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Irish test for fiscal co-ordination - EMUbusiness - Issue 12

EMUbusiness - Issue 12
31 January 2001
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EMUbusiness top stories
1. Euro-denominated bond market heading for good times
2. Dutch Economics Ministry struggling with euro
3. Each to his last, says Bundesbank
4. Irish score high marks on cash introduction date
5. Time to think about revisiting SGP rules

Publisher's Note
Highly respected European Central Bank Executive Board Member and former Bundesbank Board Member, Otmar Issing, is reported as having told the World Economic Forum in Davos that the system of peer pressure to co-ordinate fiscal policy across the euro economies is working. So far, so good, one is tempted to say. But that co-ordination faces its first real test at the next meeting of Economics
and Finance Ministers. The European Commission has asked Ministers to recommend to Ireland that it modify its budget to make it less expansionary. The Ministers will find it hard to refuse. The evidence that the risk of the Irish economy overheating is fairly compelling, despite protestations from Dublin that the Commission does not understand the Irish economy. The hard part comes once the
Recommendation is issued. Under EU rules, the Irish government must commit itself to take timely and efficient measures in response. This is something no EMU Member State has previously been asked to do. Whatever Ireland does, it will set an important precedent for the future of co-ordination of fiscal policy and the credibility of peer pressure in EMU.

Marion Bywater
Publisher, EMUbusiness

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1. Euro-denominated bond market heading for good times
Having experienced a minor setback in 2000, the euro-denominated bond market looks poised for a recovery this year, the European Commission believes. The recovery will be spurred on by the more positive economic outlook but also by infrastructure improvements, the Commission says in an analysis of two years of euro-denominated bond markets appended to its latest quarterly note on developments in
these markets. Total issuance of euro-denominated bonds last year was EUR1,293 billion, compared to EUR 1,400 billion the previous year.
Full story:

2. Dutch Economics Ministry struggling with euro
The Dutch Ministry of Economic Affairs will struggle to be ready for the euro on time according to a new report. This is the only real 'problem child' at central government level. However, some government agencies are also running behind and a recent report on local and provincial authority preparation highlighted significant delays in a number of larger cities. Both reports were produced for
the Dutch Parliament by the Ministry of Finance. This is the only Ministry in the euro area to be so open about public sector preparation, though the Belgian government occasionally provides less detailed (and not always optimistic) assessments of its state of readiness.
Full story:

3. Each to his last, says Bundesbank
Decisions on when to intervene in the foreign exchange markets should be left to the European Central Bank (ECB) and the Eurogroup of euro-area Finance Ministers should stay out of this process, the Bundesbank says in its latest Monthly Bulletin.
Full story:

4. Irish score high marks on cash introduction date
There is a high level of awareness in Ireland of when notes and coins will be introduced, but much more information is needed on how long the dual circulation period will be. In a survey published this month and carried out last November following a media campaign, 77% of those surveyed knew that euro notes and coins will be introduced in 2002 and 64% knew that they will be introduced on January 1 next
year. Only 9% knew that the dual circulation period will be around six weeks. On the other hand, 60% knew that a euro comprises 100 cents. 38% knew that a pound is one euro and 27 cents (up from 11% in July 2000).
Full story:

5. Time to think about revisiting SGP rules
The rules governing the Stability and Growth Pact (SGP) might need to be revisited in the medium-term leading economic forecasting institutes are suggesting in a report to be debated by the European Parliament's Economic and Monetary Affairs Committee next week. The current rules were right for the early period of construction of
monetary union, they suggest, but the SGP may not be the best framework over time for sustainable public finance or allowing the public sector to strengthen prospects for output growth.
Full story:

Other stories on EUbusiness in January

EU current account deficit EUR 6.8 bn in Q3 2000
Latest revisions from Eurostat show that the EU15 external current account recorded a deficit of EUR 6.8 billion in the third quarter of 2000. This compares with a surplus of EUR 1.6 billion in the third quarter of 1999 and a deficit of EUR 8.8 billion in the second quarter of 2000. The surge of the EU15 current account deficit recorded in the first three quarters of the year 2000 is mainly attributed to an increase in goods imports, along with high oil prices and a strong US dollar.
Ireland full story:

