Opinion of the Economic and Social Committee on the "Coordination of economic policies in the long term"

(2002/C 221/16)

In a letter sent by the Commission President, Mr Prodi, on 10 January 2002, the Commission asked the Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, to draw up an opinion on: "Coordination of economic policies in the long term".

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 7 May 2002. The rapporteur was Mrs Konitzer.

At its 391st plenary session of 29 and 30 May 2002 (meeting of 29 May) the Economic and Social Committee adopted the following opinion with 79 votes in favour and two abstentions.

1. Background

1.1. Following his speech of 28 November 2001 to the plenary session of the European Economic and Social Committee (EESC), the president of the European Commission, Romano Prodi, in a letter dated 10 January 2002, asked the EESC to draw up a number of exploratory opinions and studies on issues including the coordination of economic policies in the long term and the relationship between the broad economic policy guidelines of the economic policies of the Member States and of the Community and the economic and stability programmes of the Member States. This exploratory opinion is an initial contribution by the EESC on the subject.

1.2. Traditionally the EESC expresses its views on issues related to the coordination of economic policy in its own-initiative opinions(1) on the broad economic policy guidelines for the Member States and the Community(2).

In recent years the EESC has also adopted other own-initiative opinions on topical issues relating to the coordination of economic policy and its procedures, which also looked at more fundamental questions such as exploiting the Community's employment and growth potential, overcoming obstacles to growth and the possible contributions of the economic-policy actors to an optimum macroeconomic policy mix for the Community(3).

1.3. This increased interest in the coordination of economic policy and its procedures can essentially be explained by the following four points:

(i) The success of the realisation of monetary union contrasts with the Community's lack of success to date(4) in exploiting its considerable employment and growth potential (cf. the Lisbon objectives). Despite positive initiatives, significant results have so far not been forthcoming. And yet progress in this area is of decisive importance for the future of the Community. And this can only be achieved by better designed and coordinated economic policies.

(ii) The completion of monetary union with the successful entry into circulation of the euro on schedule is strengthening people's political Community awareness and opening up the way to further progress towards a true economic and social union.

(iii) The enlargement of the Community from its current 15 Member States to 25 or more makes it all the more necessary to study, in the context of institutional reform, the procedures for the coordination of economic policy and the role of the Community institutions involved (Commission, Council, Parliament, EESC), in order to ensure that the enlarged Community remains capable of effective economic-policy action.

(iv) The Convention on reform of the EU set up by the Laeken European Council should also look at the Treaty-related and institutional aspects of economic policy coordination. This will require expert submissions which, at Community level, should mainly come from the Commission, the Parliament and the EESC. This opinion is intended to be the EESC's first contribution to this debate.

1.4. The Barcelona European Council, in point 7 of the Presidency Conclusions, also stressed the need for improved coordination of economic policy in relation to three points. The EESC would make the following comments on these points:

(i) It welcomes the intention to improve and harmonise euro-area statistics and indicators; this is an obvious necessity.

(ii) The call for a systematic analysis of the overall policy-mix in the euro area is, in its opinion, extremely important for a policy aimed at growth and employment which also ensures price stability. An analysis of this kind should, however, cover not only monetary and fiscal policy (in the sense of budgetary policy) but also the wages policy of the social partners. Wage trends are just as important as public-sector budgets for the overall policy-mix of the euro area!

(iii) It welcomes the call on the Commission to submit proposals for improving the coordination of economic policy in time for the Spring 2003 meeting of the European Council. This opportunity should be met by the Commission with determination and initiative. Where changes are needed to the Treaty they should be proposed. The proposals should be submitted in time for them to be debated by the Convention.

This EESC Opinion is intended as a contribution to the debate.

