# C_2006318EN.01004501.xml

| 23.12.2006 | EN | Official Journal of the European Union | C 318/45 |
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23.12.2006

EN

Official Journal of the European Union

C 318/45

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Opinion of the European Economic and Social Committee on the Proposal for a Regulation of the European Parliament and of the Council establishing common rules for the provision of basic information on Purchasing Power Parities and for their calculation and dissemination

COM(2006) 135 final — 2006/0042 (COD)

(2006/C 318/07)

On 20 July 2006 the Council decided to consult the European Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the abovementioned proposal.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was responsible for the Committee's work on the subject, adopted its opinion on 20 July 2006. The rapporteur was Mr Santillán.

At its 429th plenary session, held on 13 and 14 September (meeting of 13 September), the European Economic and Social Committee adopted the following opinion by 182 votes to 3 with 12 abstentions.

1.   Conclusions and recommendations

| 1.1 | The EESC welcomes the proposal for a Regulation establishing a legal basis for the implementation of Purchasing Power Parities (PPP), since this will improve the transparency, timeliness and quality of the whole process of PPP production, at both Community and national level. |
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1.1

The EESC welcomes the proposal for a Regulation establishing a legal basis for the implementation of Purchasing Power Parities (PPP), since this will improve the transparency, timeliness and quality of the whole process of PPP production, at both Community and national level.

| 1.2 | Given the importance of the issue addressed by this proposal and the need for binding rules that define the competences of the Commission and Member States and establish uniform bases for the calculation and dissemination of information on PPP, the Committee recommends the immediate approval of this draft Regulation. |
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1.2

Given the importance of the issue addressed by this proposal and the need for binding rules that define the competences of the Commission and Member States and establish uniform bases for the calculation and dissemination of information on PPP, the Committee recommends the immediate approval of this draft Regulation.

| 1.3 | Nevertheless, the EESC notes that currently, due to cost reasons, the Commission (Eurostat) calculates PPPs by countries, not by regions (1). However, these calculations are used, inter alia, to evaluate the economic performance of regions. Existing information shows that — within the Member States — there are sometimes considerable regional differences in the prices of goods and services. Although the statistical institutes that gather basic information apply spatial correctors, it is essential that such correctors adequately prevent distortions in calculating PPPs. Therefore, it is recommended that Member States make every effort possible, both economically and technically, to ensure that spatial correction coefficients reflect as precisely as possible geographical differences in prices. |
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1.3

Nevertheless, the EESC notes that currently, due to cost reasons, the Commission (Eurostat) calculates PPPs by countries, not by regions (1). However, these calculations are used, inter alia, to evaluate the economic performance of regions. Existing information shows that — within the Member States — there are sometimes considerable regional differences in the prices of goods and services. Although the statistical institutes that gather basic information apply spatial correctors, it is essential that such correctors adequately prevent distortions in calculating PPPs. Therefore, it is recommended that Member States make every effort possible, both economically and technically, to ensure that spatial correction coefficients reflect as precisely as possible geographical differences in prices.

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inter alia

| 1.4 | For the reasons stated above, the minimum period of six years for the revision of the spatial coefficients seems too long and should be reduced. Similarly, since the frequencies stipulated in the draft Regulation for the provision of basic information are minimum frequencies (2), information on prices should if possible be supplied every two years (3) (the draft stipulates a minimum of three years). |
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1.4

For the reasons stated above, the minimum period of six years for the revision of the spatial coefficients seems too long and should be reduced. Similarly, since the frequencies stipulated in the draft Regulation for the provision of basic information are minimum frequencies (2), information on prices should if possible be supplied every two years (3) (the draft stipulates a minimum of three years).

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| 1.5 | Generally speaking, it should be stressed that an effort is needed to increase the efficiency of the EU's statistical apparatus, in terms of both technical and human resources and coordination between Eurostat and national statistical institutions, which have important responsibilities in the calculation of PPPs. |
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1.5

Generally speaking, it should be stressed that an effort is needed to increase the efficiency of the EU's statistical apparatus, in terms of both technical and human resources and coordination between Eurostat and national statistical institutions, which have important responsibilities in the calculation of PPPs.

