English, Article edition: Economic Developments in the EU in 1995. Weakening Activity an Obstacle for the Consolidation of Budget Deficits Georg M. Busch

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Physical Description
  • article
Language
  • English

Edition details

Title
  • Economic Developments in the EU in 1995. Weakening Activity an Obstacle for the Consolidation of Budget Deficits
Author
  • Georg M. Busch
Physical Description
  • article
Notes
  • Following the turmoil in foreign exchange markets in spring, the business cycle recovery in western Europe lost momentum and eventually came to a halt. Despite a generally favorable policy framework business and consumer confidence weakened, particularly in the hard-currency area. The slackening of demand and output, together with a new rise in unemployment, makes the task of public sector deficit reduction even more difficult. A majority of EU countries still has some way to go in order to meet the fiscal criteria for EMU. However, substantial progress has been made in the convergence towards price stability. Business cycle developments in western Europe in 1995 proved disappointing. Instead of gaining further strength, demand and output, having rebounded markedly in 1994, weakened and rose by no more than 2½ percent year-on-year. Towards the end of the year, seasonally adjusted GDP actually fell in a number of countries. Although the macro-economic environment has improved in some respects over the past twelve months there is as yet little evidence in leading indicators to suggest that growth is about to resume. The reasons for the cyclical setback are not sufficiently clear. The leveling-off of inventory build-up is one element, and some friction in the transition towards investment-driven growth has indeed been repeatedly observed in the past. Another factor has been the sustained upward drift in long-term interest rates throughout 1994, an unusual feature at that stage of the cycle. Moreover, and perhaps most importantly, European exchange rates were struck by new turmoil in the wake of a sharp fall in the dollar in March 1995. The improvement in European labor markets proved short-lived. Employment growth leveled off around mid-1995. Unemployment fell slightly to a rate just below 11 percent in fall 1995, resuming its rising trend thereafter. Weakening demand and generally underutilized production capacities kept inflation from accelerating. The annual rise in consumer prices remained at a moderate 3 percent on average for the 15 EU countries. Public sector deficits in the EU fell slightly from an average 5½ percent to 5 percent of GDP. A deficit/​GDP ratio of 3 percent or lower, as stipulated by the Maastricht treaty, would have been achieved in 1995 by only three countries: Denmark, Luxembourg and Ireland.
  • Wirtschaftstendenzen in der Europäischen Union 1995. Konjunkturschwäche hemmt Abbau überhöhter Budgetdefizite; Economic Developments in the EU in 1995. Weakening Activity an Obstacle for the Consolidation of Budget Deficits
  • RePEc:wfo:monber:y:1996:i:4:p:267-271
Language
  • English
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