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J. Onno de Beaufort WijnholdsEuropean Central Bank
10th Dubrovnik Economic Conference
Panel Discussion:What after the euro adoption?
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What are the policy challenges related to membership of a monetary union?...
…The experience of Portugal and Spain might provide some valuable insights.
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1999 2000 2001 2002 2003Real GDP PRT 3.8 3.4 1.8 0.5 -1.3
ESP 4.2 4.2 2.8 2.0 2.4
Structural balance
PRT -3.3 -3.9 -4.6 -2.1 -0.9ESP -1.0 -1.2 -0.7 0.5 1.0
Source: IMF.
(Annual percent change/In percent of GDP)
Observation #1: Spain has outperformed Portugal as regards economic growth and fiscal solidity.
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1999 2000 2001 2002 2003ULC PRT 8.2 4.3 5.0 5.0 2.1
ESP 2.1 3.0 3.8 3.2 2.9Source: Broad Economic Policy Guidelines.
(Annual percent change)
Observation #2: The much stronger increase in ULC in Portugal ...
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1999 2000 2001 2002 2003Employment PRT 1.8 1.7 1.6 0.2 -0.8f
ESP 5.5 5.5 3.7 2.0 2.7f
Current Account
PRT -8.5 -10.4 -9.5 -6.7 -5.1ESP -2.3 -3.4 -2.8 -2.4 -2.5
Source: IMF.
(Annual percent change/In percent of GDP)
… had a bearing on the employment dynamics and the development of the current account.
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1999 2000 2001 2002FDI PRT 1.2 7.4 6.6 4.5
ESP 14.8 40.7 31.3 22.5Source: IMF.
(In billions of euro)
Observation #3: Spain has been more successful in attracting FDI than Portugal.
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What are the lessons to be learned from these countries’ experiences?
• Spain put its fiscal position on a sound footing and successfully implemented structural reforms.
• Portugal conducted an overly loose fiscal policy and tackled less vigorously structural impediments to growth and employment creation.
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ConclusionsNational policymakers face specific challenges in the context of a monetary union, relating inter alia to fiscal discipline, wage restraint and sound institutions. Failing to meet these challenges will adversely affect a country’s economic performance.