2. The Maastricht Treaty and current economic policy coordination practice in the EMU and the Community

2.1. The philosophy behind the Maastricht Treaty

2.1.1. The Treaty's chapter on economic policy (Articles 98-104) basically leaves responsibility for economic policy in the hands of the Member States. Economic policy is however regarded as a matter of common concern. National policies are to be coordinated so as to enable them to contribute to the realisation of the objectives of the Community, as defined in Article 2 of the EC Treaty(5). "The broad guidelines of the economic policies of the Member States and of the Community" constitute the Community's key economic policy document. This document takes the form of a (non-binding) recommendation of the Council, drawn up on the basis of a recommendation put forward by the Commission and the conclusions of the European Council. The Council informs the European Parliament of its recommendation. An essentially intergovernmental process has been introduced for monitoring implementation of the broad guidelines. If it is established that the guidelines are not being followed, a further recommendation may be forwarded to the Member State concerned; this recommendation may be published (as a sanction). Apart from the principle of ensuring an open market economy with free competition and promoting efficient allocation of resources, the only substantive economic policy prescriptions set out in the chapter of the EC Treaty on economic policy are the provisions relating to budgetary policy. These provisions(6) are designed to ensure that the budgetary policies remaining within the remit of the Member States do not jeopardise the centralised monetary policy of the European System of Central Banks (ESCB) aimed at maintaining price stability. The Stability and Growth Pact backs up and consolidates these provisions within the framework of the European Economic and Monetary Union (EMU).

2.1.2. The chapter of the Treaty dealing with monetary policy (Articles 105-111) identifies the maintenance of price stability at the primary objective of the European System of Central Banks (ESCB) (Article 105, first sentence). "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" (Article 105, second sentence).

2.1.3. The economic and monetary-policy provisions of the Treaty summarised here point up the high priority assigned to the price stability objective and show that the Treaty contains virtually no provisions with regard to the content of the macroeconomic policy mix and general economic policy. The procedural rules for coordination of economic policy are underdeveloped.

2.2. The further development of the Treaty and current procedures

The Maastricht Treaty's relative reticence on the subject of economic policy has been subsequently remedied in various, not always transparent ways:

- Under the Treaty of Amsterdam a new title on employment was added to the EC Treaty; this title reintroduces the Community procedure with respect to the employment policy guidelines, which are drawn up by the Council acting by a qualified majority on a proposal from the Commission after consulting the European Parliament, the European Economic and Social Committee and the Committee of the Regions [Article 128(2)]. The Treaty of Maastricht no longer makes provision for the Community procedure in respect of the guidelines for economic policy (Article 99(2), which requires only a Commission recommendation and makes no provision for consultation!). The Community procedure means that the Council acts exclusively on a proposal from the Commission, which the Council may amend by a unanimous vote but which it has to adopt by a qualified majority. This procedure has proved its worth throughout the history of European integration. It ensures that reasonable account is taken of the Community interest and that Council decisions are coherent.

- The above measures were followed by the so-called "processes", namely:

- the Luxembourg process dealing with labour market policy,

- the Cardiff process dealing with structural policy (in the goods, services and capital markets); and

- the Cologne process dealing with the macroeconomic dialogue between the parties involved in monetary, budgetary and wages policy, aimed at improving the macroeconomic policy mix in the EMU.

- The above "processes" were complemented by the goals set out at the Lisbon European Council in respect of growth, technological progress and full employment and those of the Gothenburg European Council in relation to environmental policy.

- A further development has been the introduction of an opaque mix of consultations, arrangements in respect of non-mandatory opinions from the European Parliament, the EESC and the social partners, and endeavours by the Commission and the European Parliament to stimulate public debate on EU economic policy issues: cooperation between economic research institutes, Brussels Economic Forum;

- The important role played by the various Community committees in the economic, fiscal and employment policy spheres (the Economic and Financial Committee, the Economic Policy Committee and the Employment Committee) has been further enhanced; this development has partly taken place at the expense of the role of the Commission as the body representing the interests of the Community; the impression has also been conveyed of rivalry between the committees, lack of transparency over decision-making and problems over the composition of the committees.

- Over and beyond the central role of the ECOFIN Council, the influence of other Council formations (e.g. Employment and Social Affairs, Internal Market, Environment etc.) on the broad economic policy guidelines has also increased.

