Report from the Commission on the implementation of the 2000 Broad Economic Policy Guidelines
Date: 2001-03-07
Institutions: European Commission
Subjects: economic growth, economic policy, economic reform, report, tax system

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 7.3.2001
COM(2001) 105 final

REPORT FROM THE COMMISSION

on the implementation of the
2000 Broad Economic Policy Guidelines

TABLE OF CONTENTS

EXECUTIVE SUMMARY ...........................................................................................................3

1.

INTRODUCTION........................................................................................................6

2. OVERVIEW OF KEY POLICY AREAS............................................................................7

2.1 Ensure growth and stability-oriented macroeconomic policies ..............................7

2.2 Speed up fiscal consolidation................................................................................9

2.3

Improve the quality and sustainability of public finances....................................10

2.4 Promote appropriate wage developments............................................................12

2.5 Foster a knowledge-based society.......................................................................13

2.6 Ensure efficient product markets ........................................................................16

2.7 Promote capital markets through further integration and deepening ....................18

2.8

Invigorate labour markets ...................................................................................20

2.9 Enhance sustainable development.......................................................................23

STATISTICAL ANNEX..............................................................................................................24

2

Globalisation and new
technologies prompted EU
to adopt a comprehensive
strategy in the 2000 BEPGs

Best macroeconomic
performance for a decade,
but growth slowing down
mildly

Tension-free macro-
economic policy mix

Budgets close to balance,
but mostly due to high
growth and a lower debt
service burden

Executive summary

Building  upon  and  extending  the  existing  economic  policy
strategy, the 2000 BEPGs focussed in particular on policies and
reforms aimed at promoting the economic growth potential and
employment. The 2000 BEPGs were the first adopted after the
Lisbon  European  Council.  They  thus  reflect  the  Council's
conclusions. The present report offers an overall assessment of
the  implementation  of  the  policy  orientations  set  in  the  2000
BEPGs.  It  is  accompanied  by  a  report  of  the  Commission
services  that  evaluates  the  implementation  of  the  country-
specific recommendations of last year's guidelines.

The following key messages emerge from the report.

Even  though  a  mild  growth  deceleration  set  in last  summer  in
response  to  a  surge  in  oil  prices,  the  EU  achieved  in  the  year
2000 its best economic growth performance for a decade. This
was the result of the combined impact  of  strong  domestic  and
external  demand.  Job  creation  continued  at  a  rapid  pace  while
unemployment  continued  to  fall.  Headline  inflation  rose  as  a
result  of  higher  prices  for  imported  goods,  but  underlying
inflation remained low in a favourable domestic price climate.

With import prices rising and the output gap closing, monetary
authorities  increased  official  interest  rates  during  the  year  to
counter risks to price stability in the medium term. In the EU as
a  whole,  the  fiscal  stance  was  neutral  as  indicated  by  an
unchanged  cyclically-adjusted  primary  surplus  and  wage
developments remained compatible with price  stability  and job
creation.

Actual  budget  deficits  in  the  EU  as  a  whole  were  further
reduced  to  close  to  balance  (including  the  one-off  UMTS
receipts there was even a surplus). However, this improvement
in "headline"  balances  was  primarily due  to  strong  growth  and
lower  debt  service.  By  contrast,  the  estimated  unchanged
cyclically-adjusted primary surplus suggests that Member States
taken  together  failed  to  seize  the  chances  offered  by  strong
economic growth to enhance their underlying fiscal position.

3

Quality and sustainability
of public finances  ― more
progress with tax
than with expenditure
reform; pension reform
imperative

The knowledge-based
society ― despite progress
still behind the USA

Progress was made towards making tax systems more efficient,
and  especially  more  employment-friendly:  in  many  Member
States,  taxes  on  labour  were  reduced;  in  some  the  measures
aimed  primarily  at  the  low-paid,  in  some  they  focused  on  the
efficiency  and  transparency  of  the  tax  system;  and  in  others
they  were  designed  to  widen  the  tax  base  and/or  reduce
marginal  tax  rates.  Moreover,  more  Member  States  plan  to
reform  tax  systems  from  2001  onwards.  In  addition,  the
Council (ECOFIN) reached an agreement on key points of the
tax package to curb harmful tax competition and reduce current
distortions  of  the  Single  Market.  Conversely,  less  progress was
made  in  Member  States  on  the  expenditure  side:  rigorous
medium-term  expenditure  control  mechanisms  are  often
lacking.  Insufficient  steps  were  taken  to  address  problems  in
benefit  systems,  although  there  have  been  some  attempts  to
improve  their  administration,  tighten  entitlement  rights,  and
enforce eligibility conditions. Substantial  pension  reforms  were
implemented  in  previous  years  in  only  a  few  Member  States
while  some  other  Member  States  took  some  measures in  2000
to  alleviate  the  pressures  arising  from  future  demographic
changes.  As  a  result,  most  countries  have  not  yet  taken  the
necessary steps to meet the budgetary challenges of population
ageing.

taken 

Europe’s transition to a knowledge-based society is progressing,
but  still  lagging  in  comparison  with  the  United  States  due  to
relatively  lower  investments  in  human  capital,  R&D  and  ICT.
Most  Member  States  have  taken  measures  to  strengthen  ICT
education  and  training  efforts;  nevertheless  there  remains  a
need  for  enhancing  and  upgrading  skills  on  ICT  related
the
activities.  Measures  have  been 
fragmentation of Europe’s R&D effort and to create a business
environment  more  favourable  to  innovation  and  technological
progress,  e.g. 
incentive  schemes  and  enhanced
competition. But the relationship between industry and science,
and more precisely the commercialisation of the research effort,
remains  one  of  Europe’s 
structural  weaknesses.  The
liberalisation  of  the  telecom  industries  has  contributed  to  a
lowering  of  internet  access  costs,  which  in  combination  with
more  targeted  measures  has  led  to  a  rapid  rise  in  internet
penetration.

through 

remedy 

to 

4

Product markets –
general progress but
problems with public
procurement, State aid and
integration of service
markets

Capital markets –
co-ordination between
supervisors strengthened,
but other measures need to
gather speed

Labour markets –
falling unemployment but
delays in benefit and labour
regulations reform

the 

authorities, 

competition 

Over  the  past  year,  the  functioning  of  European  product
markets  has  improved  thanks  to  better  co-ordination  of
national policies in various domains, the increased transposition
of Internal Market Directives, the reinforcement of the powers
the
of 
telecommunications  and,  to  a  lesser  degree,  energy  sectors.
However, a less positive assessment is made of progress in the
areas  of  public  procurement,  State  aid,  administrative  reform
and  efforts  to  reduce  the  regulatory  burden  on  business.  The
creation  of  a  truly  integrated  European  market  for  business
services,  the  further  opening  up  of  the  transport  sector  to
competition, and the liberalisation of the postal sector continue
to pose problems.

liberalisation  of 

Several  Member  States  have  taken  measures  to  strengthen  co-
ordination  between  their  national  supervisors  in  order  to  help
safeguard  financial  stability.  Progress  has  been  made  with  the
implementation of the Financial Services Action Plan.  There  is
also  progress  with  the  implementation  of  the  Risk  Capital
Action  Plan,  but  if  the  RCAP  is  to  be  completed  before  the
2003 deadline, efforts will have to be speeded up.

in 

the 

reforms 

The  labour  market  situation  continued  to  improve  in  2000,
largely  owing  to  the  cyclical  upswing,  but  also  thanks  to
labour  market.  Long-term
structural 
unemployment  has  fallen  faster  than  the  overall  rate,  which  is
good  for  social  cohesion,  but  several  Member  States  still  have
to  address  structural  unemployment  and  severe  regional
disparities. In the past year, good progress has been made with
the implementation of active labour market policies and several
Member  States  have  taken  measures  to  address  the  low
employment  rates  of  women.  Problems  in  tax  systems  have
recently been tackled by most Member States but such reforms
have  to  be  better  complemented  with  reforms  to  the  benefit
systems, in particular to encourage older workers to stay longer
in  the  labour  force.  Limited  efforts  have  been  made  in  some
countries  to  improve  labour  market  regulations,  and  work
organisation.

Sustainable development –
some market-based
instruments introduced, but
no Community energy tax
framework

A number of Member States took action to strengthen market-
based  approaches  to  environmental 
in
response  to  rising  fuel  prices  several  Member  States  took
measures  that  reduce  the  tax  element  of  transport  costs.  No
progress  was  made  with  a  framework  for  energy  taxation  at
Community level.

issues.  However, 

5

1.

INTRODUCTION

Recognising that globalisation and the prospects of a new knowledge-driven economy present both
major  challenges  and  opportunities  for  the  European  Union,  at  Lisbon  the  European  Council
defined an ambitious strategy.  It aims at accelerating the ongoing transformation of the European
economy with a view to becoming by 2010 “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”.

