Welcome to this edition of European Economy News. At the time of writing, the international financial system is in crisis.

While the international financial community is pondering the appropriate response, time will be needed to address the fundamental shortcomings of the global financial system. In addition to the turmoil in financial and asset markets, world growth is slowing, inflation is well above target following massive rises in food and oil prices, and the slump in housing markets that started in the US has spread.

The slowdown is being reinforced by the squeeze on credit and the collapse of consumer and business confidence, which are holding back spending and investment. While both the euro area and the EU as a whole enjoy sound economic fundamentals and are relatively better placed to ride out the storm than they have been in the past, Europe is not immune from the current shocks: its growth forecasts are down and the outlook is markedly gloomier than it was even a few months ago.

In this issue we take a close look at one aspect of the current difficult economic climate: soaring commodity prices. This phenomenon has hit ordinary people hard in both developing countries and the EU as everyday expenses have skyrocketed. Oil prices have been driven up by rising demand – outpacing supply – and falling reserves, while food prices have in turn been pushed up by the impact of high energy prices on production and transport as well as a growing population, changing diets in many emerging economies, and the effect of adverse weather conditions on agricultural production.

The strong euro has protected Europeans to some degree by partially offsetting high prices expressed in dollars. But, while prices are now coming down from their peak, there is no prospect that they will return to their earlier levels.

While short-term measures, such as releasing agricultural stocks, are helping to alleviate immediate problems, long-term solutions must be found. DG ECFIN is making a significant contribution to the Commission’s work on these issues, which include agricultural sustainability, diversification of energy sources, and energy efficiency.

Marco Buti
Acting Director-General, Economic and Financial Affairs DG

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Table of contents
Editorial
WHAT’S NEW 3
A round-up of news and events in European economics

NEWS IN DEPTH
The Lisbon Process: strengthening the delivery of reforms 5
Report on a conference in Rome that discussed the path to more reforms, more growth and more jobs
The rising cost of food and energy 6
Food and energy prices have reached troubling highs. Two Commission Communications recommend measures both to address the immediate crisis, and encourage sustainability and efficiency in the longer term
Improving the quality of public finances 8
The latest Public Finances in EMU report looks in detail at what is meant by the ‘quality’ of public finances and suggests a framework to improve them Consolidating the euro’s
position on the world stage 10
With the euro firmly established as a world currency, the euro area needs to rise to the challenges of stewardship and provide an example to other regions

MEMBER STATE PROFILES
The economy of Ireland: whither the Celtic Tiger? 12
After a remarkable rags-to-riches story, the Irish economy now needs to harness those factors behind its success that will ensure sustainable growth in the future

LOOKING AHEAD 14
DG ECFIN’s agenda, and events for your diary
RECENT RESEARCH
AND ANALYSIS BY DG ECFIN 16

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The rising cost of food and energy

Food and energy prices have reached troubling highs. In two Communications, the Commission has come up with a package of recommended measures that deal both with the immediate crisis and pave the way, in parallel with other EU policies, to a gradual shift towards more sustainability and efficiency.

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