Opinion of the Economic and Social Committee on the "2000 Broad Economic Policy Guidelines"

(2001/C 139/14)

On 13 July 2000 the Economic and Social Committee decided, under Rule 23(3) of its Rules of Procedure, to draw up opinion on the 2000 Broad Economic Policy Guidelines.

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 8 February 2001. The rapporteur was Mr Putzhammer.

At its 379th plenary session of 28 February and 1 March 2001 (meeting of 1 March 2001) the Economic and Social Committee adopted the following opinion by 81 votes to one, with one abstention.

1. Introduction: the growing importance of the economic policy guidelines for the EU

1.1. The Economic and Social Committee recognises that the broad guidelines of the economic policies of the Member States and of the Community are of fundamental and paramount importance for a growth- and stability-orientated economic policy within the EU that is aimed at restoring full employment while at the same time preserving price stability and social coherence. The guidelines clearly tie in the issues they address with the three employment processes (Luxembourg, Cardiff and Cologne) which operate side by side.

1.2. The guidelines have acquired increased significance this year in view of the Council report on economic policy coordination adopted by the Helsinki European Council and against the backdrop of the Lisbon European Council conclusions, under which the European Council of the EU is in future to hold an annual spring meeting devoted to the issues of employment, economic reform and social cohesion. At the Lisbon European Council, the Union set itself a new strategic goal for the next decade, namely to replace the USA as the world's most dynamic region, to boost competitiveness and to realise the potential for sustainable economic growth - with more and better jobs - by securing the transition to the information and communication society. This was to be achieved by, among other things, creating a friendly environment for starting up and developing innovative businesses, especially SMEs, stepping up the process of structural reform and completing the internal market. In Lisbon, the heads of state and government officially announced the target of full employment in the EU; the Economic and Social Committee will take this as an opportunity to judge them by their actions.

1.3. In this connection, the Economic and Social Committee welcomes the new inclusive procedure adopted this year for the drafting and delivery of the guidelines. This procedure involves the Commission, the European Parliament, the various Council formations (i.e. for the first time not only Ecofin), the spring meeting of the European Council and a number of different hearings of the social partners. This enables a comprehensive, transparent, democratic and coordinated procedure to be set in place as a kind of "rolling consultation mechanism" for the Ecofin Council to draw on when adopting the broad economic policy guidelines in line with Articles 98 and 99 of the Treaty.

1.4. The guidelines are divided into two main parts. The first part addresses general economic policy guidelines, the second contains country-specific guidelines and recommendations for the Member States. In this opinion, the Economic and Social Committee focuses solely on the overall guidelines and recommendations which apply across the Union. This part is in turn subdivided into sections. Sections 1 and 2 (Introduction and Main priorities and policy requirements) adopt a more general, analytical and diagnostic approach, while Section 3 sets out economic policy recommendations.

The Committee adopted several other opinions in February 2001 which are relevant in this context:

- an own-initiative opinion on the highly topical subject coordination of economic policies as a consequence of EMU;

- an own-initiative opinion on comparative macro-economic performance studies with the aim of putting forward a framework for macro-economic benchmarking;

- an opinion (referral) on the Commission's communication on structural indicators;

- an own-initiative opinion on the mid-term review of the three processes that underpin the European Employment Strategy, which was submitted just ahead of the Stockholm summit in March 2001.

Furthermore, the Committee recently adopted an opinion entitled new knowledge, new jobs(1). The intention was to make a major contribution to this key objective of the French presidency and to bring an influence to bear on the EU work programme in this field.

2. Key priorities and policy requirements

2.1. Reviewing the 1990s, the guidelines draw a number of comparisons between economic trends in the EU and USA. Economic growth in the EU fell considerably short of the US rate. After a decade of relative stagnation, average living standards are still 35 % lower than in the United States - despite further convergence in labour productivity over the same period (c.f. graph 1). The guidelines cite stagnant investment in the EU as one of the most serious weaknesses and note that, over the same period, real investment in the USA doubled.

Graph 1:

Trends in living standards and labour productivity,EU-15 (PPS; USA=100)

>PIC FILE= "C_2001139EN.007301.EPS">

Source:

Commission.

2.2. For the first time in a decade, however, a robust and broad-based economic recovery has taken hold in the Union since early summer 1999. Against a backdrop of (i) stable internal exchange rates following the launch of stage 3 of economic and monetary union in January 1999, (ii) non-inflationary annual growth of 3 % and more and (iii) continued price stability, this upswing will have an increasingly strong impact on jobs. A significant cut in unemployment is generally felt to be a possibility, provided there is effective coordination and linkage between an appropriate macro-economic policy mix and structural reforms.

