Sunday, April 20, 2003

What the Worst Performing European Economies all Have in Common

This one seems obvious. Sad, but true. Only one question: when will we understand why?

What is the single factor uniting Europe's worst performing economies? The answer is: they all use the euro, while those countries still using their own currencies are doing rather well, according to the European Commission's spring forecasts published on Tuesday. The euro was supposed to free up markets, encourage inward investment and generally pep up the economy, but almost five years after 12 EU members fixed their exchange rates some of the benefits remain elusive. The eurozone economy has been virtually stagnant since 2001, with average growth of little more than 1 per cent. Those predicting that Britain, clinging to the pound, would enter a period of decline have so far been proved wrong. Denmark and Sweden, the other two EU members still using their own currencies, have also outperformed the eurozone. Another feature of the Commission forecasts is that the 10 countries set to join the EU next year are also doing much better than the 12 members of the eurozone.There are many factors explaining why the eurozone is doing poorly compared with the rest of Europe other than the fact that it shares a currency. The structural problems in Germany and Italy in particular have held back growth. Meanwhile Greece and Ireland, which use the euro, have the fastest growing EU economies. But it remains true that membership of the fledgling euro is clearly not a precondition to economic health - in the short term at least.
Source: Financial Times

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