When the euro appreciates against the dollar and the yen, the competitiveness of European products and services is reduced. This trend will not continue forever; there is enough evidence, however, showing that the dollar will fall further. The appreciation of the euro may not be enough to offset the inflationary effect of rising oil prices, especially if the latter exceed $35 per barrel, but it is a pretty good safeguard against inflationary pressures in general. Thus, the European Central Bank does not need to change its current line, which provides for a further reduction in euro rates in the near future which may take place in early spring, or even earlier. After all, the ECB does not have many choices. News from the German economy is still gloomy and, despite improvements in France and elsewhere, the eurozone’s economic growth remains shaky at best. The important issue for Europe is to enhance its productivity growth rates as fast as possible. The latest available data confirm the gap in productivity between Europe and the United States. In 1999, average productivity per employee in the European Union was 86 percent that of the United States. In 2002, it had fallen back to 83 percent. This lag has caused Germany and France to declare recently that they were going to take some unpopular measures to curb production costs. In the fourth quarter of 2002 alone, the euro appreciated 4 percent against the dollar and 5 percent against the yen. This alone caused production costs to rise 1 percent higher than those of the United States, erasing a great part of Europe’s gains in the past few years. The productivity gap is closely related to an employment gap (in terms of the percentage of people aged 15-64 actually working). The combination of the two, as the table clearly shows, puts all EU countries at a disadvantage compared with the United States. In both cases, Greece is next to last. Only Italy, in terms of employment, and Portugal, in terms of productivity, fare worse. The appreciation of the euro is a big problem for Greece despite the relatively small importance of exports. Inflation, quite low in historical terms, but still higher relative to most of our partners, imposes pretty tight constraints. Fourth-quarter data show that manufacturing has been relatively successful in its continuing adaptation to the single currency; witness the reduction in labor costs. Taken as a whole, however, Greece’s economy still lags behind quite considerably. The appreciation of the euro intensifies the pressure for adaptation. On the one hand, it is encouraging that an effort is being made to cuts costs throughout the economy. The worrying part is that this effort appears to be slackening when data from the beginning and the end of 2002 are compared. In any case, the situation has improved a lot since Greece joined the eurozone in 2001 and this is undoubtedly a success. This year will be crucial for the Greek economy. At least, there is no round of central wage-bargaining to be made. If businessmen succeed in cutting operational costs, the Greek economy will achieve a great step in the direction of narrowing the income gap from its other partners in the European Union.