‘Policy-makers must strike while the iron is hot’, said European Commissioner for monetary affairs the Spaniard Joaquin Almunia. ‘The 13 Eurozone governments must put their public finances on a firmer footing and implement reforms that will increase the growth potential’.
The beginning of 2007 Slovenia became the 13th member of the Eurozone, the first of the 12 new Member States. Cyprus and Malta asked to join the Euro-area in 2008 and Slovakia mentioned 2009 for entrance. But Hungary had to postpone target dates for joining twice and Lithuania was refused. Almunia acknowledges that target dates are sometimes too ambitious.
Regardless of when countries plan to adopt the Euro, governments have to maintain macroeconomic stability while sustaining the growth necessary to increase living standards in their country. Almunia always reminded EU finance ministers that the Stability and Growth Pact, which underpins the Euro, has two main pillars: an annual budget deficit not higher than 3 percent of gross domestic product (GDP) and a ratio of public debt to GDP no higher than 60 percent. But with the average nominal budget deficit in the EU having fallen to 2 percent of GDP and with the debt-to-GDP rate still to high but declining for the first time in five years, the need for admonishment has dropped. Germany and some other countries have cut their deficits as growth recovered. The monetary EU chief tries now to ensure governments not to squander the gains of the strong period.
The current good performance of the Euro-area reflected the upturn of the economies but was also the result of recent fiscal consolidation and governments’ commitment to structural reform, the Commissioner said, ‘But we need it desperately looking at the forecasts of the rise of old-age-dependency and the ratio of non-working people to workers, which will rise from 25% now to 51% in 2045. We can not wait till 2015 to see the negative impact of old age making social security unsustainable. We need effective action now’.
There is an increasing concern in some important Eurozone capitals that a continued strengthening of the Euro against the dollar will make Euro-zone exports relatively more expensive and reducing foreign demand for EU products. Almunia seems not to be impressed by this concern. ‘The rise of the Euro has not impacted on Eurozone exports to the US. So I think we have to refine our analyses. Let’s not forget that strong Eurozone performance was the result of a rise in domestic demand and investments’.
However the Spanish commissioner warns for the risk of the widening US current account deficit and growing surpluses in Asia. He calls these ‘geopolitical developments’ and ‘global imbalances’.
