Eurozone Watch

On Friday, the euro has reached a new all-time-high vis-à-vis the US-dollar. After the US Department of Commerce published figures showing that the US economy has grown by only little more than 1 percent in annualized terms in Q1, the euro passed its old all-time-high of $ 1.3670 and was traded at $ 1.3682, before it again lost some of its strength. The euro is now trading roughly 60 percent above its low from the beginning of the decade.

Figure 1: Euro/Dollar exchange rate

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This week, corporate tax reform plans in Germany have taken a further step forward towards their final passage: On Tuesday, the subcommittee on finance in the German Bundestag held another hearing with a huge number of experts trying to evaluate the consequences of the reform package which is aimed at lowering the effective corporate tax rate in Germany from now roughly 40 percent to below 30 percent. Even though most experts voiced some criticism, the reform package now seems to be passed with minor corrections at best.

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In the two weeks leading up to the second round of the French Presidential elections on May 6, 2007 between Nicolas Sarkozy (31.1% in the first round) and Ségolène Royal (25.8 %), economic and social policy issues may move back to the forefront of the election battle. Eurozone Watch takes a strong interest in the major economic and social policy ideas of the future French president.

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The fact that the German Finance Minister Peer Steinbrück did not attend last week’s G7 meeting in Washington has given rise to harsh – and very much justified – criticism. The French daily Le Monde, the Financial Times, and other papers attacked Steinbrück for preferring a safari with his family over arguably difficult discussions on global economic issues.

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Roughly four months ago, when the majority of economists was still rather pessimistic for the German growth outlook for 2007 and beyond (and the consensus saw GDP growth for this year at little above 1 percent), Eurozone watch predicted that the German economy would see another year of robust growth. Moreover, Eurozone watch predicted, that soon economists would soon start to revise upwards their estimates for the growth in potential GDP. 

What we did not predict correctly was the speed with which German growth pessimists would wriggle away from their once gloomy analysis of the German economy. In the poll from the Financial Times Deutschland “Konjunkturschattenrat”  as well as the Economist magazine, analysts see growth for 2007 now on average at 2.2 percent.

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