For the 2000 Broad Economic Policy Guidelines (BEPGs), the Lisbon Council conclusions meant
the  inclusion  of  recommendations  that  would  raise  the  average  employment  rate  to  as  close  as
possible to 70 per cent in 2010, and recommendations to enhance the absorptive capacity for  and
the actual take-up of new technologies. Furthermore, the 2000 BEPGs identified the broad  policy
priorities for macro-economic stability and structural reform. They also presented  country-specific
recommendations  in  all  policy  domains  and  for  all  15  Member  States  tailored  to  their  particular
circumstances.

This  reports  presents  a  comprehensive  assessment  of  the 
implementation  of  the  policy
recommendation  that  were  formulated  in  the  2000  BEPGs.  In  doing  so,  it  serves  two  purposes:
firstly,  it  contributes  to  the  continuous  multilateral  surveillance  of  the  economic  policies  of  the
Member  States  and  the  Union  in  accordance  with  Article  99(3)  of  the  Treaty;  and  secondly,  it
provides input for the formulation of the forthcoming BEPGs.

This  report  makes  use  of  and  integrates  the  conclusions  of  the  various  economic  policy  co-
ordination  processes  at  the  Union  level,  to  which  it  adds  a  comprehensive  evaluation.  In  this
respect, the agreed list of  structural  indicators  provides a  useful  tool  for  comparing  progress.  The
report  is  accompanied  by  a  working  document  of  the  Commission  services,  which  presents  a
detailed examination of the implementation of the country-specific recommendations.

From  the  onset,  the  limitations  of  the  present  assessment  should  be  noted.  The  Council  adopted
the  2000  BEPGs,  including  recommendations  of  a  medium-term  nature,  only  in  June  2000.
Therefore,  and  in view  of  the  gradual  impact  of  some  of  the  measures  as  well  as  the  provisional
nature of most of the data employed,1 a conclusive judgement about the degree of implementation
cannot be given at this moment.

The BEPGs policy strategy

1. Ensure growth and stability-oriented macroeconomic policies
Speed up fiscal consolidation
2.
Improve the quality and sustainability of public finances
3.
Promote appropriate wage developments
4.
5.
Foster a knowledge-based society
6. Ensure efficient product markets
7.
8.
9. Enhance sustainable development

Promote capital markets through further integration and deepening
Invigorate labour markets

1

The report is based on available data up to 1 March 2001.

6

2. OVERVIEW OF KEY POLICY AREAS

2.1 ENSURE GROWTH AND STABILITY-ORIENTED MACROECONOMIC POLICIES

Strong economic growth, although the recovery is losing momentum

In  2000,  the  EU  achieved  its  best  economic  growth  performance  since  1989.  Strong  domestic
demand, a brisk expansion of the global economy and enhanced price competitiveness of European
exporters resulted in real GDP growth of an  estimated  3.4  per  cent.  However, since last summer,
rapid growth has given way to a gentle moderation in economic activity. Notably the high oil prices
that prevailed until late in 2000 have increasingly weighed on profits and household income. More
recently an emerging global economic slowdown has added to the moderation of growth in the EU.
However,  with  the  euro  and  progress  in  structural  reforms,  the  EU  economy  should  be  able  to
withstand adverse global developments better than in the past.

Strong economic growth contributed to continued sizeable employment gains in the EU at a rate of
some 1½ per cent in 2000.  Consequently,  the  employment  rate  has  risen  to  approximately  63  per
cent.  Current  indicators  suggest  that  job  creation  has  remained  strong,  but  a  modest  slowing  is
expected  in  line  with  more  moderate  economic  growth.  Unemployment  continued  on  the  clear
downward path embarked on in 1997. It fell by 0.8 percentage points to 8.4 per cent in 2000, and
has reached levels last seen a decade ago.

As a result of sharply rising energy prices and a prolonged weakening of  the  euro,  HICP  headline
inflation in the EU rose by about 1 percentage point to 2.1 per cent in  2000. Underlying  inflation
(i.e. excluding energy prices and unprocessed food) increased only marginally to 1.3 per cent in an
overall still favourable domestic price climate. As energy prices seem to have peaked and the euro
has risen relative to the USD, headline inflation is expected to abate gradually.

Macro-economic policies in the euro area

The 2000 BEPGs recommended for the euro area an appropriate and tension-free economic policy
approach consisting of: (i) monetary policy committed to maintain price stability in accordance with the Treaty;
(ii)  sustained  efforts  by  Member  States  to  speed  up  the  ongoing  fiscal  consolidation;  and  (iii)  a  continuation  of
responsible behaviour of social partners.

The  euro-area  policy  mix  was  tension-free  in 2000.  The  ECB  responded  to  risks  to  price  stability
while monetary conditions remained supportive to growth. The fiscal stance was neutral and wage
developments remained consistent with price stability and job creation.

In  an  environment  characterised  by  a  closing  output  gap  and  dangers  to  price  stability  from
imported inflation, the ECB raised its key policy rate on six occasions during 2000, by a cumulative
175  basis  points  to  a  minimum  bid  rate  of  4.75  per  cent  as  of  October.  Nevertheless,  monetary
conditions  remained  growth  supportive  but  the  combination  of  higher  interest  rates  and  a
weakening euro prevailing in most of 2000 affected the pattern of growth. More recently, monetary
conditions have tightened somewhat as the euro exchange rate responded positively to a favourable
shift in growth prospects relative to the USA and Japan.

7

Budgetary  consolidation  progressed  in  2000  to  the  extent  that  actual  positions  improved  in  all
countries; in the euro area as a whole the deficit fell by ½ a percentage point to an estimated 0.7 per
cent  of  GDP  (net  of  one-off  UMTS  proceeds),  slightly  better  than  foreseen  by  the  1999/2000
stability  programme  updates.  However,  the  improvement  essentially  stemmed  from  higher  than
anticipated  growth.  Clearly,  euro-area  Member  States  as  a  whole  did  not  seize  the  opportunity  to
improve underlying fiscal positions.

Wage  developments  in  the  euro  area  as  a  whole  remained  appropriate,  despite  the  emergence  of
some bottlenecks in cyclically advanced countries and skill shortages in some  professions  in  many
Member States. The growth of compensation per employee is estimated to have accelerated by half
a  point  to  2½  per  cent  in  2000,  but  as  a  result  of  productivity  gains,  nominal  wage  increases
remained fully compatible with price stability and sound job creation.

Macro-economic policies in the Member States outside the euro area in 2000

For  the  Member  States  outside  the  euro  area,  the  2000  BEPGs  also  recommended  that  they
maintain  sound  monetary  and  budgetary  policies,  in  order  to  respect  the  exchange  rate  commitments  (ERM  2
participants), or to achieve the inflation target (Sweden and the United Kingdom).

Denmark  remained  in  a  cyclically  advanced  position.  GDP  growth  picked  up  in  2000,  the  labour
market  has  been  tight  and  there  were  some  domestic  pressures  on  prices.  The  Danish  National
Bank succeeded in keeping the krone very close to its central rate of 7.44 DKK/E throughout the
year by following the interest cycle of the ECB; the spread widened only temporarily in the context
of  the  referendum  on  adopting  the  euro.  Public  finances  remained  in  healthy  surplus  in  2000,
although the fiscal stance was eased.

In  Greece  (which  was  not  part  of  the  euro  area  when  the  2000  BEPGs  were  adopted)  real  GDP
growth  accelerated  to  about  4  per  cent  in  2000.  The  output  gap  has  been  closing  while  inflation
remained contained. Budgetary consolidation progressed and the fiscal stance was tightened, also in
view  of  easier  monetary  conditions.  Short-term  rates,  still  above  10  per  cent  at  the  end  of  1999,
were gradually reduced to the level of the euro area by late December 2000 while the drachma was
gently steered down towards its central rate. This rate of 340.75  GRD/E  that  resulted from  a 3.5
per cent revaluation in January, is also the fixed conversion rate  effective  since  1  January 2001,  as
decided at the Feira European Council last June.

Sweden  again achieved  strong  growth  in 2000.  It  is in  an advanced  cyclical  position,  has  registered
considerable  employment  gains,  and  so  far  inflation  has  been  well  contained.  Even  though  taxes
were  cut,  the  strong  cycle and  the  lower  debt  burden  resulted  in  a  further  increase  in  the  healthy
budget  surplus.  The  Riksbank  increased  its  key  repo  rate  in  February  by  50  basis  points  and  in
December by another 25 bp to 4 per cent. Throughout the year, consumer price increases remained
in  the  lower  half  of  the  two  percentage  points  tolerance  interval  around  the  2  per  cent  inflation
target of the central bank.