- Economic policy is now also on the agenda for the spring meeting of the European Council, which is intended to provide further input for the drawing up of the broad economic policy guidelines.

- At Council level, an informal "Eurogroup" has been set up to address the coordination of economic policy and the development of the policy mix in the EMU; the Eurogroup has however not been given decision-making powers under the Treaty.

3. The division of powers in the field of economic policy and the representation of the Community interest

3.1. Although current procedures have developed in an unsystematic and often non-transparent way, they do nonetheless have a certain logic which should be developed further.

The division of powers in the field of economic policy must in general take account of the interests both of the various levels of government in the Member States (local authorities, regions or states, central or federal government) and of the Community. It should also be borne in mind that the overall macroeconomic policy mix is determined by three groups of autonomous actors: the ESCB for monetary policy, the governments of the Member States for budgetary policy and the social partners for wages policy.

Even in a monetary union with - necessarily - centralised monetary policy, economic-policy powers should and must be centralised only to the extent necessary for the satisfactory operation of the economic and monetary union. The Community interest should, however, be appropriately represented. The representation of the Community interest concerns all the Community institutions; the Commission should exercise close supervision and should ensure that all Member States are treated equally.

3.2. The nature and intensity of the representation of the Community interest depends on the policy area, and the following distinctions can be made:

(i) the budgetary rules laid down in the Treaty (Articles 101 to 104, in conjunction with the stability and growth pact), which are to ensure that national budgetary policies do not conflict with the centralised monetary policy;

(ii) the macroeconomic policy mix in the monetary union and in the Member States of the Community (including the macroeconomic dialogue/"Cologne process");

(iii) the structural policies for the labour market ("Luxembourg process") and the goods, services and capital markets in general ("Cardiff process");

(iv) the need for a general economic assessment (further development of the Lisbon approach, longer-term economic-policy vision and the short and longer-term role of the Community in the world).

3.3. The following comments can be made on these four areas:

(i) The approach adopted in the budgetary rules can in principle be regarded as satisfactory: Treaty prohibition on (a) the monetary financing of public-sector deficits (Article 101), (b) privileged access for public-sector bodies to the capital markets (Article 102), and (c) the assumption by governments of budgetary responsibility for the commitments of other public authorities or states (Article 103); and a Treaty requirement to avoid excessive government deficits (Article 104) with suitable monitoring of compliance. In the framework of the stability and growth pact, efforts should be made during the next economic upswing to reduce structural deficits sufficiently to ensure that in future there is the necessary scope for budgetary policy flexibility over the economic cycle as part of the overall economic policy mix. In order to ensure that certain priority government expenditure (research, education, infrastructure etc.) does not suffer as a result of the budgetary-policy restraint which is in many cases necessary, reference values for these expenditure categories could be introduced into the national stability programmes and monitored at Community level. In order to take proper account of the quality of public expenditure, it is also important to focus more in future on structural aspects of public-sector budgets, going beyond pure balance considerations.

(ii) Within the monetary union the interaction of monetary policy, the aim of which is price stability, the average of the budgetary policies of the Member States in the monetary union and the average wages policies of the two sides of industry gives rise to an overall macroeconomic policy mix for the monetary union which forms the framework and defines the scope for the Member States' (and regions') own policy mixes against the background of the single monetary policy. This overall monetary union policy mix is determined by the independent central bank, the sovereign governments of the Member States and the autonomous social partners in the Community. The autonomy of these players must be respected. At the same time, however, the shaping of this macroeconomic policy mix is a matter of direct Community interest. It has a direct influence on conditions for growth and employment in the monetary union. This Community interest should be actively expressed by the Commission and specifically taken into account in Council recommendations, whilst respecting the actors' autonomy. This applies to the broad economic policy guidelines, the macroeconomic dialogue (Cologne process) and the public economic-policy debate.

