Recovery in the eurozone is slow but definitely happening, according to the European Commission’s latest quarterly report, which notes that all indicators point to a way out of the current stagnation. «Economic developments are encouraging,» says EU Finance Commissioner Pedro Solbes in the report’s prologue. He notes that, following a disappointing start in 2003, things distinctly improved in the third quarter and all indications are that the improvement will continue. Businesspeople seem to agree, as the continuous improvement in business confidence indicators over the last few months shows. Does this mean everything is going well? In fact, the report casts a big shadow over the eurozone’s recovery. First of all, it is the cause of the recovery which gives pause for thought. The driving force is the usual external factor, the US economy, which once again is pushing growth among the world’s advanced markets. On the other hand, internal demand in the eurozone remains weak. The biggest hope for the future is a recovery of private consumption, which has not taken place yet. A second negative factor is the continuing inability to proceed with the necessary reforms, at the necessary pace, which will render the European Union’s economy «the most competitive globally by the year 2010.» However, this goal, first enunciated at the Lisbon summit in March 2000, looks increasingly like idle boasting. As the report notes, the start of a recovery is the right time to implement the necessary economic reforms. However, back in 2000, when the economic crisis was still far away, it was also «the right time» as it was throughout the three difficult years that followed. In other words, it is always the «right time» to reform Europe’s malfunctioning legal and market structures. Solbes explains that we need a combination of «a steady macroeconomic environment and structural measures that aim at increasing the growth potential.» The immediate goal is to capitalize on the positive aspects of US recovery and the strong euro while avoiding the negative consequences of the strong common currency. The third negative factor, the Commission points out, is the fact that France and Germany have made a mockery of the Stability and Growth Pact in order not to be penalized for their excessive deficits. Solbes almost gleefully points out that the loose fiscal policies followed by those countries «failed to strengthen demand» while threatening to put upward pressure on interest rates.