8

In  the  United  Kingdom,  GDP  growth  accelerated  in  2000  and  the  economy  operated  close  to
potential.  Budgetary  and  monetary  policies  were  geared  to  secure  macroeconomic  stability.  The
budget  surplus  rose,  to  a  large  extent  owing  to  stronger  growth  and  lower  interest  payments.  In
addition,  sizeable  UMTS  proceeds  were  received  which  helped  in  reducing  public  debt  further.
Monetary  policy  continued  to  be  tightened  until  February 2000 when  the  repo  rate  reached  6  per
cent.  The  inflation  target  of 2½  per  cent  (retail  prices  excluding  mortgage interest  payments)  was
comfortably met.

2.2

SPEED UP FISCAL CONSOLIDATION

The 2000 BEPGs recommended Member States: (i) to take advantage of fiscal improvements due to better-
than-expected  economic  growth  to  achieve  budgetary positions in  2000  better  than  the  objectives  set  in  the  updated
stability and convergence programmes; (ii) to meet a budgetary position of close to balance or in surplus earlier than
envisaged in the updated stability and convergence programmes and as a rule in the year 2001; (iii) to pursue further
fiscal consolidation beyond the minimum to comply with the requirements of the Stability and Growth Pact.

In  2000,  actual  budgetary  positions  in  virtually  all  Member  States  improved  compared  to  1999,
implying either smaller deficits or higher surpluses and a reduction in government gross debt ratios.
Netting  out  the  budgetary  impact  of  the  one-off  UMTS  proceeds,  the  EU-wide  actual  budget
balance approached a balanced position while in the euro area the deficit is estimated to have been
reduced from 1.3 per cent of GDP in 1999 to 0.7 per cent of GDP in 2000. In fact, in virtually all
countries the estimated 2000 outcome (net of UMTS) is better than or equal to what was foreseen
in  the  1999  updates  of  stability  and  convergence  programmes.  Some  countries  significantly
overachieved  their  programme  targets  (Belgium,  Ireland,  Luxembourg,  the  Netherlands,  Finland,
Sweden  and  the  United  Kingdom).  Others  (in  particular  Germany,  France  and  Italy) did  not  take
full advantage of the better-than-expected growth conditions to speed up consolidation efforts.

Based  on  the  assessments  made  in  the  Commission  services’  Autumn  2000  Forecasts,  in  most
Member States the budgetary plans for 2001 provide for an implicit safety margin large enough to
allow the automatic stabilisers to play freely in case of a downturn without breaching the 3 per cent
of  GDP  reference  value.  The  exceptions  are  Germany,  due  to  the  implementation  of  the  tax
reform, and Portugal. In France, Italy and Austria the budgetary safety margins still remain on the
low side with estimated 2001 structural deficits close to or above 1 per cent of GDP.

The  current  emphasis  on  tax  cuts,  generally  not  matched  by  further  expenditure  restraint,  implies
that the more ambitious  consolidation  targets as  set  out in  the  1999/2000  updates  of  the  stability
and  convergence  programmes  are  not  likely  to  be  fully  met.  Some  countries  (Denmark,  Greece,
Ireland,  Luxembourg,  the  Netherlands,  Finland  and  Sweden)  recognised  the  need  to  pursue  fiscal
consolidation  beyond  the  minimum  required  by  the  Stability  and  Growth  Pact  and  accordingly
planned to reach (or retain) sizeable budget surpluses in the medium term.

9

2.3

IMPROVE THE QUALITY AND SUSTAINABILITY OF PUBLIC FINANCES

The  2000  BEPGs  recommended  Member  States  to:  (i)  improve  the  sustainability  of  public  finances
principally  through  expenditure  restraint;  (ii)  introduce  or  enhance  mechanisms  and  institutions  that  help  control
spending;  (iii)  redirect  government  spending  to  investment  in  physical  and  human  capital,  R&D,  innovation  and
information  technologies;  (iv)  review  benefit  systems;  (v)  reduce  the  tax  burden,  especially  on  low-wage  labour;  (vi)
promptly review pension  and  health  care  systems;  (vii) improve  the  efficiency  and transparency  of tax  systems;  (viii)
engage in reforms of the VAT system; and (ix) pursue tax-co-ordination further and reach an agreement on the tax
package.

Quality of fiscal consolidation

In  contrast  with  the  retrenchment  in  the  1990s,  which  relied  significantly  on  tax  increases,  the
current adjustment has so far been essentially based on expenditure restraint. Government revenues
as  a  share  of  GDP  were  reduced  for  the  first  time  in  many  years  while  the  expenditure  ratio
declined even further (excluding the impact of UMTS receipts). This achievement is in line with the
2000 BEPGs.

Efficiency of government spending

Little  progress  was  made  in  the  reform  of  expenditure  systems  even  if  the  issue  of  expenditure
control is increasingly highlighted. In some countries, there are substantial mechanisms in place for
controlling government expenditure (the Netherlands, Finland and Sweden have rigorous medium-
term  expenditure  frameworks,  the  UK  implements  three  year  envelopes  for  discretionary  central
government spending and France has medium-term norms for central government spending) while
in many others rigorous medium-term mechanisms are still lacking.

Fixed capital formation by general government in the EU is estimated to have remained at 2.3 per
cent  of  GDP  in  2000.  However,  investment  expenditure  is  expanding  faster  than  government
spending  at  large  and  the  share  of  public  investment  in  GDP  is  expected  to  rise  gradually.
Moreover,  several  Member  States  (especially  Ireland,  Italy,  the  Netherlands  and  Sweden)  re-
allocated  spending  towards  productive  uses,  especially  to  expenditures  in  the  domain  of  the
emerging knowledge-based society (see  also  Section 2.5).  Some improvements  have  been  made  in
the  accessibility  of  life-long learning and in  the  provision  of affordable  child-care  facilities,  but  in
virtually all Member States more progress is necessary to facilitate the reconciliation of professional
and family life.

Reforms  of  benefit  systems  lacked  ambition.  There  have  been  some  efforts  (in  particular  in
Denmark,  Finland,  Sweden  and  the  United  Kingdom)  to  tighten  benefit  entitlement  conditions,
thereby  supporting  participation  in  active  labour  market  programmes.  However,  so  far  the  shift
from passive to active measures  has  been  fairly  limited.  Very  few  Member  States  have  introduced
in-work  benefits  to  boost  earnings  of  low-paid  workers  (most  notably  the  United  Kingdom  and
Ireland). However, more Member States (including Belgium, France, the Netherlands and Finland)
plan to do so in the future.

10

Pension reform

Some progress was made in reforming public pension systems in a number of countries (Denmark,
Ireland,  Netherlands,  the  Austria,  Sweden  and  the  United  Kingdom)  and  ambitious  reform  plans
were  announced  in  Germany.  Further  reforms  are  now  strongly  required  in  Belgium,  France,
Greece, Spain, Italy and Portugal. While dialogue and consensus amongst social partners are needed
for reforms to succeed, there is a  disturbing  trend  for  reforms  in  these  countries  to  be  repeatedly
postponed. With the post-war baby boom generation fast  approaching  retirement  age,  delays  only
increase  the  cost  of  reform.  Several  Member  States  (Belgium,  Spain,  France,  Ireland  and  Finland)
have created  or  announced  the  establishment  of  pension  reserve  funds  that  will  be used  to  offset
some of the future increase in age-related expenditures. While this is a welcome development, these
reserve funds, with exception of Ireland, remain relatively small in relation to the budgetary impact
of ageing populations and need to be supplemented with other policies. Where reforms have been
undertaken,  there  is  a  trend  towards  limiting  entitlements  rather  than  raising  contribution  rates.
This  is  an  appropriate  development  which  needs  to  be  accompanied  by  more  ambitious  plans  to
promote funded systems, via the establishment of a sound regulatory and fiscal framework.

Reform of tax system

For the first time since the 1970s, the overall tax burden is on a declining trend. Some progress was
made towards making tax systems more efficient, and especially  more  employment-friendly.  Many
countries  took  steps  to  reduce  taxes  on  labour  (Belgium,  Denmark,  Germany,  Greece,  Spain
France,  Italy,  Austria,  Finland  and  Sweden),  notably  employer’s  social  security  contributions,
especially  at  the  lower  end  of  the  wage  scale.  Although  most  reforms  provided  for  generalised
reductions  in  taxes,  some  countries  clearly  targeted  reductions  at  low-paid  families  with  children
(Greece, Austria and the United Kingdom).

Efficiency  and  transparency  of  the  personal  income  tax  were  improved  as  several  countries
(Denmark, Germany, Spain, France, Ireland, Italy and the United Kingdom) widened the  tax  base
and/or  reduced  marginal  tax  rates  and  plan  to  go  further  in  this  direction  in  the  coming  years.
Other  countries  (the  Netherlands,  Portugal,  Finland  and  Sweden)  planned  to  do  so  from  2001
onwards.  These  reforms  are  expected  to  be  all  the  more  efficient  as  they  mainly  concern  direct
taxes, which typically have larger distortionary effects.