2.3. In this context, the Economic and Social Committee welcomes the five key challenges for the Union over the next few years set out in the guidelines: (i) the return to full employment, (ii) the transition to a knowledge-based economy, (iii) a timely response to ageing societies, (iv) the improvement of social cohesion in the Union and (v) the continued pursuit of the reforms which will allow the Union to hold its own even more effectively in the globalised economy. Of course, when the Commission put forward these guidelines, there was no indication that energy and crude oil prices would continue to rise. Nonetheless, the key challenges remain valid and can still be met - albeit with a slight downward revision of growth forecasts. This will require all macro-economic players to take additional, coordinated action, but, as a matter of principle, the basic strategies themselves should not change.

2.4. The EU and its Member States are setting themselves clear, quantified targets as the benchmark of future progress. These include: (i) achieving medium-term growth of 3 % and more, (ii) raising the employment rate from around 61 % today to 70 % by 2010, and (iii) increasing the number of women in employment from 51 % today to more than 60 % over the same period. The European Commission has submitted scenarios for the development of the employment rate up to 2010, confirming that these employment objectives can be achieved under the conditions set out in point 2.3 above. The objectives involve a great challenge for economic reforms in the Member States. The actual differences in employment rates are significant, being as much as almost 50 % (Spain compared to Denmark). These differences are supposed to be halved over the next ten years while, at the same time, the employment rate is to be increased, including in the countries with the highest rate.

Table 1: Employment, working population and employment rates to 2010

>TABLE>

Source:

EU Commission, DG Employment, Employment in Europe 2000.

2.4.1. European GDP is forecast to grow by more than 3 % over the next two years. This is encouraging and - coupled with the "kick-off" effect of the EU - will provide a necessary platform for a self-sustaining economic recovery and durably higher growth. Thus, at long last, Europe too is rediscovering an almost forgotten fact - that sustainable economic growth is a key prerequisite for full employment. This is particularly true of major economic areas such as the European monetary union.

2.4.2. Another aspect which has been neglected in the past is the investment ratio which, at 19 % of GDP, is still way below the 24 % which Europe averaged during the full employment period in the early 1970s and which must become the vehicle of future growth. A large single market must, as a matter of priority, be able to generate prosperity from within. It ought not to be dependent on export earnings from third countries. Together with private investments, public investments will have to play a considerable part in boosting the investment ratio. According to a 1998 Commission report, public investments fell significantly in the preceding decade, causing a shortfall in economic growth of between half and one percentage point. The Lisbon European Council decisions on fostering innovation, research and development for the transition towards a knowledge-based economy thus point the way forward. The expansion of physical infrastructure investments will continue to be of major importance.

2.4.3. The transformation of the European economy into one that is knowledge-based will be the driving force behind productivity, growth and jobs. Increased investment in human resources and information and communication infrastructure must be accompanied by further liberalisation and flexibility of the goods and services markets. Training and career profiles must be better adapted to realising the full potential of the knowledge-based economy. The same is true of innovative departures in lifelong learning and the consequent interchange between working life and training.

2.4.4. Pension systems face future problems as a result of the shift in the European age pyramid. These problems can be resolved by cutting current unemployment levels, successfully pursuing a controlled EU immigration policy and raising the employment rate, both of women and of older people of working age. In this way, it can be ensured that the difficulties facing pension systems are not passed on to public finances. The Economic and Social Committee thus expressly welcomes the Lisbon European Council's call for enhanced coordination between Member States in the future development of social protection.

2.5. The completion of the single market, i.e. integrated goods, services and capital markets across Europe, is essential to attain the strong economic performance desired. Over the past few years, the Economic and Social Committee has played its part in bringing the completion of the single market a decisive step closer through the work of its Single Market Observatory, which very much draws on practical experience. With the globalisation of the world economy, however, the Union cannot allow itself to become isolated. The single market is complemented by the Union's common external policy, the aim of which is to secure an open world economy with a fair, rules-based system of trade and investment under the auspices of the WTO.

3. Economic policy recommendations

3.1. The main purpose of the economic policy recommendations is to transpose the new strategic goal for the EU for the next decade - as set by the Lisbon European Council - into practical EU and Member State policies. The heads of state and government set themselves the goal in Lisbon of becoming "the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion(2)." Seen in terms of this ambitious goal, the economic policy recommendations set out in the guidelines fall short of ESC expectations. Thus it is not always easy to understand how the regurgitation of recommendations from earlier years can be reconciled with a new strategy for the Union. Moreover, the guidelines provide no indication as to how the restoration of high investment rates is to be sustained beyond 2001. Private investment is not mentioned at all. As for public investment, the recommendations set out in the guidelines make no distinction between the overall requirement to consolidate public finances and the need to boost investment spending. A further discrepancy between the new strategic goal and the economic policy recommendations stems from the underestimation of the role played by monetary policy in providing sustainable and stability-orientated growth.

