EMU: EUROGROUP CONSIDERS GROWTH DIFFERENCES BETWEEN EURO-ZONE COUNTRIES.

Mr Almunia hopes the pace of economic activity will pick up over the third quarter since the situation over the second quarter is not expected to be as positive as over the first. The Commissioner believes that if his assessment is correct, 2005 may end with quarterly growth similar to that for the first part of the year.

Commission study.

The report found that the difference between the lowest and highest growth rates in the euro-zone was 4.5% in 2004. The composition of growth also shows marked differences across euro-zone member states. Domestic demand drove economic activity in countries like France, Spain and Greece. By contrast, domestic demand was stagnant in Austria, the Netherlands and Portugal, and contracted in Germany. Over the same period - i.e. since the slowdown in activity recorded in 2001, the contribution of exports to growth has been positive in Austria, Germany and Luxembourg, but negative in Spain, France and Italy. The fact that variations in the composition of growth have been so pronounced amongst the four largest euro-zone member states (Germany, France, Italy and Spain), is one of the reasons that growth differences have attracted so much attention among analysts, according to the report compiled by Commissioner Almunia's department.

However, the study considers that the existence of growth differences as observed in the euro-zone is a "natural and inevitable" feature of any large monetary union. Indeed they are neither higher than in previous cycles, nor unusually large when compared with regional differences in other monetary unions, according to the report. Growth differences across US states and German Bundeslander, for example, are of a similar order of magnitude. The report nevertheless regrets that the differences observed in the euro-zone are principally due to structural factors, a trend described as "worrying" as it may mean that the gap between strong and weak growth performers could become entrenched over time.

Since its creation in 1999, the euro area has been hit by a number of common disturbances with differentiated effects, most notably swings in exchange rates, equity prices and oil prices as well as large fluctuations in the global economy. National economies have reacted differently to these...