WRITTEN QUESTION E-3513/01

by Joachim Wuermeling (PPE-DE) to the Commission

(8 January 2002)

Subject: Introduction of the euro and trends in labour costs in the applicant countries

Per capita GDP in terms of purchasing power standards in the applicant countries stands at around 60 % of the EU average in the case of the Czech Republic, for example. In contrast, the average wage calculated in terms of currency parity stands at only around 15 % of the European figure. The reason for this disparity is the comparatively high external value of the euro.

In the light of experience gained in the eurozone and of economic data, will this disparity be reduced by the introduction of the euro in the applicant countries, and if so, to what extent?

Answer given by Mr Solbes Mira on behalf of the Commission

(8 February 2002)

As pointed out in the question, gross domestic product (GDP) per capita in terms of Purchasing Power Standards (PPS) is much lower in candidate countries than in most Member States. For all 13 candidate countries it amounted in 2000 to around 35 % of the Community average, varying from nearly 83 % in Cyprus to around 27 % in Romania. Yet, in current exchange rates (instead of PPS), the differences between candidate countries and the Member States are even larger: in 2000, average GDP per capita in candidate countries amounted to 16 %. The difference between these two measures stems from the difference in domestic prices across countries. The average domestic price levels in candidate countries are considerably lower than in the Community. Hence a certain amount of nominal income in these countries has a larger purchasing power than in the Community. Candidate countries' wages (without Cyprus, Malta and Turkey), in nominal terms, amounted in 2000 to around 16 % of the Community average. Thus the domestic purchasing power of these wages is, on average, twice as high as in the Community.

This difference in wages between existing and future Member States is expected to diminish to the extent candidate countries manage to catch up in their economic performance and, more specifically in their respective labour productivity. This process has already started, as the average wages of the ten Central and Eastern European Countries (CEEC) increased from around 12 % of the Community average in 1996 to the mentioned 16 % in 2000. However, given past experiences and analytical findings on catching-up processes, for some candidate countries which are presently lagging far behind the Community average, this process might take much more than a decade.

It should be noted that accession per se does not lead to the introduction of the euro in the country concerned. New Member States will become members with a derogation for the adoption of the euro. Only after the fulfilment of the Treaty conditions, a new Member State can adopt the euro.

The setting of exchange rates upon entry into an exchange rate mechanism (ERM) II a precondition for fulfilling the convergence criteria and, subsequently, the setting of the conversion rate to the euro, is a multilateral process, involving all participating Member States, the Commission and the European Central Bank (ECB). These rates should not distort economic equilibria and be close to market rates. Thus, the introduction of the euro should not affect relative wages. This is also confirmed by past experience with the introduction of the euro in Member States.

The necessary achievement of macroeconomic stability and implementation of structural reforms prior to the introduction of the euro, and the introduction of the euro itself, will enhance the efficiency and catching-up of the economies concerned. These will, over the medium term, allow for rising real wages of future Member States.