As regards the reform of VAT, measures envisaged or implemented have been rather limited in the
last  few  years.  Afraid  of  losing  tax  revenues,  several  Member  States  were  reluctant  to  go  further
with  the  harmonisation  of  the  tax  as  required  by  the  definitive  system  proposed  in  1987  by  the
Commission.

Consequently, in June 2000 the Commission proposed a new VAT Strategy which concentrates on
improving the current VAT system. Furthermore, following Council Directive 1999/85/EC  of  22
October  1999,  a  significant  number  of  Member  States  were  authorised  to  apply a  reduced  rate  to
certain  categories  of  labour-intensive  services, which,  although  only  affecting a  small  share  of  the
total tax base, led to the lowering of the tax rate in these countries.

11

Tax package

At  the  ECOFIN  Council  meeting  in  November  2000,  finance  ministers  reached  a  significant
agreement on the key points for the implementation of the  tax package agreed in December 1997
and  designed  to  curb  harmful  tax  competition  and  reduce  the  current  distortions  of  the  Single
Market. Progress was made on all three elements of the tax package: the Code of Conduct (business
taxation), the proposal for a directive on taxation of savings income and the proposal for a directive
on interest and royalty payments between associated companies.

As for the Code of Conduct, the finance ministers confirmed the timetable agreed in 1997 for the
rollback of the harmful measures.    They also  agreed  that  no  new  beneficiaries shall  enter  into  the
harmful  regimes  after  31  December  2001  and  that,  irrespective  of  whether  granted  for  a  fixed
period of time or not, all the benefits from the harmful measures must run out by the end of 2005.
Only in the presence of particular circumstances and an express decision by the Council on a case-
by-case basis the effects of the harmful  measures  may  continue  beyond  that  date.    As  regards  the
taxation  of  savings  income  the  finance  ministers  approved  the  substantial  content  of  the  future
directive.  Equally,  it  was  agreed  that  the  Presidency  and  the  Commission  should  enter  into
discussions with key non-member countries to ensure the adoption of equivalent measures in those
countries  and  the  Member  States  were  invited  to  report  regularly,  starting  from  June  2001,  on
similar  discussions  with  their  dependent  or  associated  territories  with  a  view  to  ensuring  the
adoption  of  the  same  measures  in  these  territories.  With  respect  to  the  interest  and  royalty
payments  between  associated  companies  the  finance  ministers  reached  a  compromise  solution  on
all outstanding points of disagreement.

The ECOFIN Council reaffirmed the deadline of 31 December 2002  established at  the  European
Council in Feira for the final agreement on the tax package as a whole.  Work  will  continue  on  all
three elements of the package with this timetable in view.

2.4 PROMOTE APPROPRIATE WAGE DEVELOPMENTS

The 2000 Broad Economic Policy Guidelines (i) required that nominal wage increases be consistent with price
stability;  (ii)  stressed  the  importance  of  real  wage  developments  for  strong  employment  growth;  (iii)  demanded  that
collective  bargaining  systems  take  account  of  productivity  differences;  and  (iv)  insisted  on  a  policy  aiming  to  reduce
gender pay differences due to de facto discrimination.

Aggregate wage developments

Wage  moderation  continued  to  prevail,  although  nominal  wage  increases  in  2000  accelerated
slightly  from  the  very low  rate  in  1999.  Wage  growth  in  the  euro  area  remained  stable  at  3.2  per
cent  in  the  third  quarter  of  2000  and  there  is  no  evidence  that  wage  earners  have  been  trying  to
recoup  the  losses  in  purchasing  power  resulting  from  high  oil  prices.  Structural  reforms  in  the
labour  markets  are  dampening  wage  claims  and  the  terms  of  trade  shock  due  to  energy  price
developments  seemed  to  be  largely  perceived  as  temporary.  However,  it  is  worth  stressing  that
wage moderation in 2000 owed much to wage settlements concluded before the oil prices went up.

12

Hourly wage increases accelerated in a third of the Member States (especially in Ireland, but also in
Belgium,  Denmark,  Luxembourg  and  Portugal)  –  these  are  chiefly  the  countries  with  the  tightest
labour markets. On the other hand, high increases in hourly wage rates in France in 2000, were the
result  of  the  implementation  of  the  35-hour  working  week,  and  are  not  likely  to  be  repeated  in
2001. Some other Member States with high unemployment, such as Germany, Spain and Italy, had
limited wage increases.

Wage  moderation  is likely  to  continue  in  2001  as  the  partial  reversal  of  the  terms  of  trade  shock
diminishes  the  risk  of  second  round  effects.  Furthermore,  although  there  is  some  evidence  of
labour  shortages  in  some  Member  States  or  some  sectors,  this  does  not  seem  to  be  enough  to
jeopardise the current trend of wage moderation. Finally, cuts in income taxes should help to keep
wage claims in check.

As  a  result  of  these  developments,  real  unit  labour  costs  are  expected  to  have  fallen  in  2000.  In
2001 a further annual fall of some ½ per cent is likely in the EU. In five Member States (Belgium,
Germany, the Netherlands, Portugal and Sweden) real unit labour costs have gone up, in the others
they have fallen.

Wage differentiation and gender gap

The  degree  of  difference  in wages  according  to  skill  or  qualification,  a  pressing  issue  at  the lower
end of the pay scale, has only been dealt with through the lowering of non-wage labour cost for the
low paid. No major initiatives have been taken to reform statutory minimum wages or the collective
wage  bargaining  process.  Hardly  any  reforms  have  been  implemented  to  allow  wages  to  develop
more in line with regional productivity differences (see also below under labour market reforms).

Data  do  not  allow  to  conclude  whether  there  has  been  an  improvement  over  the  last  year  with
respect  to  the  gender  gap.  On  average  women’s  earnings  are  83  per  cent  of  men’s  –  with  the
difference  being  larger  in  the  private  sector  than  in  the  public  sector  –  but  this  is  due  to  a
combination of factors, including the fact that many women work in lower paid sectors. Among the
Member States, the differences are largest in Germany,  Austria  and  the United  Kingdom,  and  the
smallest  in  Belgium,  Spain  and  Portugal.  Although  many  Member  States  report  on  policies  to
decrease the gender gap in wages, the results still have to be closely monitored and assessed.

2.5 FOSTER A KNOWLEDGE-BASED SOCIETY

The 2000 BEPGs recommended to: (i) provide conditions to increase the involvement of the private sector in the
financing of Research & Development expenditures; (ii) stimulate competition in product and capital  markets;  (iii)
ensure  efficient  and  adequate  public  support  for  the  funding  of  research,  the  establishment  of  better  links  between
research institutes and business and ensure the dissemination of information; (iv) ensure availability of low-cost, high-
speed internet access; (v) reduce the fragmentation and compartmentalisation of the Research & Development  effort;
and (vi) strengthen education and training efforts.

Europe’s transition to the knowledge-based society is progressing, but should be speeded up. This
late  transition  can  be  associated  with  insufficient  investments  in  human  capital,  in  research  and
development  (R&D)  and  in  information  and  communication  technologies  (ICT).  The  Lisbon
European Council identified innovation and research as one of the pillars of the Union’s effort to

13

achieve  its  strategic  goal  of  becoming  the  most  competitive  knowledge-based  economy  in  the
world. In response, the Member States have made a serious effort to catch up.

Research and Development (R&D)

In spite of this effort, overall spending on R&D in the European Union remains at 1.8 per cent of
GDP.  The  European  picture  is  heterogeneous  though:  Sweden  (with  close  to  4  per  cent)  and
Finland,  followed  by  Germany  and  France,  appear  to  be  most  advanced,  while  the  Southern
Member States,  in  particular,  are less  advanced.2  While  public  expenditures  on  R&D  expressed  in
percentage  of  GDP  are  equivalent  in  Europe  and  in  the  United  States  (at  around  0.7  per  cent),
business expenditures are much lower in the former (1.2 per cent in 1999) than in the latter (2.0 per
cent).  In  some  countries  such as  Finland and  Sweden, a  rapid  rise in  business  R&D  expenditures
has  taken  place  over  the  recent  period,  but  in  most  other  EU  Member  States,  private  sector
involvement in R&D as a percentage of GDP has not increased.

In  order  to  encourage  business  expenditures  on  R&D,  Germany,  Greece,  Spain,  Ireland,  the
Netherlands, Austria, Portugal and the United Kingdom have introduced new incentive schemes or
upgraded  existing  ones,  for  example  by  using  tax  measures.  Progress  has  been  made  in  the
implementation of the Risk Capital Action Plan (see Section 2.7). Measures to enhance competition
in product and capital markets continue to be implemented, creating a business environment more
favourable to innovation and technological progress (see Section 2.6).

