| Author (Person) | Bower, Helen | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Publisher | ProQuest Information and Learning | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series Title | In Focus | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series Details | 14.11.02 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Publication Date | 14/11/2002 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Content Type | News, Overview, Topic Guide | In Focus | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The European Commission unveiled its Autumn Economic Forecasts on 13 November 2002, suggesting that the rate of economic growth will continue to be slow in the coming year - estimated at just 1.8% - despite optimism expressed in the Spring that growth would reach 3% in 2003. Whilst the forecasts have intensified concerns about the strength of the EU's economy, the announcement by the European Commission that Germany, France and Italy have either breached or risk breaching the budgetary rules set down in the stability and growth pact seems more alarming, especially because it further fuels the debate over the future of the EU stability and growth pact. The strict rules of pact have been questioned in recent months as several EU countries looked set to breach the 3% compulsory limit on public deficits. Portugal became the first EU country to receive a formal warning and the threat of sanctions earlier in 2002 after its budget deficit reached 4.1% in 2001, although it is expected to fall within the 3% limit in 2003 and in September concerns were raised about Germany's budget deficits. These concerns were confirmed with the publication of the Autumn Economic forecasts and the announcement from the European Commission that it will launch the excessive budget procedure against Germany on 20 November 2002 as figures indicate that its 2002 budgetary deficit will be 3.8%. It was also announced that France will probably be subject to an early warning procedure amidst fears that the country's deficit will break the 3% threshold in 2003. A formal decision will be taken at the meeting of the European Commission in Strasbourg on 19 November when the overall budgetary situation will be examined in detail. Both countries were in fact the architects behind the rules, which were agreed by EU governments in 1997, in an attempt to prevent certain countries overspending once economic and monetary union was in place - Italy, which was seen as the most likely culprit, is currently managing to stay just within the rules. However the pact has increasingly been criticised for its inflexibility and failure to take account of periods of slow economic activity. In October 2002 Romano Prodi, President of the European Commission, suggested that the budget rule was both 'stupid' and 'rigid'. Pedro Solbes, the European Commissioner responsible for Economic and Financial Affairs, did suggest in July 2002 that the rules of the pact may need to be relaxed in order for there to be greater public investment which in turn could fuel economic growth although such measures have yet to be implemented. However with at least four European countries, together accounting for some two-thirds of eurozone output, on the brink of breaking the stability and growth pact pressure on the European Commission is mounting. The overall picture outlined in the Autumn Economic Forecasts does not help. Despite recovery in the eurozone and the EU in the first quarter of 2002 this has not accelerated during the year with investment continuing to contract and a limited increase in private consumption. The added threat of increased conflict in the Middle East has contributed to a significant reduction in the forecasted average growth rate, down more than half a point to 0.8% in 2002 and 1.8% in 2003. Although the European Commission expresses optimism that growth will accelerate at the end of 2003 and into 2004 any it notes that recovery would be seriously threatened by a military conflict in Iraq and any collapse of the stock market that would damage consumer and investor confidence. Within the European Union, the positive news was limited to employment figures. Growth is estimated to continue albeit at a weak pace in 2003 in contrast to the United States where the economic downturn is expected to lead to employment decline. In the period 2002-2003 about 1 million jobs are expected to be created in net terms in the EU with hopes that this number could be realised alone in 2004 if economic growth accelerates. The candidate countries, by contrast, continue to register high unemployment rates - estimated to still be above 15% in four countries (Bulgaria, Lithuania, Poland and Slovak Republic) in 2004 - although their economic growth appears to have been less affected by the worsened international economic climate. Forecasts for 2002 economic growth suggest that it should amount to 2.1% for the ten acceding economies and 2.9% for all candidate countries with average growth of 4% predicted in 2003 and 2004.
Helen Bower The European Commission unveiled its Autumn Economic Forecasts on 13 November 2002, suggesting that the rate of economic growth will continue to be slow in the coming year - estimated at just 1.8% - despite optimism expressed in the Spring that growth would reach 3% in 2003. |
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| Subject Categories | Economic and Financial Affairs | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
