EN Official Journal of the European Union CE 4/1

Thursday 25 March 2010

Report on the 2009 Annual Statement on the Euro Area and Public Finances

P7_TA(2010)0072

European Parliament resolution of 25 March 2010 on Report on the 2009 Annual Statement on the Euro Area and Public Finances (2009/2203(INI))

2011/C 4 E/01

The European Parliament,

having regard to the Commission communication on the Annual Statement on the Euro Area and the accompanying staff working document on the Annual Report on the Euro Area, both of 7 October 2009 (COM(2009)0527 and SEC(2009)1313),

having regard to the Commission staff working document of 12 August 2009 on Public Finances in EMU 2009 (SEC(2009)1120),

having regard to the Commission communication of 14 October 2009 on Long-term sustainability of public finances for a recovering economy (COM(2009)0545),

having regard to the Commission recommendation of 28 January 2009 for a Council recommendation on the 2009 up-date of the broad guidelines for the economic policies of the Member States and the Community and on the implementation of Member States’ employment policies (COM(2009)0034),

having regard to its resolution of 18 November 2008 on the EMU@10: The first ten years of Economic and Monetary Union and future challenges (1),

having regard to its resolution of 11 March 2009 on a European Economic Recovery Plan (2),

having regard to its resolution of 13 January 2009 on public finances in the EMU 2007-2008 (3),

having regard to its resolution of 9 July 2008 on the ECB annual report for 2007 (4),

having regard to Rule 48 of its Rules of Procedure,

having regard to the report of the Committee on Economic and Monetary Affairs (A7-0031/2010),

A. whereas the Members States have experienced their deepest economic and social crisis since the beginning of the process of European integration,

B. whereas a stable currency and sound fiscal policies have proven their worth, by mitigating the effects of the crisis on Europe,

C. whereas fiscal and monetary policy as well as stabilisation measures in the financial sector were crucial to stabilising the European economy,

D. whereas, through the coordination over time of fiscal policy and of anti-crisis measures in the G-20, the EU and the Member States have contributed to avoiding further deterioration,

E. whereas the fiscal policy of many Member States was pro-cyclical,

F. whereas a genuine EU economic policy exists only in respect of monetary policy and whereas coordination of fiscal policy, which is mainly the responsibility of the Member States, is limited,

G. whereas the prices of oil, gas, minerals and other non-renewable resources are highly volatile, contribute to global imbalances and were a key cause of obstacles to achieving the ECB’s inflation target of below, but close to, 2 % in 2008; whereas those prices are expected to rise in the medium term, endangering the macroeconomic stability of the euro area,

H. whereas Member States’ public deficits are set to increase rapidly to about 7 % of GDP in 2010, due to the combined impact of higher expenditure, through automatic stabilisers and discretionary measures to support the economy and the financial sector, and lower tax revenues; whereas a certain improvement in deficit levels is expected in 2011; whereas, however, some Member States already repeatedly failed to meet the Stability Pact criteria well before the crisis; whereas a return to sound public finance is essential and a precondition for the stability of our common currency,

I. whereas the costs of the crisis were the key reason for the renewed deterioration of public finances, while the fiscal balances of most Member States had improved before the crisis; whereas it must be noted, however, that several Member States were running high public debts even before the crisis,

J. whereas anti-cyclical public spending was necessary to avoid an even more severe economic downturn and is still necessary to secure economic stability; whereas, however, excessive structural budget deficits and excessive public debt are a serious obstacle to economic growth and severely restrict spending in areas such as education, care, innovation and public services,

K. whereas the establishment of the euro area, while welcome, means that the option of flexible national exchange-rate policies is no longer available,

L. whereas, although it is almost impossible to foresee a crisis of such exceptional dimensions, in policy plans, the Stability and Growth Pact (SGP) was designed to apply in good times and in bad, but many Member States have ignored the obligation under the SGP to prepare for bad times,

M. whereas globalisation compels the euro area to take an effective role in global economic and financial governance,

N. whereas the potential of the euro is insufficiently exploited at global level as the euro area has neither a properly defined international strategy nor effective international representation,

Monetary policy

1. Is alarmed by the ongoing and expected contraction of employment in the European Union despite the exceptional efforts of monetary and fiscal policy; underlines that, in addition to the exceptional recovery measures, structural reforms must be stepped up rather than stalled, so as to make the European economy and labour market more robust and resistant to global economic turbulence;

2. Welcomes the active and flexible monetary policy of the ECB since October 2008 in extending liquidity provisions to credit institutions;

3. Is concerned that the extra liquidity provided by the ECB and other central banks has not been used by all banks to ease the ‘credit crunch’ faced by industry and, in particular, by small and medium-sized businesses;

4. Welcomes the intensified cooperation between the Council, the ECB and the Eurogroup;

5. Is concerned by the economic consequences for the euro area of a rapid fall in the value of the US dollar and the renminbi yuan, the latter artificially devalued by an unfair intervention on the part of the Chinese Government; expresses its concern about the possible emergence of a new asset bubble in Asia; calls for enhanced international macroeconomic dialogues in order to adjust exchange rates so that a more balanced world economy may be achieved;

