A4-0111/97

Resolution on the Commission's Annual Economic Report for 1997 - Growth, employment and convergence on the road to EMU (COM(97)0027 - C4-0078/97)

The European Parliament,

- having regard to the Commission's Annual Economic Report for 1997 (COM(97)0027 - C4-0078/97),

- having regard to the final report of its temporary committee on employment and its various resolutions on employment and working time,

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

- having regard to its resolution of 19 June 1996 on the broad economic guidelines for 1996 ((OJ C 198, 8.7.1996, p. 115.)),

- having regard to the conclusions of the Turin European Council of 29 March 1996, the Florence European Council of 21 and 22 June 1996 and the Dublin European Council of 13 and 14 December 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 (COM(94)0700),

- having regard to the report of the Committee on Economic and Monetary Affairs and Industrial Policy and the opinion of the Committee on Employment and Social Affairs (A4-0111/97),

A. whereas the Commission's Annual Economic Report for 1997 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 Annual Economic Report for 1997 (AER) argues the case for guarded optimism regarding a successful transition to EMU because the underlying forces which determine sustained growth, such as institutional preparations for EMU, fiscal consolidation, lower level of short- and long-term interest rates, exchange rate stability and price stability are acquiring increasing conviction,

C. whereas the entry of the Finnish markka and the Italian lira into the ERM has enhanced exchange rate stability in the EU,

D. whereas GDP is expected to grow in real terms in 1997 by 2.3% and in 1998 by 2.8% yet the creation of new jobs will not be sufficient to reduce significantly the number of unemployed,

E. whereas supply-side fundamentals such as moderate wage rate increases, sound investment profitability and a reduction in loan costs have become favourable, but are not sufficient to reduce substantially the number of unemployed,

F. whereas according to the AER the obstacles to growth in the first half of the 1990s have been macroeconomic factors such as demand expanding faster than productive capacity, distorted policy-mix and uncontrolled monetary turbulence,

G. whereas the current ratio of investment to GDP may only sustain the current level of unemployment and contribute to a modest growth rate of about 2%; whereas public investment as a proportion of GDP between 1995 and 1997 developed at -0.3% and is expected to stagnate for the period 1997 to 1998,

H. whereas the EU's ability to maintain high-quality infrastructure is in danger, and with it its competitiveness and longer-term growth and employment prospects,

I. whereas public investment may, if it has been carefully chosen in the light of its economic and social profitability, have positive effects on the level of private investment, the private capital stock and the profitability of private investment,

J. whereas the AER claims that neither technological change nor globalization is the cause of unemployment but on the contrary constitute the key driving forces behind economic growth and improvements in employment and living standards; whereas on the other hand the potential benefits from technological progress and globalization require further supply-side measures to establish efficient goods and services markets and to improve education and training,

K. whereas according to the AER a more employment-intensive pattern of growth is needed,

L. having regard to Article 2 of the EC Treaty and the need to ensure real social protection for all citizens of the European Union within the framework of flexibility and occupational mobility,

1. Welcomes the Commission's overall appraisal in the 1997 AER and its more realistic approach compared with the over-optimistic assumptions underlying the 1995 and 1996 AER; is deeply concerned, however, with the attitude of the document as regards the most serious issue, that of unemployment;

2. Points out that supply and demand are major factors determining economic development and is therefore concerned that, because of high unemployment and pessimistic prospects for the future, demand among consumers within Europe continues to be too low to trigger economic revival;

3. Calls therefore on the Member States to complement the measures already put in hand to boost demand; underscores the dramatic weakness in demand in the EU, while structural deficits, i.e. budget plans not dependent on demand development, have been systematically reduced since the 1980s, whereas the risks of inflation involving periods of devaluation in real terms result in central bank countermeasures to curb growth and higher interest rates;

4. Regards the growth perspective in the EU as inadequate to combat mass unemployment and considers meagre investment and the worst investment trends in the EU since the 1980s to be the main cause of the low level of economic development, which, in spite of sound supply-side conditions (good export growth, improvement in business earnings, trades union restraint in pay policy, real wages lagging behind labour productivity increases, lowering of tax rates on businesses and assets, low wages) is not gaining momentum;

