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© 2002 International Monetary Fund

October 2002

IMF Country Report No. 02/235

Staff Report on the Monetary and Exchange Rate Policies of the Euro Area and the Trade Policies of the European Union; Staff Supplement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director on Monetary and Exchange Rate Policies of the Euro Area

The following documents have been released and are included in this package:

  • the staff report on the monetary and exchange rate policies of the euro area and the trade policies of the European Union, prepared by a staff team of the IMF, following discussions that ended on July 3, 2002, with officials at EU institutions in the context of the Article IV consultations with the countries forming the euro area. Based on information available at the time of these discussions, the staff report was completed on September 26, 2002. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.

  • a staff supplement of October 16, 2002 updating information on recent developments.

  • a Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its October 18, 2002 discussion of the staff report on the monetary and exchange rate policies of the euro area.

  • a statement by the Executive Director for the country currently holding the Presidency of the European Council, on behalf of the euro-area countries.

The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.

To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to Publicationpolicy@imf.org.

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INTERNATIONAL MONETARY FUND

Monetary and Exchange Rate Policies of the Euro Area 1

Prepared by the European I Department

Approved by Michael Deppler and Leslie Lipschitz

September 26, 2002

  • A staff team visited the European Central Bank (ECB) and the European Commission (EC) during June 24-July 3, 2002, to conduct discussions in the context of the 2002 Article IV consultations with euro area members.2

  • In concluding the last Board meeting on euro-area policies on October 19, 2001 (EBM/01/106), Directors noted that the euro area’s expansion had proven less resilient than anticipated. Against a background of sluggish activity they saw room for further monetary policy easing and argued for letting automatic fiscal stabilizers operate, but thought the case for discretionary fiscal actions was weak. They encouraged continued efforts at improving market understanding of the monetary policy framework. Directors urged that structural reforms be stepped up.

  • A staff report on a December 2001 interim staff visit to EU institutions was issued to the Board for its information in March as SM/02/80.

Contents

  • I. Introduction

  • II. Economic Developments and Policy Issues

    • A. Output and Demand; Sluggishness to Lift Only Gradually

    • B. Monetary Issues

    • C. Fiscal Policy: Balancing Long- and Short-Run Requirements

    • D. Structural Reform: Raising the Area’s Potential

    • E. Trade Policy

  • III. Staff Appraisal

  • Boxes

  • 1. How Exposed is the Euro Area to the Global Equity Market Slump?

  • 2. Explaining the Stubbornness of Above-Target Inflation

  • 3. The Output Effects of SGP-Related Fiscal Adjustment

  • Tables

  • 1. Main Economic Indicators

  • 2. Balance of Payments

  • Appendices

  • Appendix I. Policy Recommendations and Implementation

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INTERNATIONAL MONETARY FUND

Monetary and Exchange Rate Policies of the Euro Area Supplementary Information

Prepared by the European I Department

Approved by Michael Deppler and Martin Fetherston

October 16, 2002

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Public information Notice (PIN) No. 02/122

FOR IMMEDIATE RELEASE

October 29, 2002

International Monetary Fund

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Telephone 202-623-7100

Fax 202-623-6772

www.imf.org

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October 18, 2008