March 09, 1998

The most recent economic data is quite bullish for the European countries and paints an extremely rosy scenario for the EMU admission timetable. Inflation is down, government spending seems to be under control, and tax revenues are high - due in part to the strong growth experienced in the latter part of 1997. Ireland, Italy, France, Portugal and Spain all enjoyed strong fourth quarters. All aspiring members satisfied the budget deficit target - equal to or less than 3% of GDP. Italy reduced its budget deficit to 2.7% of GDP, but it may be argued that the reduction was achieved through a one time income tax and thus isnt sustainable. Germanys deficit matched Italys while Frances came in exactly at 3% . Austria, Belgium, Finland, The Netherlands, Portugal and Spain reported deficits ranging from 0.9% to 2.6% of GDP. If the strong growth trend continues into 1998, many of the present economic problems will be significantly reduced. Since we believe the current growth is due to stable prices, we expect the European economies to remain strong. A further boost will be seen when the reduced regulatory environment of EMU comes into full play.

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