A4-0131/96

Resolution on the Commission's Annual Economic Report for 1996 (COM(96)0086 - C4-0193/96)

The European Parliament,

- having regard to the Commission's Annual Economic Report for 1996

(COM(96)0086 - C4-0193/96),

- having regard to the conclusions of the Madrid European Council, concerning the Broad Economic Policy Guidelines and Employment,

- having regard to the EC Treaty, and in particular Articles 2, 3a, 102a, 103, 130a, and 130b thereof,

- having regard to President Santer's proposal for a 'European pact of confidence for employment¨, the conclusions of the Turin European Council of 29 March 1996 as well as the speech by President Santer at the Lille G7 Conference on Employment on 1 April 1996, which all stipulate the fight against unemployment as a priority task,

- having regard to the White Paper on Growth, Competitiveness, and Employment,

- having regard to the report of the Committee on Economic and Monetary Affairs and Industrial Policy and the opinion of the Committee on Social Affairs and Employment (A4-0131/96),

A. whereas its Annual Economic Report for 1996 could be considered as the Commission's preparatory work for the broad guidelines of economic policies in accordance with Article 103 of the EC Treaty,

B. whereas the Commission's estimate in its November 1995 Economic Forecasts projected a 2.7 per cent growth for 1995 and a sustained growth of 3 to 3.5 per cent to be maintained up to the year 2000, yet it turned out to be not more than 2 per cent in the second and third quarters of 1995, which possibly demonstrates that the factors determining an employment-orientated and investment-led growth leading to a substantial fall of the unemployment rate by the third millennium are not yet in place, and agreeing with the Commission that a swift return to the White Paper growth scenario is a necessary prerequisite for reducing the levels of unemployment,

C. surprised that the Report contains not a single statistic for 1996 or 1997 either as an estimate or a projection of any representative indicator -such as GDP growth, consumption or investment growth, unemployment rate, trade growth, or convergence criteria - which could be usefully employed by the European Parliament in order to assess the underlying forces determining the level of economic activity in the EU during this or next year; the autumn 1995 economic forecasts are still the only statistics available but cannot be fully relied on,

D. whereas more than 18 million people are officially registered as unemployed but many more are looking for employment and more than 50 million people are affected by poverty throughout the EU, which results in new forms of social exclusion becoming a more firmly established phenomenon,

E. noting the fact that increases in growth have not resulted in a lowering of unemployment levels, and noting that there continue to exist significant regional disparities in the level of unemployment, is therefore surprised that the Commission has not done any research to discover why in some areas of the EU, such as Northern Italy, unemployment is less than half of the EU average,

F. noting that the report warns that unless confidence is quickly restored, growth would not attain 1.5 per cent in 1996 and would be unlikely to surpass that figure in 1997,

G. regretting that the report has not addressed the underlying causes of depressed business and consumer confidence, while economic fundamentals are favourable, and has not proposed the appropriate measures tackling the nature of the confidence crisis which is structural; unless fundamental policy changes to reverse this trend are implemented at Community level and clear and unambiguous policy signals are sent to the citizens and the business community public support towards European construction will be weakened since the Community will have to face the danger of entering a vicious circle of mutually reinforcing business and consumer pessimism,

H. surprised that the Commission has not recorded that as the single market is nearing completion, unemployment is steadily rising, and is deeply disturbed over the use of language that, whilst appearing to be concerned over the problems the Union's citizens face, suggests nothing new to resolve those problems,

I. whereas job creation can be encouraged by developing environmental protection and socially useful work,

J. worrying that despite the significant fall of inflation rates in the EU, long-term interest rates rose from 6.8 per cent in December 1993 to 9.0 per cent in December 1994 and only fell to 7.7 per cent in December 1995 in spite of the marked fall in short-term interest rates throughout 1995,

K. whereas the worsening economic climate and the lack of an appropriate job creation strategy as proposed inter alia in the Delors White Paper, in particular Chapter 10, has led to an increase in the level of unemployment in the EU, interrupting the downward trend that began in spring 1994,

L. whereas the currency turmoil in the spring 1995 might have caused some loss of consumer confidence and of price competitiveness on world markets and squeezed profit margins, yet the Commission's econometric model assessing the impact of turmoil on GDP growth has over-estimated the 0.5 per cent fall in output since EU-exports rose by 8.5 per cent in 1995,

M. whereas social compensation forms part of the social market economy, and whereas the effectiveness of the market economy is based on acceptance of an economic structure, the prerequisites for which are the fair social distribution of wealth and social co-responsibility and which takes due account of environmental protection,

