Euro-zone countries urged to cash in on brighter economic climate

Date: 28/05/1998

By Tim Jones

ECONOMICS Commissioner Yves-Thibault de Silguy will tell the euro-zone's finance ministers next week that they should exploit the rosiest economic climate in continental Europe for five years to rein in their budget deficits even further.

When ministers on the controversial Euro-11 committee meet for the first time next Thursday (4 June), De Silguy will set out his staff's latest findings on the macroeconomic conditions against which national treasury chiefs are preparing their budgets for 1999.

"It's important for the European Commission that this first exercise in economic policy coordination should focus on these budgetary issues because they are key to the success of economic and monetary union," he said last week.

De Silguy's report will show that after years of stagnation in continental labour markets, unemployment in the EMU-11 fell to 10.7% of the workforce in March - the lowest level since August 1993. Crucially, the data suggest that this decline in joblessness reflects an upswing in job creation rather than a reduction in the overall size of the workforce.

While the smaller EMU economies have been reducing unemployment for more than a year, this trend has taken time to feed through into the continent's locomotives. However, between November last year and February 1998, a 0.3% cut in unemployment in Germany and France was matched only by Ireland and Finland among the 11.

Commission forecasters have been satisfied with the improvement in business confidence for months, but believe the fall in the headline rates of unemployment in the big economies should now start pushing up consumer confidence indicators and expanding investment.

The inaugural meeting of the Euro-11 will take place in the evening at Senningen Castle, a conference centre and NATO complex in Luxembourg, under the presidency of Austrian Finance Minister Rudolf Edlinger.

British Finance Minister Gordon Brown, who holds the presidency of the full 15-strong Council of EU finance ministers, has won a concession from Euro-11 members that he will address the gathering and then depart.

"When it is set up, he will leave it to its work," said France's Dominique Strauss-Kahn last week.

Ever since the run-up to the EU summit in Luxembourg in December, Brown and his officials have been worried about the formation of the Euro-11, fearing that it will usurp the power of the 15-member Ecofin and embarrass Brown politically.

He and Prime Minister Tony Blair secured a promise at the Luxembourg summit that subjects for discussion in the Euro-11 would first be submitted for approval by Ecofin.

Furthermore, the EU's powerful monetary committee agreed last month that its top treasury officials, including those from the UK, Denmark, Sweden and Greece, would prepare the agenda of the Euro-11.

For this reason, officials claim that Brown is trying to quash attempts by Strauss-Kahn to hold Euro-11 meetings in the morning before every regular Ecofin.

The next meeting of the mini-council will take place in Brussels on 6 July, with another scheduled in the margins of the 'informal' Ecofin meeting in Vienna on 25-27 September.

Preview and reports of the first Euro-11 (formerly called Euro-X) Committee, Senningen Castle, Luxembourg, 4.6.98.