----

Opinion of the European Economic and Social Committee on Strengthening economic governance — The reform of the Stability and Growth Pact

(2006/C 88/15)

On 10 February 2005 the European Economic and Social Committee decided to draw up an opinion, under Rule 29(2) of its Rules of Procedure, on Strengthening economic governance — The reform of the Stability and Growth Pact.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 27 January 2006. The rapporteur was Ms Florio and the co-rapporteur was Mr Burani.

At its 424th plenary session, held on 14 and 15 February 2006 (meeting of 15 February), the European Economic and Social Committee adopted the following opinion by 88 votes to seven with five abstentions.

1.   Summary

2.   From the Maastricht Treaty to the Stability and Growth Pact

3.   Review of the first six years of the Pact

4.   EMU: stability versus growth

5.   Reform of the Pact: from the European Commission proposal (10) to that of the European Council (11)

6.   Initial evaluations of the Stability and Growth Pact reform process

7.   The EESC's proposals for re-establishing European economic governance

Brussels, 15 February 2006.

The President

of the Economic and Social Committee

Anne-Marie SIGMUND

----

(1)  The Stability and Growth Pact was formally adopted in 1997 (with the aim of strengthening budgetary discipline within Economic and Monetary Union as provided for by Articles 99 and 104 of the Treaty establishing the European Community) and came into real effect with the launch of the euro on 1 January 1999.

(2)  Resolution of the European Council on the Stability and Growth Pact, Amsterdam, 17 June 1997.

(3)  The excessive deficit procedure is not applied in the following exceptional cases: i) where the deficit is the result of an unusual event outside the control of the Member State concerned; ii) if the country is in economic recession (if there is a fall in real GDP of at least 2 %). It should be pointed out that the excessive deficit procedure has been applied at least 26 times to date and that, on at least 10 of these occasions, it concerned euro-area countries. The countries in question were: Germany and Portugal (2002); France (2003); Greece, Hungary, Czech Republic, Cyprus, Malta, Poland, Slovakia, the Netherlands, France, Germany and the United Kingdom (2004); Hungary, Greece, the Netherlands and Italy (2005).

(4)  The internationalisation of a currency is essentially driven by market forces and, therefore, by the degree of confidence that economic operators have in that currency's stability.

(5)‘The primary objective of the ESCB (European System of Central Banks) shall be to maintain price stability’. And: ‘without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community as laid down in Article 2’ (Treaty Article 105(1)). The objectives of the Union (Article 2 of the Treaty on European Union) are a high level of employment and sustainable and non-inflationary growth.

(6)  Paul de Grauwe, 2003.

(7)  J.P Fitoussi, 2004.

(8)  Fitoussi, 2004.

(9)  It is worth quoting the conclusions of a recent article by Jean Pisani-Ferry to stress the importance of the debate that began in 2004 on reform of the Pact: ‘The significance of the debate that will take place in the coming months should not be underestimated. The key issue that clearly emerges is whether economic governance in the Eurozone should be based on legally binding fixed rules or on collective decisions underpinned by economic principles. The first model has been tried – until politics reclaimed its rights. The second has not yet been tried – but the evidence is that it cannot be made successful in the absence of technical, economic and political legitimacy. If no agreement is reached, or if the second model fails, the Eurozone is likely to adopt some kind of revamped version of Sinatra doctrine – which is certainly not the best way to manage a currency union. The Sinatra doctrine, named after the Frank Sinatra song “My Way”, was the name that Mikhail Gorbachev used to describe the policy of allowing neighbouring Warsaw Pact nations to determine their own internal affairs. What followed is know.’ Pisani-Ferry, J. (2005).

(10)  COM(2004) 581 final.

(11)  COM(2005) 154 and 155 final.

(12)  This factor was inserted at the insistence of the German government to take account of German re-unification costs. It is possible, however, that the exception may also be claimed in future by governments of countries that call for greater indulgence for their budget deficit as they are net contributors to the EU budget (Bouzaon and Durand, 2005).

(13)  Deutsche Bundesbank's monthly report, April 2005.

(14)  In a press release, the European Central Bank said it was ‘seriously concerned about the proposed changes to the SGP [...] it is essential that all parties concerned fulfil their respective responsibilities’, ECB, 2005.

(15)  As was quite rightly suggested in Paul de Grauwe's 2003 proposal, quoted earlier.

(16)  Commission of the European Communities: 1995, 1997, 2003.

(17)  ‘Potentially, the boundaries of these liabilities could extend far beyond the simple pensions. According to an OECD document, in some member countries, only the liabilities associated with the pension system of public employees (for which there is a contractual relation), are included in the definition of public debt. This seems to be the approach supported by the Ecofin report.’ (Bouzon and Durand, 2005).

(18)  Ibid.

(19)  J.P Fitoussi, 2004.

(20)  Habermas, J., 2005, Only a dream can save Europe, la Repubblica9/06/2005.

(21)  ‘Taxation in the European Union: common principles, convergence of tax laws and the possibility of qualified majority voting’ (OJ C 80 of 30.03.2004, page 139).

(22)  Commission of the European Communities, 1993, White Paper on growth, competitiveness, and employment: The challenges and ways forward into the 21st century, COM(93) 700 final, Brussels, 5 December 1993.

----