Opinion of the Economic and Social Committee on the "2000 Broad Economic Policy Guidelines"
Date: 2001-03-01
Institutions: European Economic and Social Committee
Subjects: Economic and Monetary Union, economic growth, economic policy

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10.8. We would call on all economic policy players —
governments, the ECB, the Commission and the social partners
— to draw on the above analyses and recommendations to

develop economic policy coordination in the EU, and allow
the favourable climate created by EMU to achieve its full
potential for growth and employment.

Brussels, 1 March 2001.

The President

of the Economic and Social Committee

Göke FRERICHS

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 econ-
omic 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 para-
importance for a growth- and stability-orientated
mount
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 (Luxem-
bourg, Cardiff and Cologne) which operate side by side.

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 environ-
ment 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.

1.2.
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 con-
clusions, 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

In this connection, the Economic and Social Com-
1.3.
mittee 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.

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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 recommen-
dations 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;

Graph 1:

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

% 100

95

90

GPD per working hour

85

80

75

70

65

60

55

50

GPD per capita

GPD per person employed

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

45
 1960 1965 1970 1975 1980 1985 1990 1995 2000

Source: Commission.

— an opinion (referral) on the Commission’s communi-

cation 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 Stockh-
olm 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.

(1) OJ C 14, 16.1.2001.

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
(i) the return to full
few years set out in the guidelines:
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

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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

Employment 15-64 (thousand)

Working population (thousand)

Employment rates 15-64

1991

1999

2005

2010

1991

1999

2005

2010

1991

1999

2005

2010

EU-15

150 350 153 463 166 223 174 500 242 020 247 298 248 877 249 794

62,1

B

DK

D

3 703

3 955

4 288

4 534

6 625

6 711

6 786

6 874

55,9

2 583

2 692

2 796

2 842

3 461

3 521

3 559

3 564

74,6

36 702

35 742

37 540

38 721

54 090

55 148

54 505

54 312

67,9

EL98

3 523

3 835

4 239

4 527

6 638

6 922

6 894

6 881

53,1

E

F

IRL

I

L

NL

A

P

FIN

S

UK

12 482

13 658

15 954

17 316

25 359

26 104

26 129

25 977

49,2

21 968

22 661

24 849

26 359

36 304

37 507

38 567

39 223

60,5

1 100

1 559

1 832

2 033

2 152

2 494

2 699

2 789

51,1

21 146

20 292

22 443

23 616

39 088

38 634

37 721

37 275

54,1

161

175

195

212

266

285

300

312

60,7

6 351

7 552

8 190

8 778

10 234

10 646

10 947

11 130

62,1

3 600

3 644

3 833

3 953

5 218

5 344

5 374

5 400

69,0

4 609

4 566

4 877

5 101

6 814

6 771

6 766

6 809

67,6

2 333

2 237

2 461

2 570

3 305

3 438

3 487

3 493

70,6

4 321

3 998

4 280

4 388

5 434

5 665

5 839

5 876

79,5

25 768

26 898

28 448

29 549

37 033

38 106

39 305

39 880

69,6

62,1

58,9

76,5

64,8

55,4

52,3

60,4

62,5

52,5

61,6

70,9

68,2

67,4

65,0

70,6

70,6

66,8

63,2

78,6

68,9

61,5

61,1

64,4

67,9

59,5

65,0

74,8

71,3

72,1

70,6

73,3

72,4

69,9

66,0

79,7

71,3

65,8

66,7

67,2

72,9

63,4

67,9

78,9

73,2

74,9

73,6

74,7

74,1

Source: EU Commission, DG Employment, Employment in Europe 2000.

European GDP is forecast to grow by more than 3 %
2.4.1.
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.

Another aspect which has been neglected in the past
2.4.2.
is the investment ratio which, at 19 % of GDP, is still way
below the 24 % which Europe averaged during the full

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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.

The transformation of the European economy into
2.4.3.
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 recommen-
dations 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 (1).’ Seen in
terms of this ambitious goal, the economic policy recommen-
dations 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 recommen-
dations 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.

(1) Presidency Conclusions, Lisbon European Council, 23-24 March

2000, point 5.

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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.

Budget policy must ensure that

3.4.
the consolidation
targets laid down in Member States’ updated stability pro-
grammes 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 cooper-
ation 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 employ-
ment strategy set out in its employment guidelines drawn up
under the Luxembourg process. The guidelines emphasise the
importance of real wage developments in boosting employ-
ment, 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

1961-1973

1974-1985

1986-1990

1991-1995

1996-2002

4,4

4,8

2,3

7,9

2,0

2,2

0,9

2,7

1,8

1,9

1,0

3,6

1,9

1,8

1,3

0,7

1,4

1,3

2,4

1,3

EU-15

Euro area

USA

JAP

Source: Commission.

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Table 3: Real unit labour costs: a comparison

AVG.61-70

AVG.71-80

AVG.81-90

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

D

0,4

0,4

– 0,9

– 0,6

1,3

0,2

– 2,0

0,0

– 0,4

– 1,6

– 1,4

– 0,3

– 1,1

– 1,5

E

0,4

0,4

– 1,4

0,9

1,0

0,5

– 3,8

– 2,6

– 0,6

– 0,5

0,3

– 1,1

– 0,8

– 0,6

F

0,0

0,7

– 1,0

0,3

– 0,1

– 0,2

– 2,2

– 0,3

– 0,1

– 1,1

– 0,5

0,2

– 0,8

– 0,8

I

– 0,2

0,4

– 0,6

0,5

– 0,2

– 1,5

– 3,5

– 3,6

0,0

0,2

– 4,7

0,0

– 1,1

– 1,0

UK

0,1

0,1

0,0

0,6

– 0,7

– 2,3

– 0,7

– 1,1

– 1,1

0,0

1,2

0,8

– 0,1

0,1

EU-15

EUR-11

0,0

0,3

0,1

0,4

– 0,9

– 1,1

0,2

0,3

– 0,7

– 2,3

– 1,4

– 0,5

– 0,9

– 0,9

0,1

– 0,7

– 0,8

0,4

0,6

– 0,3

– 2,6

– 1,4

– 0,5

– 1,1

– 1,5

– 0,1

– 0,9

– 1,1

US

0,1

– 0,1

– 0,2

0,3

– 0,4

– 0,2

– 1,1

– 0,6

– 1,1

– 0,1

1,0

0,4

– 0,1

0,7

JP

– 1,2

1,2

– 1,0

0,1

– 0,4

0,2

1,1

0,6

– 1,9

0,4

1,8

– 1,0

– 2,0

– 1,5

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).

The Economic and Social Committee agrees emphati-
3.7.
cally with the guidelines’ recommendations for the develop-
ment 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.

The recommendations for efficient product (goods and
3.8.
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 mar-
kets, 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

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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 super-
visors will be needed for this purpose.

The Committee expressly welcomes the fact that the
3.10.
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 (1). 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

(1) 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 implemen-
tation of .... Community policies .... in particular with a view to
promoting sustainable development.’

Brussels, 1 March 2001.

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 immi-
gration policy combined with integration measures giving
immigrants equal labour market opportunities, and the mod-
ernisation 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 Luxem-
bourg 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.

The President

of the Economic and Social Committee

Göke FRERICHS