Business confidence in both France and Italy had remained unchanged or declined in the months since October, 2004 through May 2005. In June, however, business confidence in France rose, but confidence in Italy continued to weaken.The attached chart show the French and Italian measures of business confidence.

The composite business climate indicator for France rose 2.1% to 99 (100 being the long term average) in June. The rise has been attributed to the euro's recent decline against the dollar and to the 4.5 billion euro plan announced June 8 by Prime Minister Dominique de Villepin to increase employment.

The decline in the Euro failed to raise confidence in Italy but it may have been a factor in reducing the extent of the decline. The ISAE (Instituto de Studi e Analisis Economica) index of business confidence declined only 0.12% in June, in contrast to the 0.59% decline in May and 0.24% in April. The pessimism of Italian businessmen has no doubt been influenced by the fact that Italy has experienced two successive quarters of decline in real gross domestic product; -0.44% in the fourth quarter of 2004 and -0.51% in the first quarter of 2005. In France, on the other hand, GDP has increased of 0.67% and 0.21% in the corresponding periods.

As we have noted in previous commentaries on confidence, the recent rise in the price of oil has yet to be reflected in the confidence indicators.