3.2. The current concern about the exchange rate and external value of the euro prompts the Economic and Social Committee to make the following points. Given the sound economic fundamentals in the EU and the existence of clearly oriented, stable growth, the single European currency is plainly undervalued externally in spite of a high degree of stability. A look at exchange rates between European currencies prior to stage 3 of EMU - when they were still independent - and the US dollar also shows that it is not primarily the euro that is weak, but rather the dollar that is extremely strong. This is because of the significant differences in growth and interest rates between the United States and the EU - persisting into the second quarter of 2000. The European Central Bank must be required not only to pursue the stability target but also to contribute to the Union's economic growth. The Committee feels that the single currency's future credibility will depend even more on the Union's capacity to speak with one voice on currency issues as well.

3.3. The Economic and Social Committee agrees with the Commission and the Council that the current recovery can put the European economy on course for self-sustaining, higher and non-inflationary growth. This requires a monetary policy which is committed to price stability and growth in line with the Treaty (Article 105). The further pursuit of the current policy of budget consolidation will contribute in the short- to- medium-term to a further improvement in supply and demand, if the reduction of budget deficits and public sector debt is accompanied by efforts to improve the quality of spending by investing in the future. High growth and employment rates are the swiftest and most painless way of achieving balanced budgets though a balanced budget is not a goal per se in all circumstances and economic conditions. The guidelines recognise that the social partners behaved responsibly in the past on the wage front, and the Committee also expects a future wage policy to be geared to price stability and channelled towards productivity growth. The current fuel price crisis is not likely to have any secondary effects for the time being.

3.4. Budget policy must ensure that the consolidation targets laid down in Member States' updated stability programmes are strictly observed, with public expenditure being channelled into investment in infrastructure and education. Each new job created as a result will take some pressure off social security systems. The need for quality investment requires that such investment be guided by the demands of switching to a knowledge-based economy without the digital divide in society widening the social divide.

3.5. In order to improve the quality and sustainability of public finances, the Economic and Social Committee thinks that, on the revenue side too, Member States' budgets have been improved through more efficient tax collection. Earlier Committee opinions repeatedly called for improved cooperation in EU tax policy and welcomed the first moves made to combat harmful tax competition between Member States. Further, more visible progress has to be made here just as much as in the further dismantling of tax barriers impeding the functioning of the single market.

3.6. To have a positive effect on stability and - in principle - employment, wage developments should be guided by productivity growth. At the same time, they should not be treated as being subordinate to the other main areas of macro-economic policy (monetary and financial policy). A wage policy that promotes stability and employment must receive support from the European Central Bank and budgetary policy within the framework of the new growth-orientated policy mix. However, there have been increasing signs recently that, because of the concern that the labour market situation may improve and drive up inflation, monetary policy wants to take pre-emptive action and force the parties to wage agreements to be extremely disciplined, although there is no reason to assume that inflationary bottlenecks will emerge on the supply side of the labour market in the foreseeable future. This is thanks in no small measure to the Union's common employment strategy set out in its employment guidelines drawn up under the Luxembourg process. The guidelines emphasise the importance of real wage developments in boosting employment, and this is in principle correct. However it is far removed from reality insofar as the parties to wage agreements can only influence nominal wage developments with their wage policies. A look at real unit labour costs in the EU also shows that the relative price of labour has fallen steadily in the last decade and thus, in principle, does not constitute an obstacle to employment growth.

Table 2: Labour productivity trends

>TABLE>

Source:

Commission.

Table 3: Real unit labour costs: a comparison

>TABLE>

in % p. a., defined as nominal unit labour costs minus GDP deflator;

Source:

Eurostat and DG ECOFIN (European Economy, Supplement A, No 10/11-2000).

3.7. The Economic and Social Committee agrees emphatically with the guidelines' recommendations for the development of a knowledge-based economy. The Cardiff reporting process has highlighted the need for further reform of the EU goods, services and capital markets. The Committee has given its views on this repeatedly in the past. Of particular importance at EU level are EU-wide efforts to strengthen cooperation in research and development, resulting in the establishment of a European area of research and innovation. The Committee therefore welcomes the timetable laid down by the Lisbon European Council and gives its express support to the monitoring procedure for the integrated structural report to be used for the first time in spring 2001. The transition to a knowledge-based economy depends not only on progress on product and capital markets; the people supporting and shaping such an economy also play a decisive part. Greater attention will therefore have to be paid to the acquisition of information society skills as part of a lifelong learning process. Here, too, both qualitative and quantitative targets in the recommendations provide guidance for future benchmarking processes. In connection with the development of human capital, greater attention must also be paid to ensuring that sections of the EU's population are not left behind by progress in the knowledge-based economy, thereby creating social tensions. A special effort has to be made here with regard to less skilled workers.

