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Brussels, 20 July 2004

First five years of the euro a success, says the Commission, but difficult challenges lie ahead

The European Commission today published a report on Economic and Monetary Union (EMU) after 5 Years, which highlights the positive contribution that the single currency has made to macroeconomic stability, as well as its key role in accelerating economic integration in Europe. But the report also draws attention to some difficult challenges that lie ahead for the euro area. Joaquin Almunia, EU Commissioner for economic and monetary affairs, said: “Five years on Economic and Monetary Union represents a remarkable political and institutional achievement for the EU. The challenge is now to tackle the remaining causes of slow growth in the Union.”

A Commission report published today presents a detailed examination of whether, five years on, the euro has lived up to the expectations of both its supporters and detractors. Macroeconomic stability, the principal channel through which EMU was expected to contribute to growth and employment has, in broad terms, been secured, especially when one considers the numerous external shocks that have hit the euro area since 1999. The damaging effects of intra-European exchange-rate tensions – which often accompanied external shocks in the past – have been eliminated. The ECB has successfully implemented a monetary policy that has delivered price stability and responded to changing economic circumstances. As far as budgetary policies are concerned, there has been no return to the profligate policies of the past although the sustained improvement in fiscal positions has been halted mostly due to poor growth conditions. The euro has also played a key role in accelerating economic integration in Europe, and there is emerging evidence that it has led to increased trade amongst participating countries and has accelerated the integration of financial markets in Europe.

The report highlights five challenges which lie ahead:

  • tackle the causes of slow growth: macroeconomic policies cannot act as substitute for essential structural reforms in product, service and labour markets which are necessary in order to raise potential growth rates and to improve the capacity of the euro area to emerge more rapidly from future downturns. It is disappointing that the launch of the euro has not been accompanied by an acceleration in the pace of structural reform;
  • prepare for the economic and budgetary implications of ageing populations: governments need to achieve a much faster pace of debt reduction, higher employment rates and appropriate reforms of pension and health care systems;
  • make a success of enlargement: the challenge will be to support macroeconomic stability and facilitate the path to euro adoption. In the longer term, it will be to manage greater economic diversity within the enlarged euro area.
  • strengthen the framework for the coordination of economic and budgetary policies: a more pre-emptive approach to identifying economic policy challenges is needed, and, above all, a willingness by Member States to respect policy commitments given at the EU level.
  • improve the external representation of the euro area: the fragmented and incomplete arrangements for external representation need to be addressed in order for the euro area to become an effective actor in pursuit of its own interests at the international level.

Full document available in the following website :

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