(iii) Alongside macroeconomic policy, the structural policies for the labour market ("Luxembourg process") and the goods, services and capital markets ("Cardiff process") are also very important for growth and employment, particularly in the longer term. Except for the internal market competition rules, responsibility here lies mainly at national level. This is particularly true of taxation policy, education and training and the problems arising from demographic trends. And yet here too the Community interest needs to be represented - over and above the internal market rules. In relation to the employment guidelines, this interest is represented by means of the Commission's right of proposal and mandatory consultation of the Parliament, the EESC, the Committee of the Regions and the Employment Committee (Article 128 of the Treaty). The "Cardiff process" on the other hand is much less formal and also less transparent.

In respect of both structural-policy procedures the Commission should make it clear how the legitimate representation of the Community interest can be reconciled with the necessary transparency and efficiency and with the avoidance of bureaucracy.

(iv) In terms of its economic weight the Community is already comparable to the USA, and the euro has a potential comparable to that of the dollar. In the world monetary and economic dialogue (IMF, G7 etc.) the euro is represented by the president of the central bank. But the arrangements for the external economic-policy representation of the monetary union and the Community are inadequate. This is detrimental to the Community interest and should, as a matter of priority, be rectified in the course of the next Treaty revision. The EESC feels that Europe should also speak with a single voice in relation to its external economic representation. If the work of the Convention results in a politically strengthened Commission (e.g. with its president elected by the Parliament), the Commission, thus reformed, should be responsible for the external economic-policy representation of the Community, as it will then be able to offer greater political weight and more continuity than the presidency of the ECOFIN Council which changes periodically. Going beyond this formal consideration, the prospects for the development of the Community's economic weight should also be considered. These essentially depend on two factors:

- exploitation of the Community's employment potential (more than 30 million workers) could in the longer term, over and above productivity growth, increase the total GDP of the Community of 15 by an amount almost equal to the GDP of Germany. Indeed, the additional GDP which could be generated by the employment of 30 to 35 million more workers would be roughly of this order;

- the forthcoming enlargement of the Community will also significantly increase the Community's economic potential, and successful catching up by these countries (following the example of Ireland) could in the long term multiply the resulting economic potential. However, the challenges and risks of enlargement must be considered, and the economic and social cohesion of the Community maintained during the transition.

The prospects based on these two factors call for a long-term strategic assessment of the opportunities and risks arising from these possible developments. This includes the problem of sustainable development and applies both to development within an enlarged Community and to the Community's changed role in the world.

The long-term objectives laid down by the Lisbon European Council show that the Community institutions are open to such a debate. This must be pursued in a careful and responsible way. Once again the Commission would appear to be the most suitable focal point for an on-going debate involving the other Community institutions and the general public.

4. Paths to progress: transparency; taking account of the Community interest and institutional balance

In order to remedy the shortcomings in the design and coordination of economic policy, the following points should be covered in the discussion:

(i) In order to promote transparency, the Commission should submit a systematic survey of all the formal and informal procedures, "processes" and consultations involved in the formulation and coordination of economic policy at Community level and conduct a critical analysis with a view to simplification and greater efficiency.

(ii) Efforts to promote a broad and informed public debate on Community economic-policy issues should be stepped up. The possibility should be considered of setting up an independent, European expert body to assess the Community's economic development and policy, which would perform a consultative role, stimulating analysis and public discussion through constructive criticism and proposals. The aim of this proposal is not the establishment of new bodies. Rather, it is intended to help prevent the various Community institutions setting up competing councils of experts. The important thing is to promote informed and independent public discussion of economic policy issues in the Community and the monetary union.

(iii) The ideas aimed at improved coordination of changes to the Treaty put forward in the Commission's Communication of 7 February 2001 on "strengthening economic policy coordination within the euro-area"(7) should be taken up again and re-examined in the light of the possible discussions of the Convention and a probable revision of the Treaty.