2.   Purchasing Power Parities (PPPs)

| 2.1 | The Eurostat-OECD PPP Programme was established in the early 1980s to compare, on a regular and timely basis, the GDP of the Member States of the European Union and of the OECD (4). As such, PPPs are types of currency conversion rates that convert economic indicators expressed in nominal national currencies to a common artificial currency called Purchasing Power Standard (PPS), which equalises the purchasing power of different national currencies. |
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2.1

The Eurostat-OECD PPP Programme was established in the early 1980s to compare, on a regular and timely basis, the GDP of the Member States of the European Union and of the OECD (4). As such, PPPs are types of currency conversion rates that convert economic indicators expressed in nominal national currencies to a common artificial currency called Purchasing Power Standard (PPS), which equalises the purchasing power of different national currencies.

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| 2.2 | Economic volume aggregates in PPS are obtained by dividing their original value in national currency units by the respective PPPs. GDPs of countries expressed in PPS by using PPPs as conversion factors reflect a pure volume comparison, since the price level component has been eliminated. |
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2.2

Economic volume aggregates in PPS are obtained by dividing their original value in national currency units by the respective PPPs. GDPs of countries expressed in PPS by using PPPs as conversion factors reflect a pure volume comparison, since the price level component has been eliminated.

| 2.3 | PPPs are both price deflators and currency converters. With the launch of the euro in the euro-zone Member States, for the first time prices can be compared directly between those countries, although the euro has a different purchasing power, depending on national price levels. Therefore, for the non-euro-zone countries PPPs are currency converters and eliminate the effects of different price levels, while for the euro-zone countries they fulfil only the latter, price-deflator function. |
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2.3

PPPs are both price deflators and currency converters. With the launch of the euro in the euro-zone Member States, for the first time prices can be compared directly between those countries, although the euro has a different purchasing power, depending on national price levels. Therefore, for the non-euro-zone countries PPPs are currency converters and eliminate the effects of different price levels, while for the euro-zone countries they fulfil only the latter, price-deflator function.

| 2.4 | PPPs are calculated using a basket of comparable goods and services, taking into account, inter alia, the Classification of Individual Consumption by Purpose (COICOP (5))and the Classification of Products by Activity (CPA). The groundwork is carried out in one or various cities within the economic territory (generally only in the capitals of Member States). Most Member States apply spatial correctors in order to take account of regional differences, although there are some Member States that only take into account data from the capital because their small geographic area means that there are no regional differences. |
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2.4

PPPs are calculated using a basket of comparable goods and services, taking into account, inter alia, the Classification of Individual Consumption by Purpose (COICOP (5))and the Classification of Products by Activity (CPA). The groundwork is carried out in one or various cities within the economic territory (generally only in the capitals of Member States). Most Member States apply spatial correctors in order to take account of regional differences, although there are some Member States that only take into account data from the capital because their small geographic area means that there are no regional differences.

inter alia

Classification of Individual Consumption by Purpose

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Classification of Products by Activity

3.   PPPs and Gross Domestic Product (GDP)

| 3.1 | GDP reflects the results of all activities of economic operators within a given economic territory and within a given period, usually a year. GDP is calculated in accordance with a system of national accounts, which, for the EU, is the European system of integrated economic accounts 1995 (ESA-95). GDP can be measured from the production, the expenditure and the income side. For PPP purposes the expenditure measure is particularly important. It reveals the extent to which the goods and services produced (or imported) by the economy of a country are used for private consumption, public consumption, capital formation or exports. |
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3.1

GDP reflects the results of all activities of economic operators within a given economic territory and within a given period, usually a year. GDP is calculated in accordance with a system of national accounts, which, for the EU, is the European system of integrated economic accounts 1995 (ESA-95). GDP can be measured from the production, the expenditure and the income side. For PPP purposes the expenditure measure is particularly important. It reveals the extent to which the goods and services produced (or imported) by the economy of a country are used for private consumption, public consumption, capital formation or exports.