Brussels warns Ireland over 2001 budget
The Commission has warned Ireland that its expansionary budgetary plans for 2001 are inconsistent with the EU's Broad Economic Policy Guidelines. It recommends that Ireland revise its economic policy or face a possible "overheating" of its economy and risks of inflation. This is the first time the Commission has singled out a member state for such a recommendation.
Ireland full story:

Updated Stability Programmes
Apart from Ireland, a whole raft of assessments was released this last week. The Commission remains to be convinced of the stability of the UK's exchange rate, and urges it to join ERM2. Italy should have been more ambitious with its budgetary targets. France needs to aim
for a balanced budget in 2004, and could have aimed for a lower government deficit than 1.4 per cent of GDP. Austria should think of lowering taxes on labour as soon as the budget is in balance. And Greece has been warned about overheating of its economy.
France full story:
Greece full story:
Austria full story:
Denmark full story:
Italy full story:
UK full story:

Euro-zone annual inflation slows to 2.6%
Consumer-price inflation in the euro-zone slowed to an annual rate of 2.6% in December, down from 2.9% in November and 2.7% in October, but still above the European Central Bank's 2% ceiling - according to latest figures from Eurostat, the statistical office of the European Communities. Inflation for the whole of the EU also fell to 2.3% in December from 2.6% in November.
Full story:

Industrial production up 0.6% in euro-zone
Seasonally adjusted industrial production increased by 0.6% in the euro-zone in November compared to October, according to latest figures from Eurostat. The rise follows a decrease of 0.1% in October.
Full story:

Merrill Lynch poll reveals record high support for euro
A Merrill Lynch survey of top fund managers from around the world indicates that 77% regard the euro as their favourite currency. According to the January 2001 Gallup poll of 241 global fund managers, representing $7.98 billion in managed assets, only 14% of fund managers prefer the US dollar over other major currencies. They also forecast that the euro, which has recovered significantly in the past two months, will rise further by the end of the year.
Full story:

Internet Monitor

Euro-denominated bond markets
The Directorate-General for Economic and Financial Affairs produces a monthly note on developments in the euro-denominated bond markets. These look at the volumes of debt issued, the maturity structures, and the conditions in the market. The latest is now available at :

EMU diary
European Parliament session, 31 January-1 February, Brussels
Economic and Monetary Affairs Committee, February 5, Brussels
Eurogroup meeting, 12 February, Brussels
ECOFIN Council, 12 February, Brussels
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Any Answers?
* Tim Boland asks: The proposed amendments to the UCITS directive are presently under discussion but will the amendments be in the best interests of consumer protection (security, disclosure requirements, etc) or will they be in the best interests of the investment industry only?

* Kelly James asks if December 31 and January 1 will be bank holidays in Europe, with reference to the length of time countries will have to convert their systems from NCUs to euro due to the introduction of euro notes and coins in January 2002.

Answer these questions, or post your own, in our Any Answers section.

Business Forum
* In 'Find a Business Partner', Andrew Dignam has posted a message on behalf of a "telecommunications company offering a unique telecommunications service franchise throughout Europe".

* In 'Find an Agent', Adolfo Guerrero, on behalf of a Spanish construction company, is looking for "well connected agents/partners world-wide to develop new activities abroad, especially in large civil works and developments.

If you're looking for a business partner, a buyer, a supplier, or a job visit our business-to-business forum.

We can at last announce the date for the next EUbusiness online discussion forum. This will be on Wednesday February 21, at the usual time of 16.30 CET, and the topic will be euro notes and coins. If you are interested in taking part, or would like to be one of our panel of experts, please email Wendy Jones at

Let us know what you think of EUbusiness, where you would like to see improvements, and where your particular interests lie.

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