N. whereas international competitiveness primarily depends on the ability of the economy to innovate, a high level of education, an effective research infrastructure and close, cross-border cooperation between firms, universities and research bodies,

O. concerned that there is little or no accountability in private pension funds to the vast bulk of the people who have created these assets through their work, and that the privatization of pension funds could be extended to different Member States, leading to the increased outflow of capital from the Union,

1. Welcomes the Commission's 1996 Annual Economic Report as a useful and comprehensive document on the economic perspectives of the European Union for 1996;

2. Points out that the report singles out, among many, four factors: depressed business and consumer sentiment, resulting in weak consumer demand, economic cycle, currency turmoil and high long-term interest rates in 1994, as accounting for the disappointing growth performance in 1995 (i.e. 2.5 per cent); welcomes, in this respect, that the Commission has rightly recognized monetary policies and monetary turbulences as being responsible for the recent slowdown and negative effects on employment; urges, therefore, the monetary authorities to reduce their interest rates further to the extent possible;

3. Considers it impossible to evaluate the effectiveness of policy measures unless the priority task of fighting against unemployment becomes an integral part of all policies, the causes of the economic slow-down and the external constraints are identified;

4. Recognizes that present national budgetary policies have little room for manoeuvre to conduct counter-cyclical policies, combined with the fact that economic slowdowns will in future often be Community-wide, and therefore asks the Commission to investigate the possibility and to come up with proposals for counter-cyclical policy instruments at Community level;

5. Reminds the Commission that, although this matter has surprisingly not been addressed in the report, the Community should found its economic and structural policies on a clear and unambiguous adherence to the European social model, which constitutes a major positive aspect of Europe's competitiveness;

6. Is of the opinion that the Commission should have examined other factors, such as wages, labour market flexibility, public fixed investment, social security costs and private indebtedness, which either determine competitiveness and profitability or aggregate demand or both; and in this regard calls on the Commission to produce, in future annual reports, comparative figures where such data exists for the above categories, within each of the countries with which the Union is competing;

7. Endorses the Commission's view that healthy profitability is necessary for an investment-led growth but points out that investment is motivated by a number of complex factors one of which is emerging or new markets for goods and services; in this respect, the EU has not yet innovated satisfactorily compared with the USA and Japan where R & D expenditure is concentrated closer to the market than in the EU;

8. Shares the concern expressed in the Commission's Green Paper on Innovation (COM(95)0688) that innovation in Europe is marking time;

9. Believes that the conclusion of the 1994 White Paper 'Growth, Competitiveness, Employment¨ remains valid that Europe's research and industrial base suffers from a series of weaknesses, namely:

(a) the EC invests proportionally less than its competitors in research and technological development (R & D),

(b) the lack of coordination of R & D programmes and strategies,

(c) the limited capacity to convert scientific breakthroughs and technological achievements into industrial and commercial successes,

(d) insufficient investment in infrastructure,

therefore urges the Council and the Commission to come up with concrete proposals aimed at: stimulating and favouring R& D through appropriate fiscal advantages, especially for SMEs, facilitating the access to and the availability of risk capital to SMEs active in R& D areas and promoting an effective research infrastructure and close cross-border cooperation between firms, universities and research bodies;

10. Calls on the Council and the Commission, therefore, to consider urgently investment-stimulating measures such as expanding the loan-guaranteeing role of the EIB and actions to ensure higher cooperation between research and business as well as between Member States, in order to respond energetically to these weaknesses;

11. Supports the initiatives to promote life-long vocational training, to allow workers to come to terms with the introduction of new production technologies;

12. Deplores the fact that the crucial role of public and private investment in the promotion of economic growth and job creation has not been paid adequate attention, both in the economic analysis and in policy recommendations;

13. Demands, therefore, as a vital contribution to the key Community objectives of substantial unemployment reduction and successful transition to EMU on 1 January 1999, the expansion of Community financial instruments such as the EIB and the EIF, as well as the creation of Community bonds, for the financing of major Community investment projects and financial support particularly for SMEs, with regard to the fact that private investment alone risks to be incapable of ensuring adequate recovery and durable economic growth in Europe; in this context, urges the Council, the Commission and the Member States to exclude from budgetary restrictions the reduction in public investment, and to focus instead on other restriction areas, such as, above all, the unproductive and overly costly armaments expenditures;

14. Remarks that the Annual Report correctly analyses the transmission mechanism of the US dollar fluctuations and its impact on the EU economy and points out that to protect the economy from monetary fluctuations of this kind, outside the Community itself, it is extremely important to introduce the single currency, which would also enable monetary policy to be more effectively applied;

