EMU: IMF SAYS EURO IS UNDERVALUED.

The IMF fears that the recent rise in the consumer price index in the Euro zone may contribute to setting off a round of wage claims. The IMF is counting on growth in inflation on the order of 2% for the year, and even less, according to forecasts which anticipate a larger role for cyclical factors. According to the findings of the Fund's evaluation mission, "In the absence of new shocks and of stronger salary pressures, we expect the situation to improve gradually, but certainly, over the next 12 months, in the case of inflation; more haltingly, in the case of growth, which appears to be more sensitive to the slowdown in the world economic environment than what had previously been estimated".According to the IMF, referring to US stock market analysts' expectations, which tend to be higher than those in Europe or in Japan, "A major portion of the weakness of the Euro against the Dollar is shared by other currencies and seems to reflect factors specific to the American economy." Changes in the structure of portfolios related to the birth of the European currency could also constitute another major reason for the weakness of the Euro. According to the IMF, however, the explanations attributing the weakness of the single currency to EU monetary policy, or to the manner in which it is being conducted, are not convincing.Among the shocks to which the Euro zone has been exposed are the rise in oil prices, the...