(By Ralph Atkins and Patrick Jenkins in Frankfurt
Published: June 16 2005 20:53; Financial Times)
The European Central Bank has voiced its strongest concern yet about economic divergence among eurozone countries and indicated that the six-year monetary union was not working as effectively as it had hoped.
The comments by Lucas Papademos, ECB vice-president, highlight fears among European Union policymakers about the underperformance of eurozone members such as recession-hit Italy.
They came as clashes between EU leaders in Brussels over the union’s budget and failed attempts to agree a constitution overshadowed its structural reform programme.
ECB leaders, while urging politicians to free up labour and other markets, have spent much of this month stressing the benefits of euro membership and dismissing as “absurd” speculation that the eurozone’s future had been thrown into doubt by the French and Dutch rejection of the EU constitution.
In a speech at an ECB conference in Frankfurt, Mr Papademos argued that economic growth and inflation differentials within the eurozone since the introduction of the euro had been similar to regional variation in the US.
But Mr Papademos observed “significant and persistent divergences in measures of competitiveness between member countries”. The extent and cumulative effects of such differences “raise concerns about their impact on growth”. He said “the persistence of these developments suggests that the adjustment mechanisms are functioning slowly”.
Eurozone divergences were “fundamentally” the result of structural factors,” Mr Papademos argued.
Although the ECB vice-president did not mention countries, Italy’s plunge into recession this year is widely blamed on its loss of competitiveness and inability, as in the past, to use devaluation as an escape route. Luigi Buttiglione at Rubicon Fund Management said Mr Papademos’s remarks would fuel “some doubts about the sustainability of monetary union”.
Mr Papademos said that at the time of the single currency’s launch observers saw it as a “reform whip” to encourage competition, productivity and market flexibility. But a paper to be presented on Friday at the ECB conference suggests the opposite.
Romain Duval and Jorgen Elmeskov, economists at the Organisation for Economic Co-operation and Development, say “the absence of monetary policy autonomy seems to be associated with lower structural reform activity in large, more closed economies”.
Stephen Nickell, a member of the Bank of England monetary policy committee, added that empirical results pointed to the “rather depressing conclusion that one of the effects of economic and monetary union is to weaken the incentives for structural reform in the larger member countries”.
In Frankfurt, John Snow, US Treasury secretary, ended a week-long tour saying he had told European leaders of the need to “implement vigorous structural reforms to boost its potential growth, jobs and incomes”.
The US’s motive in encouraging European prosperity was clear, he said. “There is a huge mutuality of interest. As you succeed, we succeed. We want to move with you. The real goal is one transatlantic financial market.” He added: “If you have to conform with 25 different sets of rules, it gets in the way of efficient markets.”
vrijdag 17 juni 2005 :: 12.59 uur