Despite progress made in streamlining the research infrastructure, the industry-science relationship,
and more precisely the commercialisation of the research effort, remains one of Europe’s structural
weaknesses. In spite of a significant rise in the share of high-tech exports in total European exports
(from 13.5 per cent in 1991 to 19.3 per cent in the first half of the year 2000),3 the high-tech export
share  is  particularly  low  in  Belgium,  Greece,  Spain,  Italy and  Portugal.  Many  Member  States  have
introduced new measures aimed at improving the links between publicly owned research institutes
and  business.  However,  there  is  still  room  for  improvement  in  the  design  of  the  collaboration
mechanisms, in order to have more commercially oriented technology transfers.

Additional public funds have been allocated to R&D in Ireland, Italy, the Netherlands and Sweden,
but more importantly the focus is shifting toward the creation of centres of excellence, innovative
clusters, and  various  technology  transfer  mechanisms  to  facilitate  the  commercialisation  of  R&D.
Moreover, the Community strategy, “Towards a European Research Area”, has been introduced to
remedy  fragmentation  and  compartmentalisation  of  R&D  efforts  in  Europe  by  linking  research
networks  across  borders  and  facilitating  collaboration.  However,  an  agreement  on  a  Community
patent has not yet been achieved.

Information and communication technologies (ICT)

The lagging growth rate of the EU economy in comparison with the USA in the second half of the
1990s has been associated with the smaller  size  of  the  ICT  producing sector  in  Europe  as  well  as
with lower investments in ICT in other sectors of the economy. In 1999, the GDP share of the ICT
producing  sector  in  the  EU  (4.2  per  cent)  remained  well  below  that  in  the  US  (6.8  per  cent).
However, the EU has been catching up with the USA in terms of ICT diffusion. In the year 2000,
ICT expenditures in the Union were 5.8 per cent of GDP, which was marginally above the 5.6 per

2

3

The corresponding figure for the United States is 2.7 per cent.
The corresponding figure for the United States was 28.7 per cent in 1998.

14

cent recorded for the USA. This is one indicator of the widespread progress across the EU in ICT
diffusion.

Another indicator is the internet penetration rate in EU  homes,  which went  up  by  ten  percentage
points between April and October 2000 (to 28 per cent). However, there are important differences
between  Member  States.  Some  Member  States  (Denmark,  the  Netherlands  and  Sweden)  have
reached levels of internet penetration that surpass even the USA, while in others  (Greece, France,
Spain,  and  Portugal)  internet  penetration  rates  are  much  lower.  The  cross-country  variation  in
internet  usage  may  be  explained  by  differences  in  local  phone  charges,  home  personal  computer
ownership and the reliability of service providers. In combination with the liberalisation of telecom
industries, in particular the local loop unbundling, high  bandwidth  networks and  new access  tools
are making internet access both faster and cheaper. Countries such as Denmark, Germany, France
and the United Kingdom are also extending internet access through public-private partnerships or
by  establishing  connections  at  public  libraries.  In  line  with  the  eEurope  Action  Plan,  all  Member
States  are linking schools  to  the  internet  with  the  aim  of  increasing  digital  literacy  through  better
and  more  widespread  access  and  use  of  the  internet  in  schools.  The  impact  of  the  differences
between Member States in the allocation mechanisms for UMTS licences has yet to unfold, but the
choices made could have an effect on the diffusion of third-generation mobile phone technology.

The slower than expected take-up of electronic commerce, especially by consumers, is a particular
area  of  concern.  This  is  despite  significant  progress  on  the  regulatory  framework  and  steps  to
strengthen  consumer  confidence.  Only  66  per  cent  of  SMEs  and  76  per  cent  of  large  companies
have access to the internet. However, only 6 per cent can carry out true e-commerce. In this area as
well there are important cross-country differences. The introduction of ‘unmetered’ phone charges
in countries such as Germany, the UK and Spain makes it possible for Internet shoppers to browse
and purchase without being concerned by per minute charges.

Education and training aspects of the knowledge-based society

Most  Member  States  have  taken  measures  to  strengthen  ICT  education  and  training  efforts,
particularly  in  view  of  the  well-publicised  shortage  of  skilled  ICT  professionals  in  Europe.
Although almost half of the working population use computers as part of their work, less than 22
per cent have  had  any formal  computer  training.   Of  course,  the  role  of  general  education  is  also
critical in this respect -- it is interesting to note that in the Nordic countries, where the diffusion of
ICT has been most rapid, public expenditure on  education  is also  the  highest  as  a  share  of  GDP.
The US experience so far suggests that the knowledge-based society has the potential to create jobs
throughout the economy -- across a wide range of sectors, occupations and skill levels.  Recent job
creation  in  the  EU  has  been  predominantly  in  'high  education'  areas  (i.e.  managers,  professionals,
technicians), where ICT skills may be more in demand.  The other side of the coin, however, is that
job creation among the low-skilled in the EU remains very  low.   Progress  on  education  initiatives
which take into account the needs of this group (including the need to improve general basic skills,
as well as ICT skills) has perhaps been more limited.

15

2.6 ENSURE EFFICIENT PRODUCT MARKETS

The  2000  BEPGs  recommended  to:  (i)  implement  the  internal  market  legislation  fully  and  effectively;  (ii)
ensure  the  independence  of  competition  authorities;  (iii)  reduce  State  aid;  (iv)  complete  the  liberalisation  of  the
telecommunications market; (v) speed up the liberalisation of the energy, postal services and transport sectors and fully
implement  the  Community  Directives  that  open  markets  for  public  utilities;  (vi)  reinforce  competition  in  services
sectors; (vii) reduce regulatory burdens on business; (viii) develop a systematic approach to  the  regulatory  framework
for services; and (ix) monitor the effective implementation of the many regulatory reforms.

Over  the  course  of  the  past  year,  the  functioning  of  European  product  markets  has  improved
thanks to  better  co-ordination  of  national  policies in  various  domains,  the  increased  transposition
of  Internal  Market  Directives,  the  reinforcement  of  competition  authorities’  powers,  the
liberalisation  of  the  telecommunications  and,  to  a  lesser  degree,  energy  sectors.  A  less  positive
assessment is made of progress in the areas of public procurement, State aid, administrative reform
and  efforts  to  reduce  the  regulatory  burden  on  business,  while  the  creation  of  a  truly  integrated
European  market  for  business  services  and  the  liberalisation  of  the  transport  and  postal  sectors
remain problematic.

Completion of the Internal Market

Survey results show an increasing level of satisfaction among businesses with the operation  of  the
Internal  Market.  This  is  consistent  with  the  observation  that  transposition  of  Internal  Market
Directives  has  considerably  improved  in  most  Member  States.  However,  the  transposition  gap
between  Greece  and  other  Member  States  has  increased as important  reforms  are  still  pending  in
that country. France and Portugal have improved their performance, but their transposition deficits
are still more than three times as large as those of the best performers.

Some Member States, including Spain and Italy, have significantly increased their efforts to facilitate
the  opening  up  of  public  procurement.  In  particular,  a  more  widespread  use  of  the  electronic
publication and dissemination of calls for tenders is foreseen. This might help resolve the structural
problem  of  insufficiently  transparent  tendering  procedures,  particularly  at  the  local  and  regional
level. The share of public procurement tenders published in the Official Journal as a percentage of
GDP  is  still  relatively  low  in  Germany,  the  Netherlands  and  Austria.  The  rapid  adoption  and
enforcement of the new legislative package presented by the Commission in May 2000 will increase
transparency, openness and competition in public procurement markets.

Progress  in  the  area  of  competition  policy  is  encouraging.  The  reinforced  capacity,  independence
and resources of the competition agencies in most Member States is a positive development, even if
progress could be more rapid in improving the institutional framework in some countries.

Sectoral and ad-hoc State aid levels are declining gradually in most Member States, but continue to
distort competition in European markets, particularly in Belgium, Germany, France and Portugal,4
where  such  aids  remain  relatively  high.  The  European  Commission  intends  to  create  a  public
register  of  State  aids  and  publish  its  first  scoreboard  on  State  aid  in  the  first  half  of  2001.  The
register and the scoreboard serve to increase the transparency of national and Community policies.

4

The high amount of such aid in Portugal is largely due to a single regional aid scheme for Madeira -
accounting for 0.8 per cent of GDP - that has many characteristics of a sectoral scheme. Since January 2001,
this aid scheme is closed for new applications and the Portuguese proposal for its renewal is currently being
examined by the Commission.

16

Over  the  last  decade,  EU  goods  markets  have  become  more  and  more  integrated,  resulting  in
stronger  competition  and  a  gradual  convergence  of  price  levels  between  Member  States.  The
variation  of  consumer  prices  between  Member  States  declined  from  18.2  per  cent  in  1992  to  an
estimated  14.4  per  cent  in  1999.  Technical  barriers  to  cross-border  trade  within  the  EU  remain  a
problem, especially in certain sectors (food and beverages, and motor vehicles, in particular).

