Sunday, August 29, 2004

Eurozone economies diverging

Taking over the Economic Agenda slot in the Sunday Telegraph, Liam Halligan, Economics Correspondent at Channel Four News, asks "Is the euro forging a unified Europe?".

In short, the EU commission says "yes" – or words to that effect. Being the commission, it has learnt never to use one word when 16 will do, so its actual answer is "the available evidence is in line with a positive impact of monetary union on cyclical convergence".

However, as one has come to expect, the commission is telling porkies. The Deutsche Bank, it say "no". "We do not see that the euro zone economies have converged." Since 1999, when the euro was launched, Germany has grown only 7 percent in total, compared with 19 percent in Spain. Thus, GDPs are drifting apart. Furthermore, says Deutche, "there are currently no signs that growth differences across the region are narrowing". In fact, "there have even been signs of greater divergence".

This is confirmed by another financial heavyweight, HSBC, which finds "a great divide between France and Germany". Since 1997 (when members "locked" their economies prior to launch) France has grown on average by 2.5 percent annually but Germany has managed only 1.3 percent, while French inflation is 2.5 percent compared with 1.5 percent in Germany, against eurozone inflation of 2.4 percent.

All of this is good news for UK opponents of the euro. "That's because the less convergence there is between euro zone members, the harder it will be to prove - should the chancellor ever wish to - that these divergent euro members have all converged with the UK too", writes Halligan.