New admissions to Eurozone

The watchword remains the same: don’t drop your guard. In the triangle comprised between Brussels (seat of the Commission), Luxembourg (where the Eurogroup and Ecofin often meet) and Frankfurt (headquarters of the European Central Bank), preparations are continuing for new entries into the area of the single currency, but at the same time there is a tendency to reinforce the constraints on participation in the “euro club” with the objective of tackling the eve-pressing challenges of the global economy. PREPARATIONS IN MALTA AND CYPRUS. The Commission recently published its fifth Report on the practical fulfilment of preliminary measures for the adoption of the single currency in Malta and Cyprus. It judges Valletta ready for transition to the Euro, but considers that some further measures need to be taken by the government in Nicosia. That means that from 1st September all wholesale and retail prices in the island of Cyprus will be quoted both in local pounds and in euros and that an information campaign on the single currency, expected to be introduced on 1st January 2008, will be introduced. In Malta, on the other hand, the Final Master Plan to prepare the field for the euro was launched in January. “Both Malta and Cyprus must now finish their preparations for the introduction” of the single currency, said JOAQUÌN ALMUNIA , Spanish Commissioner for Monetary Affairs, “imitating the efforts made by Slovenia last year, thus becoming the thirteenth country in the Euro zone”. Information packs for consumers and codes of “good practice” for shopkeepers were defined in liaison with the EU authorities. “VIRTUOUS” POLICIES. As regards other countries seeking admission to the single currency, the last Report of the Commission considers “fairly complete” the pre-membership measures taken by Slovakia, which could introduce the euro in 2009. For Romania too a provisional date has been fixed: 2014. In fact the Executive continues to monitor the macroeconomic data of all EU member states: among the new “members” of the Union, Lithuania seems relatively close to the parameters laid down by Maastricht. “Though the pre-membership measures for the adoption of the euro are being revealed as more difficult than had originally been thought – Almunia himself had explained on presenting the Report on convergence in 2006 -, the rewards will be well worth the effort”. In the first place this is because the “virtuous policies” requested in terms of inflation, state budget, exchange stability, interest rates and legislative compatibility “are desirable irrespective of the euro”; in the second place, because “the adoption of the single currency consolidates the economic stability that is the necessary condition for growth and employment”. ECONOMY UP, UNEMPLOYMENT DOWN. “There’s nothing technical, or merely technical”, in speaking of the euro, parameters, indices… “In actual fact we here touch on questions that affect the daily life of the citizens of the EU”, says JEAN-CLAUDE JUNCKER who always represents the “human face” of the Euro zone. Following the meeting of the 13 Finance Ministers of the euro area, he reported on its results to the European Parliament meeting in Strasbourg for its July session. The Luxembourg politician, who heads the Eurogroup, confirmed that “growth is being consolidated”, that the economic cycle “remains favourable”, and that “unemployment has dropped to its lowest recorded levels” (7% in the EU). “The public deficit is being reduced in the countries that have adopted the single currency”, and is now less than 3%, the threshold laid down by the Stability and Growth Pact. “The corrective aspect of the Pact is working. But this – added Juncker – is also the best moment to reduce structural deficits”. EU fiscal hardliners explain that tax surpluses should be used to reduce excessive public debts that remain in some countries, so as to respond to another important parameter of the Pact (ratio between debt/GDP of 60%). “Wage moderation” should also be aimed at (“starting out from the salaries of top managers”, insists Juncker) and steps taken to implement the “structural reforms able to consolidate public accounts”, beginning from the pension reforms awaited throughout Europe, given the generalized ageing of the EU population. CRACKING DOWN ON INFLATION. French banker JEAN-CLAUDE TRICHET , President of the European Central Bank, shares this analysis. In his annual Report presented in mid-July, he recognizes that “the Euro zone will continue to grow”, that “inflation is under control” (on average below 2%), and that employment levels show positive signs, “though wages need to be kept stable”. Since 2005, the ECB has increased its interest rate eight times, causing distress to firms that export and millions of citizens who are seeing their monthly mortgage repayments going up. “Despite that – explains the head of the ECB – we are still registering an expansion of the total currency in circulation”: in other words inflation remains a risk we need to guard against. Trichet’s words seem to presage a further hike in interest rates by the end of the year.