Gross domestic product and industrial production - Growth disappointed in the third quarter of 2006 and gained 0.5 percent on the quarter. This was significantly slower growth than in the second quarter when GDP was up 0.9 percent. This is a faster pace of growth than in the U.S. about the same as Japan and slower than the UK. However, industrial production remained vibrant. Most analysts readily acknowledge that the economy will not function to its fullest potential unless serious structural reforms are undertaken in the labor markets and the financial markets. For example, the industrial sector is the most dominant for the larger countries and the sector is embedded with labor rigidities that present a formidable challenge. Benefits cut backs are not politically expedient. For example, it is difficult to fire employees or to cut back in times of weak growth without paying exorbitant severance and ongoing jobless benefits. These can be so lucrative that the incentive to find another job is non-existent.

Inflation - As measured by the harmonized index of consumer prices, inflation has been above the ECB's two percent inflation ceiling in large part because of sticky energy prices and higher than targeted money supply growth. EMU countries were hit hard by spiking energy prices. The HICP was up about 2.5 percent for over three months, but subsided below that level in September. The HICP for September shows that inflation eased to a 1.8 percent year-over-year increase. It eased further in October to 1.6 percent on the year. The ECB's mandate as stated in the Maastricht Treaty that established the Bank is inflation control, which has priority over encouraging growth.

Unemployment - Unemployment fluctuated between 8.7 percent and 9 percent during 2004 and in 2005. However, it has been steadily falling since the summer of 2005. The September unemployment rate was 7.8 percent.

Europe's unemployment rate has been stubbornly high because of labor market rigidities, which make it difficult for employers to lay workers off when business growth weakens. These limitations don't allow business to function with the flexibility that U.S. firms have and reduce costs rapidly in times of slowing growth.

Merchandise trade - Trade plays an important role in European growth. German and Italian manufacturing sectors especially benefited from the weaker euro and it allowed them to sell their products overseas at reduced prices. After the euro's climb cut into exports, exporters in the Eurozone have been relieved that the again declining euro could boost their sales, and profits.