15. Reminds the Member States that devaluation, which may bring short-term gain, is no substitute for a long-term economic strategy;

16. Points out that to make full use of the single market's advantages, relations between the exchange rates of the various currencies must maintain a certain discipline, such as that provided by the exchange rate mechanism, and calls on the Member States whose currencies are not participating in the mechanism to join it as soon as possible;

17. Notes with interest that the report states that there has been a ¨close relationship between short-term interest rates and subsequent growth in output in the Community over the last two decades' (section 1.2.1.), implying that monetary policy is capable of affecting economic activity and growth;

18. Points out that the Report's praise of a historically low inflation in 1995 should be seen in perspective; during the period 1993-95, the fall in prices, from 4.6 to 3.1 per cent, is correlated with an increase of unemployment rate from 9.3 to about 11 per cent; and the average growth rate of 1.3 per cent was associated with a fall of employment rate of -1 per cent during the same period;

19. Urges the Member States to strengthen social cohesion and employment:by concluding a European employment pact which carries real weight and which combines genuine job creation with a redistribution of productivity increases between capital and labour, a redistribution of paid employment and the redirection of the resources at present used to fund passive measures, such as early retirement and unemployment benefits, to cushion the social impact of unemployment;

20. Expresses concern at the switch from productive investment to speculative or financial investment, where a greater return can be obtained on capital; considers that a tax on speculative capital transactions could help ensure that labour is used more profitably and encourage the reinvestment of profits in the production sector, thereby contributing also to monetary stability;

21. Praises the fact that despite the low growth, public deficits have fallen since 1993, reaching a level (i.e. -4.7 in 1995) close to the convergence criterion; however, the debt-to-GDP ratio has continued its increase, reaching the unprecedented level of 71 per cent;

22. Agrees with the Commission where it underlines the necessity for public authorities to take the necessary steps to prevent the public deficit from moving away further from its convergence criterion, where this has occurred; also stresses the need for clear medium-term plans for fiscal consolidation to be established in the different Member States, in order to stimulate confidence by creating a safer environment for badly needed growth in investment and consumption;

23. Reminds the Member States and the Commission of the dire consequences of high public deficits which for their financing would require higher interest rates, and underlines the need to pursue efforts towards budgetary consolidation;

24. Recognizes, however, that the continuation of the process of budgetary consolidation in each Member State should be based on a reduction in particular of current expenditure in areas where there is scope for restraint and not in expenditure on investment, especially in the sectors of education, vocational training and infrastructure creation, sectors which could create positive external conditions to give a boost to the economy and business competitiveness, particularly in the least-favoured regions, thereby encouraging genuine convergence and economic and social cohesion;

25. Recognizes the importance of the contribution made by the Structural Funds to reducing regional disparities and consolidating the internal market, which is essential in order to create a uniform response to external economic crises or the introduction of new policies, as well as for the objective of economic and social cohesion;

26. Is of the opinion that any reduction in wage levels will lead to reduced social security, tax and other state deductions, and that this loss of revenue could result in States increasing their budget deficits;

27. Stresses the importance of an appropriate balance of economic policies based on fiscal and budgetary strategies seeking to reduce public deficits and the promotion of active labour market policies aiming at overcoming exclusion by promoting adaptation to work and/or professional training in order to improve flexibility of labour and capital markets;

28. Stresses that in the current economic situation the long-term reduction in public deficits, which have been allowed to rise to irresponsibly high levels over the last 20 years, must be combined, as an immediate priority, with an employment policy, and, as a medium-term policy, with the encouragement of innovation and selective growth;

29. Agrees with the policy guidelines stated by the Report around the following lines:

(a) wage rate increases should be compatible with price-stability,

(b) adequate developments in nominal and real wages should equally ensure attractive investment profitability, while being in line with developments in productivity, and take into full account the need for optimal purchase power development in view of achieving adequate saving and consumer behaviour, in particular with regard to latent consumer pessimism,

(c) wage differentiation according to skill level, training, regional needs and work experience be promoted,

(d) there should be a fair redistribution of productivity gains between capital and labour,

(e) within the framework of negotiated measures among the social partners, the differential gains generated by wage developments inferior to productivity gains are economically and socially justified only if they are translated into employment-creating measures and investment;

30. Calls on the Council, the Commission and the Member States to use the right policy-mix in order to generate investment-led growth, as the key to reduce successfully the bulk of unemployment in the EU;

31. Believes that the projected slackening of economic activity in 1996 will exert a negative impact on employment; hence, while the main focus of economic policy should be on growth-generating measures, a host of structural adjustments are also needed in conformity with the objectives defined by the Essen European Council; priority should be given to:

