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Europe's recovery means Emu will happen

Contrary to the pessimists' view, Europe will show economic recovery this year and next. And that will ensure monetary union stays on track for 1999. In core Europe, super-cheap money has been complemented by weak exchange rates. And those easy monetary conditions are likely to win out over Europe's Maastricht fiscal masochism to produce economic recovery.

Final sales (domestic demand less inventory build-up) are already rising in Germany and France. Export orders are recovering everywhere too. Capacity utilization is rising and capital expenditure is on the mend. All that is needed is for household consumption to take off.

Europe is an economic soufflé with a collapsed core. The periphery (except for Italy) is growing fine. Once Germany and France start growing by 3% (my forecast for next year), the growth pop-up in the middle will change perceptions of Europe, Emu and interest rates, radically.

The recovery is driven from the supply-side by industry (exports and investment) and service-sector growth. Now footsteps echo in almost empty shops and auto dealers in Europe. But soon this will change and growth will spill over into the consumer sector. In some laggard countries, the consumer will stay worried by corporate rationalization.

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