Eurozone Watch

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.

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Wolfgang Munchau and Susanne Mundschenk have asked me to write an assessment of the German economic outlook for their new website Eurointelligence. Here is the text for readers of Eurozone Watch.

Germany might just do it again: After exceeding even the most optimistic forecasts by a wide margin in 2006 (A year ago, the consensus was at 1.5 percent with the highest forecast at 1.8 percent. Now, whole year growths for 2006 looks to come in slightly below 3 percent), a number of forecasters have seen themselves forced to correct their projections for 2007 upwards. The most impressive correction came from the Kiel Institute which roughly doubled its GDP forecast to 2.1 percent last week.

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ECB-President Jean-Claude Trichet has clearly gone into the offensive. In an interview published in three European daily newspapers in parallel on Monday, he justifies the ECB's recent rise of the interest rate ("We are not hampering growth!") and underlines the persisting risks of inflation the ECB sees. He did not speak to the French press (but to the German daily Der Tagesspiegel, the Luxemburger Wort and the Greek Ta Nea) – but most of the answers he gives can be read as a reply to the recent critique that has emerged from France.

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As announced on this blog three weeks ago, Eurozone Watch intends to catch up with the arguments about a stronger political dimension of EMU which have been developed in the academic and think tank community for some time now. This is worthwhile doing as the analyses of the fragility of EMU and the arguments made for a stronger political dimension are not yet reflected in the current political discussing. 

Our first pick is Paul de Grauwe’s recent article “What have we learnt on Monetary Integration since the Maastrich Treaty”, published by the Journal for Common Market Studies in its November 2006 special issue on EMU.

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While newsmedia report of oil producing countries increasingly shifting parts of their reserves into euros, the euro still is not really loved by Europe’s own citizens. The EU commission has just published a survey among the euro-area’s citizens which shows that not even half of the population believes that the introduction of the euro was beneficial overall. In fact, support has fallen from 51 percent last year to 48 percent this fall.

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