3.8. The recommendations for efficient product (goods and services) markets focus in particular on the services sector, which is less developed than in the USA and where progress hitherto has not been made at a satisfactory pace. The Economic and Social Committee looks forward with interest to the strategy for the removal of barriers to trade in services. Apart from this, the Committee agrees with the recommendations in general and would refer to its earlier opinions and work, especially the work of its Single Market Observatory.

3.9. An internal market with fifteen separate capital markets, each of which is governed by national rules, appears to be something of an anachronism in the face of large-scale progress made on the markets in goods. The Economic and Social Committee therefore welcomes the Lisbon European Council's call for full implementation of the action plans for integrating the financial markets by 2005, as an adjunct to the ongoing implementation of the action plans for financial services and risk capital. As far as the integration of the markets in pension funds is concerned, there is a need for clear rules governing transparency, investor and consumer protection and a solid legal framework for the activities of institutional investors. As regards cross-frontier payments, the Committee has repeatedly called for less costly procedures for consumers. In the field of company law and accounting a considerable effort must be made to establish uniform and comparable company balance sheets. This will also speed up the integration of the markets in stocks and shares. Closer cooperation between EU capital market regulators and supervisors will be needed for this purpose.

3.10. The Committee expressly welcomes the fact that the guidelines address the need for more sustainable development in the EU. The Union must move towards a new pattern of sustainable development which brings together environmental, economic and social requirements within a common approach. The Amsterdam Treaty strengthened the legal bases for taking account of the sustainable development model within the EU(3). The recommendations set out in the guidelines build on that and rightly point to the need to further develop alternative energy sources and to separate economic growth from the environmentally damaging use of resources. The emphasis should thereby be on compliance with the Kyoto Protocol, to which the EU is a signatory, and on the measures put forward in the guidelines. In this connection, the Economic and Social Committee particularly regrets the prorogation of the Hague climate conference and calls on governments to resume negotiations without delay. Overall, the Community approach towards sustainable development must in future be brought to bear much more forcefully. From the Union's point of view, the current debate surrounding energy tax concessions and the increasing race for subsidies in many Member States call - quite frankly - for a uniform energy taxation directive, as proposed by Commissioner Monti in 1997.

3.11. The guidelines' recommendations for labour markets draw on the strategy for full employment in Europe presented by the Lisbon European Council. The creation of more and better jobs without jeopardising greater social cohesion can be achieved most easily by applying the macro-economic policy mix described above. The Economic and Social Committee thinks that structural reforms, investments in people, the combating of social exclusion, a controlled European immigration policy combined with integration measures giving immigrants equal labour market opportunities, and the modernisation of the European model for society, on the one hand, and greater sustainable economic growth, on the other, are mutually dependent. Regional and sectoral differences in unemployment in the Union are considerable at a time when overall unemployment is still unacceptably high. Focusing on the employment guidelines, drawn up as part of the Luxembourg process, for strengthening labour markets has proved to be right and has the express support of the Committee. This is true in particular of the fight against long-term unemployment, the increase in the employment rate for women and older people of working age, the fight against youth unemployment, the transition from passive measures to an active labour market policy, the adjustment of tax and benefit systems so as to improve employability, the promotion of entrepreneurship, SMEs and mobility, the modernisation of the organisation of work in conjunction with the social partners (guideline 14 in the draft employment guidelines for 2001), and equal opportunities for women and men. The Economic and Social Committee also thinks that the closer coordination of the three parallel Luxembourg, Cardiff and Cologne processes will receive an additional impetus from the special meeting of the European Council on employment which is to be held each spring.

Brussels, 1 March 2001.

The President

of the Economic and Social Committee

Göke Frerichs

(1) OJ C 14, 16.1.2001.

(2) Presidency Conclusions, Lisbon European Council, 23-24 March 2000, point 5.

(3) The overall objectives set out in Article 2 of the EC Treaty now provide not only for the promotion of "a harmonious, balanced and sustainable development of economic activities" but also for "a high level of protection and improvement of the quality of the environment." Article 6 stipulates that "environmental protection requirements must be integrated into the definition and implementation of .... Community policies .... in particular with a view to promoting sustainable development."