5. Stresses that continuing mass unemployment, which is rising in most EU Member States, increasing poverty trends, the yawning gap between rich and poor, the existing divergence between central and peripheral regions, and the Community's inadequate growth development are the main problems, which are scarcely likely to be scaled down by a modest cyclical recovery in 1997 either, and continues to support the view that the real impediments to reasonable economic and employment growth are as follows:

i. too low investment activity by private-sector businesses and inadequate access to funding, in particular for SMEs, and a parallel cutting back of public-sector investment;

ii. insufficient innovative activity, as is apparent from the declining share of spending on R and D on the part of enterprises as well as public institutions;

iii. a lack of effective co-ordination of income, fiscal and monetary policy at national and European level;

iv. high real interest rates which are the result of increasing financial market volatility, in particular following the deregulation measures in the 1990s, increasingly constrained markets and the long period of restrictive monetary policy in the EU;

v. weak domestic demand and inadequate household demand;

vi. a lack of creativity and willingness to take risks on the part of businessmen and a lack of entrepreneurial spirit;

vii. a lack of measures in the area of continuing training and skills;

viii. the lack of labour market adaptation, the level of tax and quasi-fiscal contributions, the need for administrative simplification;

ix. financial speculation which is damaging to productive investment,

x. over-regulation burdening businesses across Europe producing administrative and other costs which detract from revenues to invest in the company or hire new workers;

6. Emphazises, however, that promoting growth can only be one part of a policy to combat unemployment, and points out that any such policy has to take into account that growth - as measured by the traditional systems of account - does not automatically coincide with higher welfare for citizens and that the limits of unsustainable growth have to be taken into account;

7. Notes that considerable fluctuations in real exchange rates may result in firms cutting costs and jobs in periods of revaluation, but not reinstating job losses during periods of exchange rate corrections, and that exchange rate uncertainties are an ongoing reason for the inadequate development of employment and investment in Europe and can be eliminated only through the prompt introduction of economic and monetary union;

8. Takes the view that uncertainty as to the start of monetary union is adversely influencing economic development and calls on governments to do their utmost to restore economic operators' confidence through clear statements;

9. Notes that, as a result of high statutory non-wage costs on labour, firms are reluctant to hire new workers especially at the low skill positions. Given these high non-wage costs, businesses regard capital investment or higher productivity as means of increasing output not job creation. Takes the view that addressing these problems at national level will encourage greater employment-led growth;

10. Regards completion of the internal market through monetary union as a correct step in order to reduce the high degree of exchange-rate-induced volatility on financial markets, which, in spite of low inflation, is reflected in high interest rates;

11. Wishes to see the EU Treaty fully implemented, with the room for manoeuvre that it authorizes, notably as regards public deficits and debts;

12. Considers budget consolidation to be necessary but questions the Commission's assertion that the direct restraining impact of budgetary consolidation in 1996-97 is likely to be off-set by a rebalancing of the policy mix and an improvement of confidence among businesses as well as consumers; lays stress on a medium-term fiscal policy stance which takes account of the basic cyclical environment and is compatible with the convergence criteria in the EU Treaty; stresses that as long as government expenditure does not increase in real terms it is preferable to improve the deficit to GDP ratio through increased economic growth rather than through reductions in public expenditure particularly on ecological conversion, education and training; while Member States which already satisfy the deficit criterion assume greater responsibility for promoting European growth;

13. Is opposed to any manipulation of financial transactions as a means of temporary compliance with the convergence criteria;

14. Calls for the incorporation, as a priority task, of the fight against unemployment into all policies and advocates better co-ordination of and concerted action on economic, structural, fiscal, monetary and income policy at EU level and a form of economic government at EU level which is capable of ensuring this type of enhanced co-ordination and concerted action and which involves all fifteen Member States;

15. Calls for implementation of the Essen decisions, and therefore continues to support action to carry through the employment pact and infrastructure investment in transport, environment, energy and communications networks, but also an increase in funding and programmes for R & D, and for training and skills acquisition, and the process of targeting Structural and Cohesion Fund monies on employment to an even greater extent; calls therefore for the measures in the Delors White Paper on Growth, Competitiveness and Employment to be implemented;

16. Stresses that both private and public investment are required to allow the Community economy to grow at an adequate rate; calls for a policy mix which will facilitate this - ie. a toning down of the cost-cutting policy by giving free rein to automatic stabilizers and co-ordinated relaxation of monetary policy; stresses that public investment encourages private investment by lowering its cost and regrets that the ratio of public investment to GDP has fallen in recent years from 3.5 per cent to less than 2.5 per cent in the EU; calls for increased public investment of the type which brings adequate social and economic returns;