6. Points out that the objective of price stability can be achieved only if the root causes of inflation are properly addressed; underlines, in this context, that the increased inflation that occurred before the outbreak of the financial crisis was not caused by excessive internal demand but resulted from a surge in the prices of energy and food, commodities and financial and real assets;

7. Underlines the fact that the discipline of wage moderation also acts as a brake on the growth of household income and thereby on private consumption; therefore warns against focusing exclusively on wage moderation as an instrument to achieve price stability and maintain competitiveness; recalls that increased global competition has already contributed to downward pressure on wages, while higher commodity prices and energy costs have reduced the purchasing power of EU consumers; emphasises that real salaries should rise in line with productivity gains, in order to guarantee long-term stability in the distribution of income;

8. Reiterates its call for better coordination between the WTO, the IMF, the Financial Stability Board and the World Bank Group in order to combat speculation and meet the challenges posed by the economic crisis;

9. Recalls that exchange-rate fluctuations constitute an impediment to global economic recovery and that coordination of monetary policy is essential to avoid the emergence of financial imbalances that could give rise to macroeconomic instability; calls for a world monetary conference to be organised under the auspices of the IMF as a forum for global consultation on monetary questions;

Improving coordination and cooperation on economic policy

10. Shares the Commission’s concern about significant imbalances in relation to the development of unit labour costs, rates of productivity growth, the increasingly unequal distribution of income and wealth, current accounts and interest rate spreads in the EU and in the euro area and is concerned about the absence of effective mechanisms to prevent the growth of those imbalances;

11. As proposed in the staff working paper accompanying the Commission communication of 7 May 2008 on EMU@10: successes and challenges after 10 years of Economic and Monetary Union (COM(2008)0238), calls on the Commission to develop diagnostic tools and indicators, in order more effectively to monitor and assess relevant economic developments in the Member States, including multilateral surveillance of unit labour costs, real exchange rates, financial markets and policies affecting competitiveness;

12. Takes note of the concern expressed by the Commission, in its annual statement on the euro area 2009, about imbalances that have accumulated within the euro area and of what the Commission identifies as two major sources of imbalance: on the one hand the growth model centred on a competitive export sector, without being sustained by domestic demand, is vulnerable and conversely, in some countries in deficit, imbalances may have taken the form of excessive domestic demand pressures, a surge in house prices and a bloated construction sector; suggests, therefore, that the Commission examine possible ways of improving effectively the economic governance of the euro area, including the setting-up of new mechanisms to prevent the renewed excessive growth of such imbalances in the future and the asymmetric shocks to which they contribute;

13. Emphasises that the Commission states clearly, in its Annual Statement on the Euro Area 2009, that the established mechanism of policy coordination within the euro area did not work well in the crisis; shares the Commission’s view that a deepening and broadening of macroeconomic surveillance is urgently needed to spur a coordinated response to the crisis;

14. Welcomes the use of EIB funds as well as the common but different contributions of Member States to anti-cyclical public spending during the crisis, used to partly compensate for the limited size of the European budget; warns, however, against excessive recourse to the EIB, which would result in the budgetary procedure being circumvented and would prevent Parliament from giving its opinion on the trajectory of committed expenditure; recalls, therefore, that the EIB should not become a substitute for the EU budget;

15. Agrees with the Commission that supervision and regulation of financial markets, fiscal discipline and the limiting of internal and external deficits are essential for the successful development of the EMU;

16. Stresses the need for comprehensive application of the rules of the SGP while noting that the rules laid down in the SGP refer only to public deficit and public debt; points out that this instrument of fiscal coordination addresses only partially the major causes of economic imbalances within the euro area; considers therefore, that fiscal coordination should go beyond the current scope of the SGP;

17. Emphasises that the current economic and financial crisis and the strengthened financial coordination among Member States that have already adopted the euro should not result in an encapsulation of the euro area;

18. Reiterates its view that economic coordination should take the form of an integrated European economic and employment strategy on the basis of the forthcoming EU 2020 Strategy, the Integrated Guidelines, the Sustainable Development Strategy and the convergence and stability programmes;

Public finances

19. Expresses its deep concern over the unsustainable level of public debt and its predicted rapid increase in 2010 and 2011;

20. Stresses the importance of using effectively the new provisions in Article 136 of the Treaty on the Functioning of the European Union in order to improve economic coordination and governance in the euro area; looks forward to the adoption of concrete proposals by the Commission and the President of the Eurogroup in this respect;

21. Welcomes the first annual report by the European Statistical Governance Advisory Board and agrees inter alia with its conclusion that the legal underpinning of national statistical authorities’ professional independence should be pursued in those Member States where this has not yet been done; looks forward to an assessment by the Commission (Eurostat) in the context of its annual monitoring of compliance with the Code of Practice, as stipulated in the Recommendation of the Commission on the independence, integrity and accountability of the national and Community statistical authorities (COM(2005)0217 final);

22. Is concerned about the reduced ability of Member States to counter future economic downturns and to contribute to urgently needed investment in knowledge, the modernisation of the industrial sector and sustainable development;