Public utilities

Some of the sector-specific economic reforms undertaken have already started to pay off in terms
of  price  reductions  for  the  consumer.  The  liberalisation  of  the  telecommunications  sector,  for
instance,  has  contributed  to  significant  reductions  in  the  costs  of  long-distance  calls.  Technical
progress  has  had  an  impact  as  well.  In  Belgium,  Spain,  Italy  and  Austria,  however,  long-distance
national  calls  remain  relatively  expensive.  Prices  have  fallen  less  for  local  calls,  which  is  due  to  a
large extent (in many cases) to a re-balancing of tariffs. However, it also indicates that work towards
strengthening competition in local access networks needs to continue.

In the energy market, progress is somewhat less clear. Price reductions and improvements in choice
and quality of service delivered have generally been most evident in those countries that have gone
furthest  and  fastest  in  opening  up  their  markets,  while  ensuring  the  fulfilment  of  the  universal
service obligations and a sufficient level of competition in the liberalised markets. The setting up of
independent  regulatory  bodies  has  contributed  to  consolidate  reforms  in  most  Member  States.  In
Germany, for example, the liberalisation of the energy sector is well advanced but no independent
regulatory body has been created, which has been a factor contributing to large regional differences
in  the  fees  for  the  use  of  local  electricity  distribution  networks.  Complete  market  opening  with
uniformly  implemented  rules  and  tight  deadlines  in  both  production  and  distribution  should  now
be the target.

The further opening up of  the  transport  sector  to  competition  and  the  liberalisation  of  the  postal
sector continue to pose problems. In the postal sector, the need to reach an agreement on market
opening and on the regulatory framework to be put in place is becoming increasingly urgent. In rail
transport,  an  agreement  was  reached  on  the  market  opening  of  international  rail  freight,  but  the
challenge  regarding  passenger  transport  and  domestic  rail  freight  remains.  In  public  rail  and  road
transport,  a  number  of  smaller  steps  (a  revision  of  the  tariff  system  for  access  to  the  rail
infrastructure  network  in  France,  the  legal  separation  of  rail  infrastructure  management  and
operations  in  Italy,  the  introduction  of  a  system  of  concessions  to  bus,  tram  and  underground
transport networks in the Netherlands, etc.) have been taken to facilitate market opening at a later
stage.  In air  transport,  further  action  is  urgently  needed,  building  on  the  recommendations  of  the
High  Level  Group  on  Air  Traffic  Reform  concerning  the  creation  of  a  single  European  sky  and
revising the rules on the allocation of airport slots.

17

Services

A majority of firms involved in the cross-border provision of services report remaining barriers to
their activities in other countries. Professional services (lawyers, auditors etc.), in particular, remain
subject  to  access  restrictions  in  many  Member  States,  including  Germany,  Greece  and  Italy.  The
absence  of  a  true  internal  market  in  services  has  led  the  Commission  to  adopt  a  new  horizontal
strategy  for  this  sector.  Moreover,  competition  in  the  distribution  sector  will  benefit  from  the
growth  of  B2C  e-commerce,  especially  in  the  Netherlands,  Sweden,  and  the  United  Kingdom,
countries  with  an  e-commerce  share  in  total  retail  sales  similar  to  that  in  the  United  States.  This
development  is  especially  important  in  countries  like  Sweden  and  Finland,  which  suffered  most
from  an  insufficient  level  of  competition  in  distribution.  However,  specific  measures  to  deal  with
this problem have yet to be introduced in these two countries.

Regulatory reform

Different  measures  (including  one-stop-shops,  e-government  and  business  tax  reform)  have  been
taken  to  reduce  the  administrative  burden  on  enterprises,  whereby  particular  attention  has  been
given to the needs of start-ups as well as other  small and  medium  sized  enterprises.  Nevertheless,
there  remains  a  significant  scope  for  a  simplification  of  administrative  procedures  imposed  on
businesses  in  the  Member  States,  especially  in  Belgium,  Greece,  Spain  and  France.  Efforts  to
increase  the  efficiency  of  public  administration  have  been  particularly  evident  in  countries  with  a
large  public  sector,  such  as  the  Nordic  Member  States,  but  also  in  Italy,  the  Netherlands  and
Portugal.

Increasingly,  public  sector  bodies  or  public  private  partnerships  are  supplying  market  goods  or
services. As they enter into direct competition with private enterprises, rules need to be laid down
ensuring  transparency  and  competition  on  equal  terms.  For  competition  to  lead  to  efficient
outcomes, public and the private entities must compete on a level playing field. In the Netherlands
and Sweden, specific measures are being considered to ensure that this is the case.

The Commission has published several reports on its monitoring of the effective implementation of
the  reforms  and  of  their  impact  in  terms  of  efficiency  and  consumer  benefits.  Benchmarking  has
been  increasingly  used  in  several  structural  policy  domains.  In  this  respect,  the  agreed  list  of
structural indicators provides a useful tool for comparing progress.

2.7 PROMOTE  CAPITAL  MARKETS  TROUGH  FURTHER 

INTEGRATION  AND

DEEPENING

The  2000  BEPGs  recommended  to:  (i)  establish  a  “single  passport  for  issuers”;  (ii)  eliminate  barriers  to
investments in and by pension funds and clarify the distinction between sophisticated and retail investors; (iii) promote
further integration of government bond markets; (iv) improve the efficiency of securities clearing and settlement systems;
(v) enhance the efficiency of cross-border retail payment services; (vi) enhance the comparability of financial statements
of companies (vii) promote the development of new firms and investment in venture capital; (viii) ensure more intensive
co-operation between EU financial market regulators and supervisors; and (ix) follow-up on EU provisions on take-
over bids and on the restructuring and winding-up of credit institutions and insurance companies.

18

Specifically, the Lisbon European Council, which highlighted the need to intensify efforts to create
an integrated EU financial system, called for implementation of the Community's Financial Service
Action  Plan  (FSAP)  by 2005  and  for  implementation  of  the  Risk  Capital  Action  Plan  (RCAP)  by
2003.  In  line  with  this  mandate,  the  2000  BEPGs  recommended  swift  action  in  a  set  of  priority
areas identified in the FSAP and in the RCAP.

Implementing the Financial Services Action Plan (FSAP)

Progress has been made in many of these  priority  areas.  For  instance,  the  Commission  has  tabled
proposals designed to create a fully operational ‘single passport’ for investment firms, to clarify the
distinction between sophisticated and retail investors, to ensure that pension funds enjoy sufficient
freedom  to  develop  an  effective  investment  policy  and  to  harmonise  accounting  standards.  The
Commission  has  also  tabled  a  Communication  on  E-Commerce  and  financial  services,  which
should help negotiations on the draft directive on distance marketing of financial services to make
progress in the Council. The adoption of a proposed Directive on take-over bids hoped for the by
end of 2000 will be subject to conciliation  between  the  Council  and  the  Parliament.  The  directive
on the winding up of insurance institutions was adopted and the negotiations on the draft directive
for the winding up of credit institutions are progressing well. In order to facilitate implementation
of  the  FSAP,  the  Lamfalussy  Group  was  established  in  July  2000  with  a  mandate  to  propose
improvements in the framework for EU regulation of securities markets. The Group's final report,
which recommends a series of procedural changes, was published on 15 February 2001.

Implementing the Risk Capital Action Plan (RCAP)

Progress has also been made in developing the EU
risk capital market. In addition to those actions
under the FSAP that are relevant to the implementation of the RCAP, progress has been  made at
the national level.

A  key  area  requiring  a  national  response  has  been  the  easing  of  legal/regulatory  constraints  on
institutional  investment  in  equity  markets  and  venture  capital.  Only  four  Member  States  (Ireland,
the  Netherlands,  Finland  and  the  United  Kingdom)  have  no  such  constraints  -  beyond  a  general
requirement for prudence - on institutional investment in equities. Constraints  have  been  eased in
Belgium, Sweden, France, Italy and Spain and the Danish government proposes to introduce rules
on  institutional  investment  in  equity  based  on  prudential  considerations.  Finland  and  the  United
Kingdom  are  taking  measures  to  further  encourage  investment  by  institutional investors  in  equity
markets.

A second key area requiring a national response relates to the removal of fiscal disincentives to risk-
capital investment (to be achieved by adjustment of taxation of corporate profits and capital gains).
Fiscal  disincentives  have  been  addressed  in  several  Member  States.  Belgium  has  taken  fiscal
measures  in  favour  of  spin-off  and  start-up  companies;  France  has  offered  fiscal  incentives  for
investment by business angels; Greece and Spain have increased existing tax relief on capital gains;
Italy  has  reinforced  its  Dual  Income  Tax  system  of  1998  which  favours  equity  financing  of
corporations.  On  the  other  hand,  little  has  been  done  to  address  the  disincentive  effects  of
bankruptcy  and  insolvency  procedures,  except  in  Italy  and  the  Netherlands.  Similarly,  too  few
countries have taken steps  to  ensure  that  the  taxation  of  share  ownership and  stock  options  does
not act as a disincentive to entrepreneurship.

