Convergence before and after EMU

1
Convergence before and after
EMU

• A euro-zone country experience
• BELGIUM
• 1. The path towards convergence
• 1.1. The burden of the past
• 1.2. The lengthy correction process
• 1.3. Entry into EMU
• 2. National institutional features
• The support for policy decisions
• 3. Performance, policies and challenges after EMU
  entry
• 3.1. Performance
• 3.2. Policies
• 3.3. Challenges ahead
• 4. Adjustment in an EU framework
• 4.1. Single monetary policy and convergence
• 4.2. Inflation performance in the euro-zone

2

• The path towards convergence
• 1.1. The burden of the past
• - external shocks
• - internal rigidities, lack of
  adjustment
• - consequences current account,
  budget, real economy
• 1.2. The lengthy adjustment process
• 1.2.1. Competitiveness
• 1980- 82 devaluations
• 1990 hard currency policy
  financial market reforms
• 
  GRAPH 1

3

• 1.2.2. Budgetary evolution
• 1980s expenditure reduction
• 1990s revenue increases
• 1992 first convergence programme
• 1994 start of debt reduction
• 
  GRAPH 2

4

• 1.3. Entry into euro
• Performances inflation
• current
  account
• budget

5

• 2. Institutional features
• . Federalism and devolution process
• . Coalition governments
• . Role of High Finance Council
• . Agreement between federal and regional level
• . Regular budget controls
• . Employment and competitiveness committee
• . Financial supervision

6

• 3. Performance, policies and challenges after EU
  entry
• 3.1. Performance
• 3.2. Policies
• 3.2.1. Budgetary policy
• 3.2.2. Structural policies
• - generation pact
• - tax reform
• - administrative and regulatory burden
• - National Reform Programme
• 3.3. Challenges ahead
• - wages
• - employment

7

• 4. Adjustment in the euro zone framework
• 4.1. Single monetary policy and adjustment
• 4.2. Inflationary performance of the euro zone
• 4.3. Inflation in Belgium and policy aspects
• Table 1 - HARMONISED INDEX OF CONSUMER PRICES
• (Annual inflation rates)
•   ________________________________________________
  _____________________
•  
  HICP Underlying
  Services
• 
  trend
• 
  in inflation1
• __________________________________________________
  ____________________
• Belgium
•   Jan 1999 to Dec 2005
  2.0 1.6
  2.1
• Jan 2005 to June 2006
  2.6 1.4 2.1
•  
• Euro Area 

8

• Table 2 - Housing markets prices indicators
• (Annual inflation rates)
• __________________________________________________
  ___________________________
•  
  Housing
  Rents in p.m. Weights of
• 
  prices
  HICP rents in overall
• 
  
  inflation
• __________________________________________________
  ___________________________
• Belgium
•   Jan 1999 to Dec 2005
  9.5 1.9
• Jan 2005 to Dec 2005
  17.1 2.0
  6
•  
•  Euro Area
•   Jan 1999 to Dec 2005
  6.4 1.8
• Jan 2005 to Dec 2005
  7.7 2.1
  6
• __________________________________________________
  ___________________________
• Sources EC ECB FPS Economy, SMEs,
  Self-employed and Energy  
•  

9

• 5. Conclusions
• Need to act on time
• Importance of anchor as well as medium term
  objectives
• Support by national rules, procedures and
  institutions
• Role of EU framework and SGP
• Need to keep adjustment after entry into euro