesen on “alpha.sources” as well as a good dozen on readers in the comment sections of these sites have reacted to my – obviously provocative – post.

Reactions have been mixed. While Felix seems to believe I am some madman, just by proposing that Argentina could be a role model in the eyes of anyone, even in those of Italian populists, Edward and Claus have been much more sympathetic. Some commentators have even proposed that there is an anglo-saxon conspiracy to derail the EMU project (hi Paris Ib).

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In today’s FT, John Kay comments on the question whether a single country (he chooses the example of Italy) can leave EMU . He argues that while it would be highly complicated to determine how single contracts would be changed from the euro to a new lira, after a long hassle, lawyers and bankers would find a solution if there was a political will.

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The fact that the Finance and Prime Minister of Luxembourg, Jean-Claude Juncker, today has been re-appointed Head of the Eurogroup for another two-year period starting on January 1, 2007 is a good signal for the Eurozone. It ensures a degree of institutional and personal continuity for the key political forum of the European Monetary Union. Juncker not only has a great amount of European experience. He is also the only Finance Minister in the Eurozone who equally holds the office of a Head of Government. This is the major resource he should use in the coming 27 months to push forward the debate on economic governance structures in the Eurozone.

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Today, Eurostat has confirmed what we had anticipated on the Eurozone Watch blog two weeks ago. Growth in the euro area has been stronger than previously thought: In year-on-year-terms, growth now runs at 2.6 percent, rather than the 2.4 percent previously reported. Moreover, with the revisions of past quarters, it now looks quite likely that the growth outcome for 2006 as a whole will be even above the mid-point estimate of the ECB of a growth rate of 2.5 percent. In order to reach this value, we would only need two more quarters of quarter-on-quarter growth of 0.5 percent. If the growth dynamic would remain at 0.7 percent, the outcome for 2006 might already be 2.7 percent – a quite decent outcome for an economic area some economists had already written off.

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