| 3.2 | In order to obtain a real comparison, it is necessary to use conversion factors (spatial deflators), which reflect the differences in the level of prices between countries. Exchange rates cannot be used as they usually reflect elements other than price differences alone. |
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3.2

In order to obtain a real comparison, it is necessary to use conversion factors (spatial deflators), which reflect the differences in the level of prices between countries. Exchange rates cannot be used as they usually reflect elements other than price differences alone.

| 3.3 | Therefore, PPPs between various countries' currencies have been specifically developed to be appropriate for use as spatial conversion factors. |
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3.3

Therefore, PPPs between various countries' currencies have been specifically developed to be appropriate for use as spatial conversion factors.

4.   Uses for PPPs

| 4.1 | Initially the major users were international organisations such as Eurostat, the IMF, the OECD, the World Bank and the United Nations. But over time the use of PPP statistics has spread and now there are many users: government agencies, universities, research institutes, as well as public and private enterprises. Banks use PPPs for their economic analyses and to monitor exchange rates; individuals and their employers use them to calculate remuneration when they move from one country to another.
  PPPs may also be used in transnational collective bargaining on wages. |
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4.1

Initially the major users were international organisations such as Eurostat, the IMF, the OECD, the World Bank and the United Nations. But over time the use of PPP statistics has spread and now there are many users: government agencies, universities, research institutes, as well as public and private enterprises. Banks use PPPs for their economic analyses and to monitor exchange rates; individuals and their employers use them to calculate remuneration when they move from one country to another.

PPPs may also be used in transnational collective bargaining on wages.

| 4.2 | PPPs are vital indicators for the EU from both the economic and political angles. Firstly, the rules state that they are to be used for the Structural Funds (6). Secondly, they are an obligatory benchmark for the Cohesion Fund (7). Nevertheless, it should be pointed out that in the first case (Structural Funds) the calculation is based on per capita gross domestic product (GDP), while in the second (Cohesion Fund) it is based on gross national product (GNP). The draft Regulation under consideration here refers only to GDP (8). |
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4.2

PPPs are vital indicators for the EU from both the economic and political angles. Firstly, the rules state that they are to be used for the Structural Funds (6). Secondly, they are an obligatory benchmark for the Cohesion Fund (7). Nevertheless, it should be pointed out that in the first case (Structural Funds) the calculation is based on per capita gross domestic product (GDP), while in the second (Cohesion Fund) it is based on gross national product (GNP). The draft Regulation under consideration here refers only to GDP (8).

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| 4.3 | PPPs are also used for establishing the correction coefficients to be applied to the remuneration and pensions of officials and other servants of the European Communities (9). |
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4.3

PPPs are also used for establishing the correction coefficients to be applied to the remuneration and pensions of officials and other servants of the European Communities (9).

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5.   Proposal for a Regulation

| 5.1 | The purpose of the proposed Regulation is to fill a legal vacuum by establishing a legal framework for the calculation of PPPs. It is aimed at improving transparency and the quality of the data provided by the Member States, through common rules for the provision of basic information (Art. 1). The intended objective would not only benefit Eurostat as coordinator of the results, but also the statistical institutions of each country. |
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5.1

The purpose of the proposed Regulation is to fill a legal vacuum by establishing a legal framework for the calculation of PPPs. It is aimed at improving transparency and the quality of the data provided by the Member States, through common rules for the provision of basic information (Art. 1). The intended objective would not only benefit Eurostat as coordinator of the results, but also the statistical institutions of each country.

| 5.2 | Definition of roles and responsibilities. The Commission is to be responsible, through Eurostat, for coordinating the basic information, calculating and publishing PPPs and adjusting methodology in consultation with Member States (Art. 4.1), while Member States are to provide basic information, issue written certification of the survey results and ensure the validity of the data (Art. 4.2). |
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5.2

Definition of roles and responsibilities. The Commission is to be responsible, through Eurostat, for coordinating the basic information, calculating and publishing PPPs and adjusting methodology in consultation with Member States (Art. 4.1), while Member States are to provide basic information, issue written certification of the survey results and ensure the validity of the data (Art. 4.2).

