1

MZA

Europe

• GSB 31204

• April 2, 2002

2

MZAEurope

3

MZA

EU Members and Aspirants

4

MZAUS. Dollars to Euro

5

MZAThe euro-zone recovers

EURO-ZONE RECOVERS, BUT STILL LAGS THE US (annual growth in real GDP, per cent)

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

US Euro-zone UK

FORECAST

Source: OECD

6

MZA

EU GDP at constant prices (EUR billions)

GDP

7

MZA

EU Gross fixed capital formation at constant prices

EUR billions)

8

MZAThe Big EU Economies and the Rest

SHARES IN EU GNP, 1998

25%

18%

15%

14% 7%5%

3%

3%

3%

2%

2%

1%

1%

1%

0%

5%

Germany

France

UK

Italy

Spain

Netherlands

Belgium

Austria

Sweden

Denmark

Finland

Portugal

Greece

Ireland

Luxembourg

The big four make up 72 per cent of the EU economy

9

MZAWhy Europe Matters

In 1998, the European Union had a population of 375m, against 268m in the US and 126m in Japan.

In 1998, the EU was the world’s largest economy. It generated 30 per cent of world output, against 25 per cent for the US and 18 per cent for Japan.

In 1999, the EU was the world’s largest merchandise exporter. It generated 19 per cent of world exports (excluding internal trade), against 16 per cent for the US and 10 per cent for Japan.

In 1999, the EU was the world’s second largest merchandise importer. It imported 19 per cent of world imports, against 24 per cent for the US and Japan’s 7 per cent.

10

MZA EU standards of living compared

THE RANKING OF WEALTH IN THE WORLD, 1998(GNP per head, at market prices)

$32,453

$29,270

$22,194

$1,661

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

Japan US EU Rest of World

11

MZAHow incomes compare inside the EU

THE RANKING OF WEALTH IN THE EU(GNP per head at market prices, 1998)

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

12

MZAProductivity growth slows

GROWTH OF TOTAL FACTOR PRODUCTIVITY, 1960-98

1.8%

0.4%

0.8%

1.1%

4.0%

1.7%

1.3%

0.7%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

1960-70 1970-80 1980-90 1990-98

US Euro areaSource: IMF

13

MZAThe US moves ahead in the late 1990s

LABOUR PRODUCTIVITY GROWTH IN THE G5, 1977-2000(average annual per cent)

1.40%

1.60%

1.90% 1.90%

2.60%

2.20%

1.80% 1.80%

1.50%

2.00%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

US France Germany UK Japan

1977-1995 1995-2000Source: Goldman Sachs

14

MZAProductivity picture is mixed

PRODUCTIVITY AND ACTIVITY COMPARED, 1998(GDP per head at purchasing power parity, US = 100)

0

20

40

60

80

100

120

GDP per head GDP per worker GDP per hour

Japan UK Euro-zone France Germany Italy

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MZABut one size fails to fit all

BUT A ONE-SIZE MONETARY POLICY HARDLY FITS ALL(outgap gaps and real interest rates)

4.0%

2.1%

1.3%

0.7% 0.6% 0.6%

0.1% 0.1%

-0.6%

-1.7%

-0.1%

-0.8%

2.5%

1.7%

1.2%

2.9%

2.4% 2.3%

1.9%

2.6%

1.8%

2.3%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Output gap, 2000 Real short-term interest rate

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MZAJobs and costs in US and EU

CHANGES IN EMPLOYMENT AND LABOUR COSTS, 1970-98 (per cent)

67%

25%

9%

65%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Employment Real labour costs

US Euro area

17

MZAEU’s high labour costs

HOURLY COMPENSATION (production workers in manufacturing, US $s, 1998)

$28.0$27.2

$23.1 $22.7

$20.6 $20.5

$18.6 $18.3 $18.1$17.1

$16.4

$14.9

$12.1

$5.5

$1.8

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

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MZAEU - not enough jobs

EMPLOYMENT RATE, 1998 (proportion of population aged 15-64)

61%64%

59%

51%

71%74%

70%

0%

10%

20%

30%

40%

50%

60%

70%

80%

EU Germany France Italy UK US Japan

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MZABut unemployment is falling

UPS AND DOWNS OF UNEMPLOYMENT (per cent of the labour force)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

US UK Euro-zone

Jun-00

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MZAEU - jobs for prime-aged adults

EMPLOMENT RATES FOR PRIME-AGE MEN AND WOMEN (per cent, 1998)

86%

63%

86%

68%

86%

68%

83%

49%

86%

72%

89%

74%

94%

64%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Male employment rate (25-54) Female employment rate (25-54)

EU Germany France Italy UK US Japan

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MZAEU - but not for young and old

EMPLOYMENT RATES FOR YOUNGER AND OLDER WORKERS (per cent, 1998)

38% 37%

45%

39%

21%

33%

25%27%

61%

48%

59% 58%

45%

64%

0%

10%

20%

30%

40%

50%

60%

70%

Youth employment rate (15-24) Old-age employment rate (55-64)

EU Germany France Italy UK US Japan

22

MZAWelfare states are expensive

GOVERNMENT SPENDING AS A SHARE OF GDP, 1999

56%55%

52%

49% 48% 47%44%

40% 39% 38%

30%

0%

10%

20%

30%

40%

50%

60%

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MZABut someone has to pay

SPENDING ON HEALTH, EDUCATION, PENSIONS AND DAY-CARE (as per cent of household expenditure)

10%

37%

29%

4%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

US Sweden

Public Private

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MZAInflation converges

CONSUMER PRICE INFLATION, 1992 AND YEAR TO APRIL 2000

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

1992 Apr-00

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MZASo do interest rates

CONVERGENCE OF LONG-TERM INTEREST RATES, 1992 and 2000

7.9%

9.0%

13.3%

9.1%

7.0%

5.3%5.1% 5.1% 5.1% 5.1%6.0%

1.7%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Germany France Italy UK US Japan

1992 Jun-00

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MZAFiscal deficits contract

STRUCTURAL FISCAL DEFICITS AS A PER CENT OF POTENTIAL GDP1992 and 2000

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

1992 2000Source: OECD