Eurozone Watch

First part of our series on Sarkozy and Europe 

For the German EU Presidency (and the 17 countries that have ratified the Constitutional Treaty) the election of Nicolas Sarkozy as French President came as a relief – at least as far as EU issues are concerned. Compared to Ségolène Royal, he is widely seen as the more pragmatic and reliable partner in EU affairs. For one main reason: he promised not to submit a new EU-Treaty to the vote of the French citizens. Instead of repeating a referendum, he wants to press ahead of with the Parliamentary ratification of a Treaty containing the essence of institutional reform contained in the Constitutional Treaty, to get this issue off the table ideally in the first year of his Presidential term.

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Commentators in French and international media repeatedly deplored the “absence” of European and international issues in the French electoral campaign 2007. In the run-up to the Presidential elections, Eurozone Watch highlighted those moves of the candidates which directly touched upon EMU issues (here), to prove that – while of course not prominently placed – the campaign indeed had its European dimension (even though one might not like the content).

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Eurozone Watch won the second place in an online competition for the best Economics Blog. For the third time in a row, the blog "A fistful of Euros" conducted its poll on the "Annual Satin Pajama Blog Award".

The results for the "Best Economics Weblog" were as follows:

New Economist (32%)
Eurozone Watch (23%)
Nouriel Roubini (22%)
Market Movers by Felix Salmon (18%)
Economics UK (5%)

We thank all readers who voted for us!

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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.

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Today, statistical offices all over Europe (Germany, Italy, France, Spain, Netherlands) published their first estimate for GDP growth in the first quarter. To many analysts, the biggest surprise was the German figure. After having grown by 1.0 percent quarter-on-quarter at the end of 2006 carried by advance purchases just prior to the VAT hike, the economy grew another 0.5 percent in the first three months of 2007. This growth rate is even more impressive given that (according to the Federal Statistics Office) consumption actually fell in the first quarter – which was expected due to the higher VAT. In other words: investment has been growing so briskly that the growth more than compensated the fall in consumption, the much larger GDP component. 

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Air travel in Europe can be extremely exhausting. Delayed departures, hours of waiting in airport lounges, some more hours of waiting on the tarmac. However, I often manage to do a good deal of reading, taking all those papers with me that I wanted to read in the months before, but which I just had not managed to have a good look at.

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The editors of Eurozone Watch cordially invite you to the conference

The Eurozone under stretch?
Analysing regional divergences in EMU: Facts, Dangers and Cures

Conference date: June 19, 2007 9 a.m. – 6 p.m.
Venue: Berlin, SWP (German Institute for International and Security Affairs)
Ludwigkirchplatz 3-4, 10719 Berlin

The conference is co-organised by the SWP (Stiftung Wissenschaft und Politik, German Institute for International and Security Affairs), by the Arbeitskreis Europäische Integration (AEI) and RGE Monitor.

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On Friday, the German metal workers’ union and the metal employers’ reached a wage agreement for the next 19 months. Wages will rise by 4.1 percent effective in June; a year later, another 1.7 percent will be added. If the upswing is still intact at that time, there will be another 0.7 percent bonus paid from June 2008 on. In addition, some one-off payments will be paid for April and May 2007.

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As a reaction of Sebastian's latest post on the euro at a record high, our colleague and occasional co-author Ulrich Fritsche has written down a few thoughts on the reasons for the young currency's strength and possible policy options:

First question: Why did the US-dollar start to depreciate? Might this be part of a necessary adjustment process? The question of correcting global imbalances has been discussed intensively in the last couple of years. Far from reaching consensus on this issue, most experts agree on the following points:

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