Membership of a single currency has failed to inject dynamism into the economies of the euro zone or to raise their long-term growth rate, the Organisation for Economic Co-operation and Development (OECD) said yesterday.
In its most critical report on the euro zone's economic performance, it said the first five years of European monetary union had been "more challenging than expected".
The euro zone had shown a "disappointing resilience to shocks" and its income gap against the best performing countries remained large and widening. The differences between individual euro-zone countries was even more striking, the OECD said.
Growth had been below potential for more than four years and recovery was moving at a slower pace than elsewhere.
"The economy is past the turning point but the strong euro and downbeat consumer sentiment are likely to weigh on the strength of the recovery," the report says.
However, the OECD abandoned its call for a reduction in interest rates of half a percentage point.
The recovery had gained momentum, making a cut redundant, it said. Rates were likely to stay unchanged this year but "if evidence of weakening of economic activity surfaced, moderating inflationary pressures, the ECB should stand ready to reduce its interest rate", it added.
The OECD expected euro zone growth to pick up from 0.5 per cent last year to 1.6 per cent this year and 2.4 per cent in 2005.
The need for reforms to boost non-inflationary growth and strengthen the public finances in the face of ageing populations had gained urgency with the accession of the 10 new members this year.
"Rapid nominal and real convergence must be secured in the run-up towards their entry into the euro area," the report states.
