Things have been improving sharply in southeastern Europe for several years now. Thanks to political stabilization and the growing economic integration with Europe, growth in the region is latching on to that seen in the eastern European member states.

Both France and Italy are still grappling with budget deficits. For next year neither country has presented an out-and-out austerity budget. On the expenditure side France is putting the emphasis on the fight against unemployment, Italy is focusing on corporate sector competitiveness. While new borrowing in Italy looks set to climb towards 4.5 % of GDP in 2006, the 3 % mark is closer within reach for France but is still unlikely to be met. Conflicts over the stability and growth pact look inevitable.

In all industrial countries medical-technological progress is tending to push up health spending. In France the increase was particularly pronounced in the past couple of years. With the health reform passed in the summer the government hopes to get the health insurance scheme back into equilibrium by 2007.

Since the mid-1990s Italy has lagged significantly behind euro area growth. The reasons for this lie in the structure of the economy coupled with the constraints on public sector budgets.

The upswing seen in Spain in recent years was funded largely on tick. This leaves Spain more vulnerable to abrupt changes.