1. The euro, the Mediterranean and the Gulf
EUROPEAN COMMISSION
DIRECTORATE GENERAL ECONOMIC AND FINANCIAL AFFAIRS
The euro, the Mediterranean
and the Gulf
Speech by Pedro Solbes Mira
Commissioner for Economic and Monetary Affairs
Athens, 3 February 2003

2. Overview of the presentation
1. EU relations with the Mediterranean and the Gulf
2. Benefits of the euro
3. Conclusions
1. I would like to explain why a sound position of public finances is better than a deficit position.
2. Which are the rules of the European Union, that helps to have sound budgetary positions
3. How the rule worked, some data.

3. EU relations with the Mediterranean

4. EU relations with the Mediterranean
The Euro-Med Partnership (Barcelona process): a framework for political, social and economic relations
The Euro-Med Free Trade Area: Association Agreements and the Agadir process
Financial support from MEDA: 5.35 billion euros for
Economic dialogues
1. The initial situation is one with budget balance and relatively small size of government.
2. Deficit starts to increase after the first oil price shock, and continued in the second oil price shock.
3. A typical failure of the 1970s and 1980s is that fiscal policy has been pro-cyclical: during periods of economic growth, States cut taxes or increased expenditure. This have had two consequences:
a. higher inflationary pressure
b. Fail to reduce deficit, with an increasing debt. This affected interest rates with negative impact on the economy.
4. In 1993 start of fiscal consolidation thanks to strong correction in expenditure and raising revenues. Part of the correction is the effect of the reduction of interest rates.

5. EU relations with the Gulf
Co-operation Agreement with the Gulf Co-operation Council (1989)
Possibility to negotiate free trade with the new Gulf customs union (launched in 2003)

6. Expected impact of the EU enlargement
Larger EU market to which the Med Partners have duty free access
True also for Gulf countries, upon conclusion of free trade agreements with the EU
But: increased market presence requires competitiveness improvements

7. The impact of the euro on the Mediterranean and the Gulf
The euro zone as an area of monetary and financial stability
Benefits of the euro for the region’s private sector, as:
a store of value
a means of exchange
a unit of account

8. The role of the euro on international markets

9. Conclusions
The Euro-Mediterranean Partnership is a priority for the EU. Relations with the Gulf are being further intensified.
There is evidence of positive effects of the euro for the Mediterranean and the Gulf.