19

 
As recommended in the October 2000 Progress Report on the RCAP, Member States' efforts will
need  to  be  intensified,  accelerated  and  extended  if  the  RCAP  is  to  be  implemented  by  the  2003
deadline.

Safeguarding financial stability

The  2000  BEPGs  addressed  the  issue  of  stability  in  the  EU  financial  system,  recommending
improved  co-ordination  among  national  supervisors.  While  no  change  was  advocated  to  the
existing  institutional  arrangements,  it  was  recommended  that  the  practical  functioning  of  those
arrangements should be enhanced.

Several  Member  States  have  taken  measures  to  strengthen  co-ordination  between  their  national
supervisors. In Germany, plans to integrate the supervisory  authorities  for  the  banking  sector,  the
insurance sector and securities markets have been announced. In France, the banking and insurance
supervisory  authorities  are  to  co-ordinate  more  closely,  while  the  securities  regulatory  authorities
are  to  be  merged.  In  the  Netherlands,  a  formal  consultative  body  has  been  set  up  as  a  forum  in
which the various financial supervisors discuss cross-sectoral issues. In Portugal, the creation of the
National Council of Financial Supervisors should  contribute  to  promote  co-ordination  among  the
different  supervisors  of  the  financial  system.  Measures  have  also  been  taken  to  improve  the
exchange of information between supervisors in different Member States. For instance, the Danish,
Swedish  and  Norwegian  Financial  Supervisory  Authorities  have  signed  a  co-operation  agreement
covering  the  entire  financial  sector.  However,  it  would  seem  necessary  to  build  on  the  progress
made so far.

2.8

INVIGORATE LABOUR MARKETS

The  2000  BEPGs  recommended:  (i)  promote  the  transition  from  passive  to  active  measures;  (ii)  review  and
reform tax and benefit systems; (iii) enhance labour mobility; (iv) modernise work organisation; (v) strengthen efforts
on equal opportunities policy; and (vi) work towards a more inclusive labour market by the end of 2000.

The improvement in labour market performance continues, with rapid employment growth (1.7 per
cent)  and  a  fall  of almost  one  percentage  point  in  unemployment  during  2000.   This  is  to  a  large
extent due to the cyclical upswing, but the evidence also suggests a fall in structural unemployment,
thanks  to  the  strategy  of  labour  market  reforms  and  active  measures  to  improve  employability.
Long-term  unemployment  fell  from  over 49  per  cent  of  total  unemployment  in  1997  to  45.7  per
cent  in  1999.    However,  progress  has  been  uneven  with  some  labour  markets  showing  signs  of
tightening.

A  few  Member  States  (Denmark,  the  Netherlands  and  the  United  Kingdom)  are  reaping  the
benefits  of  earlier  comprehensive  labour  market  reforms.    However,  problems  remain  in  all
Member States, and most have pursued a piecemeal approach, thereby failing to exploit the possible
synergies between different reforms. On the whole, Member States have not taken full advantage of
the  current  macroeconomic  conditions  to  introduce  the  structural  reforms  that  will  be  needed  to
sustain the favourable employment performance of recent years.

20

Active labour market policies

One area where good progress has been made is in implementing active and preventive measures to
tackle  youth  and  long-term  unemployment
  Only  Belgium,  Greece  and  Italy  still  need  to  take
.
significant further steps to hit the targets for early activation set in the Employment Guidelines by
2002.  However, while many Member States have increased spending on active measures in recent
years, efforts to improve the design and monitoring of these policies need to be redoubled, in order
to ensure efficiency.

Most Member States are broadening support for young people with learning difficulties and taking
steps to equip young people with a greater capacity to adapt to technological and economic change.
All  Member  States  are  improving  ICT  equipment  in  schools.    They  are  also  devoting  increased
attention to the promotion of lifelong learning, although only  Denmark,  Ireland,  the  Netherlands,
Finland, Sweden and the United Kingdom have set out a comprehensive approach.

Tax and benefit systems

There  remains  ample  scope  for  further  reform  of  tax  and  benefit  systems  to  ensure  appropriate
incentives to seek and take up employment, particularly given the need to increase labour supply in
many  Member  States.    This  applies  also  to  some  with  very  low  official  unemployment  rates,  but
with  significant  numbers  of  'hidden  unemployed'  receiving  passive  benefits,  such  as  Denmark,
Luxembourg,  the  Netherlands  and  the  United  Kingdom.  Passive  benefits  include  disability  and
early  retirement  pensions,  which  are  not  conditional  on  seeking  work.  Some  Member  States  have
reformed early retirement schemes or taken other measures to reduce incentives to withdraw early
from the labour market.

During the 1990s, a number of Member States undertook reforms of tax and benefit systems, but
only in some cases addressing both taxes and benefits in a comprehensive manner. Many Member
States  have  reduced  taxes  on  labour  recently  (see  Section  2.3),  and  further  reforms  have  been
announced.  However, during the year 2000 there has  been  little  in  the  way  of  benefit  reforms  or
comprehensive tax and benefit reforms, even though it is the  overall impact  of  taxes  and  benefits
that  is  crucial  to  people's  labour  supply  decisions.  Several  Member  States  (Belgium,  France,  the
Netherlands,  Austria  and  the  United  Kingdom)  have  pursued  or  intend  to  pursue  measures  that
explicitly  address  the  combined  incentive  effects  of  taxes  and  benefits.    These  in-work  benefits
typically  aim  to  boost  the  income  of  low-paid  working  people  or  families  while  minimising
disincentive effects due to high marginal effective tax rates.

Flexibility and modernisation of the labour market

A  lack  of  labour  market  flexibility  is  one  of  the  factors  underlying  the  high  rates  of  structural
unemployment still  witnessed in  Belgium,  Germany,  Greece,  Spain,  France,  Italy and  Finland.   In
most  cases,  this  is  accompanied  by  severe  regional  disparities,  yet  little  has  been  done  to  reform
where appropriate wage formation systems so that these better reflect local productivity and labour
market  conditions.  Limited  measures  have  been  taken  to  promote  labour  mobility,  but  further
progress here is needed. Mobility is impeded by rigidities in the housing market in several Member
States,  as  well  as  the  lack  of  progress  on  mutual  recognition  of  qualifications  and  portability  of
pension rights.

21

There has been some progress in the modernisation of work organisation, including the facilitation
of  part-time  work  and  more  flexible working  arrangements.    Agreements  in  these  areas  may  have
served  to  minimise  any  negative  effects  of  statutory  reductions  in  working  time.  However,  the
degree of involvement of the social partners in this area has been disappointing. Moreover, unless
rigidities under existing employment contracts are addressed, there is a  risk  that  employers  will  be
forced to rely on temporary contracts, even when longer-term arrangements would be appropriate.

Nothing has been done in 2000 to address strict employment protection legislation for permanent
contracts in Spain, France, Italy and Portugal. In these countries, the growth of fixed-term contracts
was well in excess of the increase in permanent jobs, underlining the need for greater flexibility.

Equal opportunities and social inclusion

As far as equal opportunities are concerned, most Member States  have  taken  specific  measures  to
address low female employment rates, occupational segregation and pay differentials between men
and women.  These are assessed in detail in the Joint Employment Report 2000. Few measures are
proposed in two of the countries with the lowest female employment rates, Greece and  Italy.  Tax
and benefit reforms in some Member States (such as Luxembourg and the Netherlands) appear to
paying off in terms of increased female  participation.    In  addition,  almost  all  Member  States  have
taken significant steps to improve childcare facilities for working parents.

As regards social inclusion, the progress made in reducing unemployment – particularly youth and
long-term unemployment – over the course of 2000 is encouraging.  Little has been done, however,
to  tackle  the  basic  rigidities  that  underlie  severe  regional  unemployment  disparities,  which  have
serious  consequences  in  terms  of  cohesion.    In  addition,  as  overall  unemployment  has  fallen,  its
disproportionate  impact  on  certain  communities  and  social  groups  has  become  more  apparent.
Several Member States have taken employment initiatives targeted at deprived areas, single parents
and ethnic  minorities,  to  name  three  examples.    Many  Member  States  have  targeted  reductions in
the tax burden on labour towards the low-paid, partly with the aim of improving the job prospects
of the low skilled, who are also heavily over-represented among the unemployed. However, there is
a  need  for  a  more  integrated  approach  towards  social  inclusion,  combining  policy  measures  in
different areas, in light of the common objectives agreed by the European Council of Nice.

