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IP/02/882
Brussels,
19 June 2002
Three and a half
years on the benefits of the single currency are evident
Today the European Commission
adopted a Communication on the Euro Area in the World Economy.
It notes that the introduction of euro notes and coins at
the beginning of this year was a landmark achievement in the
history of European integration. The benefits of Economic
and Monetary Union (EMU) have been felt already for some time.
EMU is based on a commitment to sound macroeconomic policies,
which have helped to create a new culture of economic stability
in Europe. In turn, this has enabled Europe to weather the
recent slowdown in the world economy. Furthermore, thanks
to the euro, the kind of damaging intra-European exchange
rate tension that often characterised previous episodes of
adjustment to external shocks has been avoided. With the
euro in place, the citizens of euro area countries can now
look forward to the benefits of increased price transparency,
more intense competition in the market place and greater financial
integration in Europe.
"The launch of the euro
has been a huge success", declared Pedro Solbes, EU Commissioner
for Economic and Financial Affairs. "The euro is contributing
to greater economic and financial integration in Europe and
will provide the foundations for growth and stability over
the medium term. Many achievements are behind us but many
challenges lie ahead. We must ensure that stability in the
euro zone goes without saying and focus on how to raise our
growth potential".
1. Coping with the global
slowdown
In the
first two years of the single currency, GDP in the euro area
grew by around 3 per cent a year, somewhat above potential,
without creating the kind of imbalances that threaten the
sustainability of growth elsewhere in the world. In 2001,
GDP growth fell sharply as a result of the slowdown in the
global economy. Nevertheless, employment creation held up
surprisingly well. This reflects, in part, labour market reforms
that were carried out in preparation for the introduction
of the euro.
Whilst
inflation has risen from just over 1 per cent in 1999 to around
2½ per cent in 2001, this mainly reflects a series of one-off
adverse shocks, such as food price increases due to bad weather.
The available evidence suggests that the euro cash changeover
has had at most a marginal impact on overall consumer price
inflation in the euro area. Indeed, over the medium term the
euro will help to ensure price stability by increasing price
transparency and enhancing competition.
2.
Sound fiscal and monetary policies
Compared
to the early 1990s, the macroeconomic policy framework in
the countries that now constitute the euro area has been greatly
enhanced. This has enabled us to weather the global growth
slowdown through a judicious adjustment of the policy mix.
The
first component of this judicious policy mix is monetary easing,
consistent with the ECB's objective of maintaining price stability.
The second component is prudent fiscal policy that has relied
on the working of automatic stabilizers, where appropriate,
with the commitment by Member States under the Stability and
Growth Pact to achieve budgetary positions that are close
to balance or in surplus over the medium term.
In addition,
strengthened economic (i.e. fiscal and structural) policy
coordination can be achieved by streamlining processes where
appropriate and implementing the measures suggested by the
Commission and endorsed by the Barcelona European Council.
3. Wage formation in EMU
The
early years of EMU, as well as the years in the run up to
monetary union, have seen an impressive degree of wage moderation.
This has contributed to the dynamism in job creation together
with widespread product and labour market reforms in most
euro-area countries. However, the progress of reforms has
been uneven, and there is still high structural unemployment
in some Member States. Whilst area-wide wage developments
must be compatible with overall price stability, there is
also a need for flexibility to reflect productivity differences
and factors specific to regions or sectors.
4. Investment and
the euro-area's growth potential
Investment
is crucial for the euro-area's growth potential over the medium
and longer term. It is still too soon to draw strong conclusions
about the impact of EMU on investment. Nevertheless, EMU and
the policy framework in which it is embedded, are likely to
positively affect major determinants of investment such as
profitability and real interest rates. EMU will improve financing
conditions via greater financial integration. It will also
increase the allocative efficiency of investment through reduced
exchange rate risk.
5. Financial integration
The
pace of integration of euro-area financial markets has clearly
accelerated since the changeover to the euro. Deeper integration,
due in part to the euro, is reflected in more homogenous markets,
a wave of consolidation among intermediaries and exchanges
and the emergence of new and innovative products and techniques.
The
EU has set an ambitious deadline, the year 2005, for the implementation
of the Financial Services Action Plan (FSAP) - a package of
42 measures to improve the functioning of the EU financial
system. An even tighter deadline has been set for actions
relating to securities markets and for the Risk Capital Action
Plan. The new decision-making framework for securities legislation,
adopted on the basis of the proposals by the Lamfalussy Committee
should ensure that legislation can adapt to rapidly changing
financial markets.
6. The euro area as an
international currency
The
euro immediately became the world's second leading international
currency after its launch. Due to network and scale effects,
the US dollar is likely to remain the dominant international
currency for the time being. Nevertheless, there are a number
of factors that support the usage of the euro as an international
currency. The first is the large size of the euro-area economy.
The second is the stability attached to the euro, which reflects
the sound economic fundamentals in the euro area, underpinned
by the stability-oriented policy framework under EMU. The
third is the ongoing integration of national financial markets
in Europe into broad, deep and liquid pan-European financial
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