| 5.3 | The statistical institutions of the Member States are to transmit the basic information to Eurostat in accordance with common parameters and in a common technical format (Art. 5 and Annex I). |
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5.3

The statistical institutions of the Member States are to transmit the basic information to Eurostat in accordance with common parameters and in a common technical format (Art. 5 and Annex I).

| 5.4 | The statistical units are those defined in Council Regulation (EC) No 696/1993 or others to be established at a later date (Art. 6), and the Commission and the Member States are to set up a quality control system (Art. 7). |
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5.4

The statistical units are those defined in Council Regulation (EC) No 696/1993 or others to be established at a later date (Art. 6), and the Commission and the Member States are to set up a quality control system (Art. 7).

| 5.5 | Eurostat calculates PPPs once a year (Art. 8) and will be responsible for publishing these at an aggregated level for each Member State (Art. 9). |
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5.5

Eurostat calculates PPPs once a year (Art. 8) and will be responsible for publishing these at an aggregated level for each Member State (Art. 9).

| 5.6 | The draft Regulation does not require Member States to undertake surveys solely for the purpose of establishing the correction coefficients to be applied to the remuneration and pensions of Community officials and other servants (Art. 10). |
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5.6

The draft Regulation does not require Member States to undertake surveys solely for the purpose of establishing the correction coefficients to be applied to the remuneration and pensions of Community officials and other servants (Art. 10).

| 5.7 | Temporal and spatial adjustment coefficients. PPPs are calculated from the national annual average prices (Article 2(2)). Given that ‘data collection may be limited to one or more locations within the economic territory’ and furthermore ‘to a specific period of time’, Member States should apply a temporal adjustment coefficient (dating back no more than one year) and a spatial adjustment coefficient (dating back no more than six years) (Annex I Methodology, sections 2 to 4). |
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5.7

Temporal and spatial adjustment coefficients. PPPs are calculated from the national annual average prices (Article 2(2)). Given that ‘data collection may be limited to one or more locations within the economic territory’ and furthermore ‘to a specific period of time’, Member States should apply a temporal adjustment coefficient (dating back no more than one year) and a spatial adjustment coefficient (dating back no more than six years) (Annex I Methodology, sections 2 to 4).

national annual average prices (Article 2(2)).

data collection may be limited to one or more locations within the economic territory

to a specific period of time

temporal adjustment coefficient

spatial adjustment coefficient

Brussels, 13 September 2006.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND

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(1)  There are 254 NUTS 2 regions. Regulation (EC) No 1059/2003, annex 1.

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(2)  Annex I, Methodology, 2.1.

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(3)  The prices in question are ‘prices of consumer goods and services and related representativity indicators’, ‘prices of equipment goods’ and ‘prices of construction projects’.

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(4)  Nevertheless, the origins of international price and volume comparisons of GDP can be traced back to the experimental comparisons carried out by the Organisation for European Economic Cooperation (OEEC) in the 1950s.

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(5)  System used by international bodies (United Nations, IMF etc.).

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(6)  According to Council Regulation 1260/1999, the Structural Funds apply to those regions whose per capita GDP, measured in PPPs, is less than 75 % of the Community average. This is also the case for those countries that have subsequently joined the EU (Annex II of the 2003 Act of Accession).

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(7)  With regard to the Cohesion Fund, Article 2(1) of Council Regulation (EC) 1164/1994 of 25 May 1994 states that the Fund applies to ‘Member States with a per capita gross national product, measured in purchasing power parities, of less than 90 % of the Community average’.

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(8)  Article 3 includes the following definition: ‘“Purchasing Power Parities” or “PPPs” means spatial deflators and currency converters, which eliminate the effects of the differences in price levels between countries, thus allowing volume comparisons of GDP components and comparisons of price levels’.

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(9)  The Staff Regulations of Officials of the European Communities and the Conditions of Employment of other Servants of the European Communities, Annex XI, Art.1 (‘The economic parities shall be calculated in such a way that each basic component can be (...) checked by a direct survey at least once every five years’.

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