Eurozone Watch

Ever since the end of the German coalition negotiation between Christian Democrats and Social Democrats in late 2005, the standard forecast for 2007 has been full of gloom. Following the increase of the standard VAT rate from 16 to 19 percent, most economists had been projecting a sharp slow-down in growth in 2007, if not an outright end of the economic recovery. Deutsche Bank even forecasted an outright fall of GDP in 2007 compared to this year. Papers in Germany were full of articles lamenting “the largest tax increase in history” with commentators claiming that the upswing would be extremely short-lived.

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Two publicly unnoticed events during these two last weeks are worthwhile being discussed from an EMU governance perspective.

• On Wednesday, 22 November 2006, Jean-Claude Juncker in his role as President of the Eurozone gave an assessment of the prospects of the Eurozone to the European Parliament’s Committee on Economic and Monetary Affairs.
• On Tuesday, 14 November 2006, the European Parliament adopted a Resolution on the 2006 Annual Report on the Eurozone. 

Both events give evidence of an increasing but hardly noticed institutionalisation of the Eurozone in the EU’s institutional framework.

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In today’s Financial Times Deutschland, we printed an interview with Klaus Regling, the EU commission’s director general for economic and monetary union. Mr. Regling was very upbeat on the medium term outlook of the German economy. According to him, a number of adjustment processes have come to an end which by now have corrected unfavorable economic developments stemming from the German reunification in 1991 and which had dampened growth over the past years.

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A few weeks ago, Eurozone Watch had a little curtain raiser on a conference from the Institut für Makroökonomie und Konjunkturforschung on “European integration in crisis”. Though it has been two weeks since that conference, I would still like to give a short account of that conference.

It was really interesting to see that one of the hottest topics on the conference was the question of divergences in the eurozone and how they could be dealt with (even though the actual title of the conference was much broader). Hardly any of the sessions failed to mention this problem.

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