(a) overall reduction of working time per person employed, by a differentiated strategy, to be implemented by the social partners, relying on public support in the form of appropriate legal frameworks and financial aids,

(b) reduction of non-wage labour costs particularly at the lower end of the wage scale,

(c) improvement of labour force surveys and labour market information both in terms of frequency and comparability of data,

(d) the creation of a broad active strategy of private-public employment support, especially on the local level and in the promising sector of environment technology;

32. Rejects the notion of labour market deregulation as a means by which to boost employment;

33. Rejects the notion that reductions in the general level of taxation bring down unemployment, as such measures help to increase budget deficits and hence put public-sector jobs at risk;

34. Urges the Commission, the Council and the Member States once again to fulfil their vital role in economic development by:

(a) creating a climate conducive to savings and investment and for the establishment of businesses and conditions which facilitate worker participation in the profits and investments (productive capital) generated in the first place by a cautious nominal wage policy, e.g. one geared to productivity,

(b) promoting industrial production in leading-edge technology sectors,

(c) deblocking the trans-European networks (transport, telecommunications),

(d) supporting programmes for ecologically sustainable and socially cohesion-reinforcing investment;

35. Takes the view that the most conducive environment for a credible growth strategy is a society in which social conditions are stable, with full employment, equality between its various constituent groups, and between women and men, and a regional balance;

36. Stresses that the Report does not sufficiently deal with the short-term versus long-term impact of EMU on employment, and that, unless Europe returns to a period of high levels of unemployment-reducing growth before 1999, combined with real progress towards economic and social cohesion, the entire EMU project will be placed in serious jeopardy;

37. Shares the Commission's view that long-term economic prosperity depends on a healthy environment and welcomes the specific measures which are being taken so that producers and consumers receive a more accurate price signal concerning the real costs of goods and services;

38. Stresses the positive employment effect which can be obtained by gradually shifting the burden of taxation by cutting taxes on income from labour and introducing levies on the use of scarce raw materials and activities which cause pollution (e.g. the CO2 energy tax);

39. Agrees with the Commission's view that sustainable growth requires an optimum mix of policies: economic, monetary, budgetary and employment, but it should be recognized that these policies suffer from three inherent problems, which hamper their efficiency considerably:

(a) they lack effective coordination, an imbalance which has to be addressed by the IGC, aiming at strengthening Article 103 of the Treaty,

(b) they are not always supplemented by structural policies,

(c) their effectiveness is needed more than ever because of increasing globalization;

40. Reiterates its commitment to the fact that the fiscal burden on labour is excessive in comparison to the fiscal burden on capital and therefore urges the Council, the Commission and Member States to reform the fiscal systems in such a way that they can meet the challenges of growth, competitiveness and employment which are faced by the Community;

41. Is of the view that a credible growth strategy requires the effective implementation of policies and of legislation concerning the single market, and in particular:

(a) reduction of the regulatory burden on SMEs in accordance with the opinion of the economic committee,

(b) transposition of EU legislation into national law in important sectors of public procurement, insurance, free movement of people, audiovisual services and intellectual and industrial property rights,

(c) particular support for the craft sector and small businesses,

(d) reinvested profits to be taxed at much lower rates than distributed profits;

42. Expresses concern that European companies are preferring to invest outside the EU to a greater extent than inside and that the flow of foreign direct investment into the EU is showing signs of falling off, and calls on the Commission to introduce changes to EU corporate law, in all sectors including the financial sector, which will ensure that citizens of the EU exercise their stakeholding rights at decision-making level;

43. Believes that the renewed dynamism of world trade presents a unique opportunity to the EU, and calls on the Commission to introduce changes within corporate law to ensure that social and environmental views are taken into consideration in investment policies;

44. Considers it very important that the Irish presidency should present at Parliament's July 1996 part-session in Strasbourg the recommendation under Article 103(2) of the EC Treaty on the broad guidelines of the economic policies of the Member States and the Community, just as the Spanish presidency did in 1995;

45. Calls on the Commission and Council to strengthen the coordination of economic policy and the convergence of economic performance by improving the process for the broad guidelines of the economic policies of the Member States and the Community, by setting short-term objectives for the individual Member States and, if necessary, making recommendations to them where they do not fulfil the objectives which the Member States have set;

46. In view of the globalization of trade, calls on the Commission to explore the possibility that the Union's representation at the WTO incorporates representation from the social partners and NGOs active in Third World and environmental affairs;

47. Instructs its President to forward this resolution to the Council, the Commission and the parliaments of the Member States.