(iv) In order to avoid excessively detailed amendments to the Treaty, further appraisal should be made of how the coordination of economic policy can be improved through secondary legislation on the basis of the Treaty. Here it should be borne in mind that the scope of Article 99(5) is restricted to monitoring the implementation of the broad economic policy guidelines [Article 99(3) and (4)]. The possibility of extending the scope of application of secondary legislation by means of a Treaty revision should also be looked at [Article 99(5)].

(v) Regarding the work of the Convention, an appraisal should also be made of the other amendments which it would appear advisable to make to the chapter on economic policy in the EC Treaty. The following points would appear to be of particular interest:

(v-1) The text of the Treaty (e.g. Article 2 of the Treaty on European Union and Articles 2, 3, 4 and 98 of the Treaty establishing the European Community) should state more clearly that it is the task of economic policy to make a major contribution to the achievement of employment and growth objectives(8).

(v-2) The Community interest should be better taken into account by restoring the Commission's right to make proposals for the formulation of the broad economic policy guidelines [Article 99(2)].

(v-3) The role of the European Parliament should be strengthened: mandatory opinion or co-decision as majority decisions are taken in the Council (Article 99); this point should be given special attention by the Commission and the Convention with a view to the efficiency and democratic legitimacy of the procedure.

(v-4) Mandatory consultation of the European Economic and Social Committee (Article 99).

(v-5) The case for, and ways of, enshrining the macroeconomic dialogue(9) in the Treaty (possible analogy with Article 139 within the economic policy chapter - reference to secondary legislation).

(v-6) The role and composition of the Committees and cooperation between Committees to be better defined (Articles 114 and 130) (Economic and Financial Committee, Economic Policy Committee, Employment Committee - reference in Treaty plus possibility of secondary legislation).

(v-7) What should the composition of the ECB Council and the Executive Board be after enlargement?

(v-8) Can collaboration between the various Council formations (Ecofin, Employment and Social Affairs, Internal Market) be improved?

(v-9) Should the Eurogroup be enshrined in the Treaty with its own decision-making powers?

(v-10) Would it be appropriate to lay down, in the Treaty or in secondary legislation, a number of simple rules for the macroeconomic policy mix and structural policies?

(vi) The EESC considers that it would be worthwhile developing further the issues addressed in this opinion and, if appropriate, proposing new wording amending the Treaty.

Brussels, 29 May 2002.

The President

of the Economic and Social Committee

Göke Frerichs

(1) Before the Maastricht Treaty consultation of the EESC (and the Parliament) on the annual report on the economic situation in the Community was mandatory on the basis of the Council's convergence decision of 18 February 1974 (74/120/EEC, Article 4). These opinions were the EESC's contribution to the economic policy guidelines.

(2) OJ C 221, 7.8.2001, p. 177 - OJ C 139, 11.5.2001, p. 72 - OJ C 48, 21.2.2002.

(3) OJ C 139, 11.5.2001, p. 60 - OJ C 139, 11.5.2001, p. 51 - CES 1487/2001 - OJ C 48, 21.2.2002.

(4) In point 5 of the Presidency Conclusions of the Barcelona European Summit (15 and 16 March 2002), the European Council praises the rapid reaction of economic policy to the slowing economy in 2001. The EESC believes that, whilst a severe recession was avoided, there is no cause for complacency. The Community is still far from being on a growth path, which will need to last for ten years or more if the Lisbon objectives are to be achieved.

(5) Growth and employment are amongst the objectives listed in this article.

(6) Monetary measures may not be taken to finance government deficits: state bodies may not have privileged access to capital markets; Member States shall not be liable for the debts of other states or public bodies; excessive government deficits are to be avoided (Articles 101 to 104 of the EC Treaty).

(7) COM(2001) 82 final.

(8) cf. Nyberg Opinion (OJ C 125, 27.5.2002).

(9) Following on from the "Cologne Process" dialogue between representatives of national governments (budgetary policy), the ECB (monetary policy), the social partners (wage trends) and the Commission (representation of the Community interest) on questions concerning the economic prospects and the macroeconomic policy mix in the monetary union and the Community.