23. Agrees that, by increasing the flexibility of the framework, the revised SGP of 2005 provides appropriate tools for coordinating ‘exit strategies’ and affording sufficient room for manoeuvre during economic downturns to enable the consolidation of economic recovery; takes the view, however, that, once out of the current recession, there is a need, while complying with the reformed SGP, to strengthen the preventive arm of the pact in order to ensure that Member States refrain effectively from pro-cyclical policies during periods of growth;

24. Stresses that, when evaluating Member States’ stability and convergence programmes, the Commission should put considerable weight on the conclusions of its Communication on long-term sustainability of public finances for a recovering economy (COM(2009)0545);

25. Supports the Commission’s use of the excessive deficit procedure in order to reduce public deficit and emphasises the importance of properly timed ambitious, concrete and quantifiable programmes for balancing the public finances in Member States, starting in the years 2010 and 2011;

26. Is extremely concerned at developments in the deficit situation in Greece; calls for lessons to be learnt from this situation, in future enlargements of the euro area, especially in relation to the quality of statistical data;

27. Considers that Member States with difficulties in sustaining their public finances should, in the first instance, be responsible for resolving those difficulties, particularly by means of a more appropriate fiscal policy; calls on the Member States to accelerate the pace of their reforms through determined policy actions to fill the sustainability gaps caused by high rates of indebtedness and by costs related to an ageing population;

28. Stresses that certain shortcomings in the construction of EMU and, to some extent, the economic policy of certain members of the euro area and of third country partners make it difficult for Member States to put their financial house in order; reiterates its conviction that the current mechanism of policy coordination within the euro area needs to be enlarged to cope, in particular, with current and future economic imbalances and divergences within the euro area; regrets, in this context, that there are no binding commitments among governments to enforce coordination in the euro area;

29. Calls on the Commission to propose a set of measures to help Member States restore balance in their public accounts and finance public investment through: (a) eurobonds or similar measures in order to lower the cost of interest for servicing public debt, considering that interest rate spreads between Member States have not fallen below pre-crisis levels; (b) encouraging tax cooperation between Member States including a timetable for the introduction of a common consolidated corporate tax base; (c) introducing country-by-country reporting on corporate income and the taxes paid thereon;

30. Reiterates its view that Member States’ governments should, when determining their national budgets, take into account the Integrated Guidelines and the country-specific recommendations as well as the overall budgetary situation in the euro area; the various national fiscal calendars and the main assumptions used in the underlying forecasts should be harmonised in order to avoid disparities caused by the use of different macro-economic forecasts (concerning, for example, global growth, EU growth, the oil barrel price and interest rates) and other parameters;

31. Calls on the Commission and the Member States to work towards the definition of tools to enhance the comparability of national budgets as regards spending in different categories;

32. Calls on the Commission to make a concrete proposal as soon as possible as to how the financial sector should contribute to the cost of the crisis;

33. Calls on the ECB, the Commission and the euro area Member States to encourage the process of economic and monetary integration within the EU and to support enlargement of the euro area;

34. Calls on the ECB to support the efforts of Member States outside the euro area to adopt the euro, especially in cases where Member States have proven their ability to exercise sound and stable fiscal discipline;

Tackling resource dependency and creating more new jobs in modern, environmentally sustainable industries

35. Recalls that the crisis is not an excuse to delay tackling climate change and environmental degradation; emphasises that delaying action could be costly in both economic and environmental terms and that increased energy and resource efficiency, coupled with conversion towards sustainable, renewable resources, is the best way to limit dependency on scarce resources while creating new jobs in modern and environmentally sustainable industries;

36. Calls on the Member States and the Commission to increase radically the efforts in this direction and asks the ECB and the Commission to include this question in its regular economic reporting;

37. Calls on the Eurogroup to take the necessary measures to facilitate an entry into the euro area for those Member States which are seeking to join and which fulfil the conditions for entry;

External representation of the euro area

38. Reiterates its view that efforts to move towards a common international representation of the euro area have made little progress in spite of the crisis;

39. Takes the view that the EMU policy agenda will be marked inter alia by the challenges posed by emerging Asian economies; regrets the lack of progress in improving external representation of the euro area despite the euro’s growing global role as a reserve currency; stresses that the euro area must build an international strategy commensurate with the international status of its currency;

40. Points out also that global imbalances related to exchange-rate fluctuations between, inter alia, the US dollar and the renminbi yuan and the euro must also be addressed in order to avoid future financial crises; invites the Eurogroup, the Council and the ECB to step up coordination of their action in the sphere of exchange rate policy accordingly;

41. Emphasises the importance of the G-20 conclusions on global imbalances and what each economic area has to do in order to balance its economy; stresses the importance of exchange rates in the preparation of forthcoming G-20 summits; takes the view that such preparation should be more transparent within the EU and that Parliament should be kept informed;

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42. Instructs its President to forward this resolution to the Council, the Commission, the parliaments of the Member States, the Eurogroup, the European Central Bank and the European Investment Bank.

(1) Texts adopted, P6_TA(2008)0543.

(2) Texts adopted, P6_TA(2009)0123.

(3) Texts adopted, P6_TA(2009)0013.

(4) Texts adopted, P6_TA(2008)0357.