17. Calls in particular for public-sector investment, if its economic and social profitability is guaranteed, to enable the growth process on both the supply side and the demand side to be jump-started and to encourage private-sector investment by means of a favourable environment; calls for a coordinated approach to breaking through growth barriers through private investment within a favourable macroeconomic framework, but also common public infrastructure programmes, a toning down of cost-cutting policy by giving free rein to automatic stabilizers, and coordinated relaxation of monetary policy;

18. Regards it as necessary to remove all expenditure on in-service training, research and development from the assessment of budget deficits, since such investments in the future are a driving force for innovation, growth and employment;

19. Calls for an extension of Community financial instruments via the EIB and for the introduction of Community bonds to finance important EC investment projets and to provide financial support for SMEs and in this connection underscores the EIB's underwriting role; considers it absolutely necessary to open up the venture capital and credit markets in Europe to give SMEs access to capital; the private sector must take the leading role in this area, but national governments must relax the restrictions on capital availability especially for SMEs;

20. Takes the view that the research and industrial base in Europe is weak in places and therefore calls for measures to stimulate and assist R & D by means of appropriate tax concessions, in particular for SMEs, easier access to and availability of venture capital for SMEs active in R & D sectors, and promotion of a powerful research infrastructure and close cross-border cooperation between business, higher education and research establishments; calls for an improvement in the innovation environment and general fundamentals for SMEs and new business set-ups and in industrial structures in the areas of new materials and environmental technologies too;

21. Calls, in accordance with the Dublin declaration on employment policy, for steps to be taken to support the efforts of the Member States to promote employment and to reduce unemployment and to formulate an integrated employment strategy containing macroeconomic and structural reform policies;

22. Calls for a reduction in the burden on the labour factor as regards taxation and national insurance contributions, an improvement in individuals' skills, stemming the flood of laws and regulations and making authorization procedures less bureaucratic and faster;

23. Is not in favour of the AER's proposal for more wage differentiation between regions because it entails the risk of furthering the downward pressure on wages and resulting in even more relocations and displacement inside the EU, and because it is not an efficient means of promoting economic growth and creating and preserving jobs;

24. Calls therefore for an active labour market policy designed to improve labour market adaptability and to overcome marginalization by promoting integration into working life and/or vocational training; calls for a reduction in non- wage labour costs;

25. Welcomes the setting up of an employment and labour market committee and invites it to consider what measures are required to achieve rapid progress in the following areas:

- lifelong training geared to more highly skilled jobs which meet labour market demand, particularly in high-tech sectors, e.g. by providing for a system of flexible arrangements with employers based on the principles of 'training- compensation' and/or 'work-study' for recruiting unemployed persons and/or newly qualified people with no professional experience,

- encouraging self-employment and the creation of small businesses by simplifying administrative and tax formalities,

- reorganization of working hours with no loss of competitiveness or productivity, as a means of increasing opportunities for employment growth,

- support for the development of new sources of jobs, particularly in the environment, culture and care sectors, using in full the appropriations earmarked for this purpose under heading B3-4013 for the development of non- profit-making associations working in these areas,

- devising appropriate common socio-economic indicators for monitoring employment market trends;

26. Calls on the Commission and the Council to incorporate into the Treaty a chapter on employment, in order to provide greater powers, and to incorporate real coordination of the relevant policies into a consistent strategy on labour market and employment policy:

27. Regrets that the Commission's analysis of the 'ageing' of populations has not resulted in any deep analysis of the need to encourage the employment of the longterm (40+) unemployed and the problem of 'ageism' in the job market;

28. Calls for a reduction in real interest rates to enable both private-sector investment and government budget consolidation to be made easier and the leeway resulting from a positive movement in interest rates to be fully exploited;

29. Calls for an end to unfair competitive taxation in the EU, which ultimately deprives all states of their tax base for discharging their duties and also makes budget consolidation impossible, through a code of good conduct for the Member States, with regard to taxation of businesses and of capital, to be included in a tax protocol to the EU Treaty;

30. Stresses that the evidence for the extent of globalization is mixed; while financial globalization is undoubtedly spectacular and capital mobility has accelerated markedly, real (non-financial) globalization is more elusive; concedes, however, that the effects of globalization on the real economy are likely to be more pronounced in future and advocates that an EU strategy be devised to respond to this, including Economic and Monetary Union and international monetary co-operation, as well as international competition rules agreed within the WTO framework which aim to avoid social and environmental dumping;

31. Calls on the Commission to include in its proposal for the broad guidelines of economic policy the specific features of this policy mix at European level contained in this resolution;

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