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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.