22

2.9 ENHANCE SUSTAINABLE DEVELOPMENT

The 2000 BEPGs were the first to include a separate section on sustainable development. Member
States  were  recommended  to:  (i)  introduce  or  strengthen  market-based  policies  like  taxation,  user  charges,
insurance/liability  schemes  and  tradable  permits;  help  achieving  the  EU  objectives  under  the  Kyoto  protocol;  and
contribute to break the link between environmental pressure and economic growth; (ii) reassess sectoral subsidies and
tax exemptions and other existing measures which have a negative environmental impact while taking full account of
other relevant economic and social factors; (iii) work to agree on an appropriate framework for energy taxation at the
European level.

A number of Member States took action to strengthen market-based approaches to environmental
issues.  Germany  continued  to  implement  its  policy  of  shifting  the  tax  burden  from  labour  to
energy.  Attempts  by  France  to  do  likewise  by  extending  the  scope  of  the  Taxe  générale  sur  les
activités polluantes (TGAP) to electricity use were ruled out by the constitutional court. The United
Kingdom continued preparations to introduce a revenue-neutral climate change levy, with revenues
being  used  to  cut  social  insurance  contributions.  Denmark  established  a  scheme  of  tradable
emission  permits  for  carbon  dioxide  emissions  from  the  electricity  sector.  In  the  Netherlands,  a
trading  scheme  for  NOx  emissions  by  industry  has  been  linked  to  a  voluntary  agreement  by
industry to reduce the NOx intensity of energy consumption and total emissions.

Some  Member    States  recently  introduced  specific  incentives  for  environmentally  beneficial
behaviour.

Appropriate pricing of water to cover the full costs is essential to encourage a more sustainable use
of this resource. In line with the Water Framework Directive, pricing is playing an increasing role in
the water policy of several Member States. However, there are major differences between Member
States in the systems they apply and in many cases the supply conditions for water are still strongly
influenced by sectoral subsidies.

Some Member States continue to grant substantial subsidies for certain sources of energy, such as
coal,  that  have  a  negative  environmental  impact.  Furthermore,  in  response  to  rising  fuel  prices
some Member  States  offered  excise  duty  exemptions  (France,  Italy  and  the  Netherlands)  or  other
measures aimed at  reducing  the  costs  of  transport  (Belgium,  Germany  and  Finland).  In  Italy,  the
planned step-by-step increase of excise duties in the framework of an environmental tax reform was
thus (temporarily) abandoned. The fact that the sectors concerned benefit from fuel tax reductions
and exemptions or derogations from Community legislation – and for which the relative increase in
price compared to those that do not benefit from these derogations was therefore greater – argues
in favour of a less generous approach to the granting of such measures. Most recently, the February
2001  ECOFIN  Council  took  note  of  the  intention  of  the  Commission  not  to  propose  further
prolongations relating to the derogations in favour of road haulage after the year 2002.

No progress was made with the third recommendation, to agree a framework for energy taxation at
Community level.

23

REPORT FROM THE COMMISSION

on the implementation of the 2000 Broad Economic Policy
Guidelines

STATISTICAL ANNEX

24

TABLE OF CONTENTS

GRAPHS

1

2.

3.

4.

5.

6.

7.

8.

9.

Economic developments in the EU .....................................................................26

Policy mix in the euro area .................................................................................27

Public education and R&D expenditures in 1997 ................................................28

Level of internet access ......................................................................................28

Public procurement and sectoral and ad hoc State aids........................................29

Telecommunication price change in per cent between 1997 and 2000.................30

Electricity price change in per cent between January 1996 and July 2000 ...........31

Equity financing in the EU .................................................................................32

Labour market situation in the EU ......................................................................33

TABLES

1

2.

3.

Evolution in estimates of government budgets for 2000......................................34

Change in actual and cyclically-adjusted budget balances in 2000 ......................35

Projections for general government surplus/deficit .............................................36

4. Wage developments in 2000...............................................................................37

25

Graph 1: Economic developments in the EU

Real GDP growth

%

5.0

Year /year

Quarter/quarter

Contribution to real GDP growth

% of GDP

Domestic demand
(incl. Stock)

Real GDP growth

Net exports

1.5

1.0

0.5

0.0

-0.5

-1.0

Q1-97

Q1-98

Q1-99

Q1-00

Q1-97

Q1-98

Q1-99

Q1-00

Unemployment rate

%

Headline- , core inflation and energy
Annual percentage changes; monthly data

3

2.5

2

1.5

1

0.5

HICP (lhs)

Energy (rhs)

* Core HICP is HICP excluding 
unprocessed food and energy

Core HICP (lhs)

20

15

10

5

0

-5

-10

Jan-98

Jan-99

Jan-00

Jan-01

4.0

3.0

2.0

1.0

0.0

12

11

10

9

8

7

6
1997

1998

1999

2000

2001

0
Jan-97

Source:  Commission services.

26

12

10

8

6

4

2

0

120

110

100

90

80

70

Graph 2: Policy mix in the euro area

Short-term interest rates

Long-term interest rates

%

 EL

UK

DK

S

euro area

 EL

S

 UK

euro area

DK

%

7

6

5

4

3

1999

2000

2001

1999

2000

2001

Nominal effective exchange rate
(Index Jan-99 = 100)

UK

EL

euro area

S

DK

1999

2000

Actual net lending-/borrowing 
(excl. UMTS)

As % of GDP
4

UK

euro area

DK

S

EL

0

-4

-8

-12

Nominal unit labour costs
Annual percentage change

EL

S

UK

DK

euro area

1995

1996

1997

1998

1999

2000

Cyclically-adjusted net lending-/borrowing

As % of GDP

UK

euro area

DK

 S

EL

12

9

6

3

0

-3

4

0

-4

-8

-12

1995

1996

1997

1998

1999

2000

1995

1996

1997

1998

1999

2000

Source:  Commission services.

27

Graph 3: Public education and R & D expenditures in 1997

4

3

P
D
f G
 o

re as a %

itu
d
en
p
x
 E
 D
 &
ss R
ro
G

Low

2

1

0

High

 S

FIN

EU-15

F

B

 A

 DK

High

P

Low

D

NL

UK

  IRL

I
E

EL

0

1

2

3

4

5

6

7

8

9

Public education expenditure as a % of GDP

* No data available on R & D for L .
Source:  UNESCO/OECD/Eurostat

Graph 4: Level of internet access

Percentage of citizens who have internet access at home 

May 2000 
Oct. 2000

60

50

40

30

20

10

0

B

DK

D

EL

E

F

IRL

I

L

NL

A

P

FIN 

S 

UK EU15

Source:  Eurobarometer.

28

Graph 5: Public procurement and sectoral and ad hoc State aids

 (1997-1999)

P
D
f G
 o

id

s as a %
c state A

o
 h
 ad
d
ral an
ecto

S

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0.0

High

P

F

L

B

 E

IRL

Low

2

 D

Low

EU-15
 I

NL

A

 FIN

0

1

High

EL

 S

 DK

UK

3

4

5

6

Public procurement published in the Official Journal as a % of GDP in 1999

Source:  Commission services.

29

Graph 6: Telecommunication price change in per cent 
between 1997 and 2000

 Local calls

I

P

IRL DK

F

D

L

UK

NL 

FIN 

B

S 

A

E

EL

 National calls

10 minute call at 11am on a weekday; price in national currency, excluding taxes.

100

%

80

60

40

20

0

-20

-40

%

10

0

-10

-20

-30

-40

-50

-60

-70

IRL

EL

P

S

D

F

NL

A

E

DK

I

B

UK

L

FIN

Calls to US

0

%

-10

-20

-30

-40

-50

-60

-70

-80

-90

-100

10 minute call; price in national currency, excluding taxes.

NL 

S 

L

D

F

P

I

A

EL

IRL

DK

E

B

FIN  UK

Source:  Commission services.

30

Graph 7: Electricity price change in per cent between
 January 1996 and July 2000

 Households

Domestic standard consumer consuming 3.500 kWh among which 1300 kWh overnight with a 
reduced rate for a standard dwelling of 90m2; price in national currency excluding taxes.

%

15.0

10.0

5.0

0.0

-5.0

-10.0

-15.0

-20.0

E

UK FIN

F NL** D

A EU15

P

S*

B

EL

L

I

IRL DK

(*) S Data for July 1996 and July 2000
(**) NL data for Jan 1996 and Jan 2000

    Industry users

%

20.0

15.0

10.0

5.0

0.0

-5.0

-10.0

-15.0

-20.0

-25.0

Industrial standard consumer consuming 2 GWh annually with a 
maximum demand of 500 kW and an annual load of 4.000 hours, price 
in national currency excluding taxes.

D

FIN 

F

P

E

S*

EU15 UK

A

L

B

IRL

EL

DK

I

NL**

(*) S Data for July 1996 and July 2000
(**) NL data for Jan 1996 and Jan 2000
Source:  Eurostat.

31

 
Graph 8: Equity financing in the EU

Innovation and research - Venture Capital
Venture capital investment as a percentage of GDP

expansion and replacement
early stage

 1999

1997

B

DK

D

EL

E

F

IRL

I

NL

A

P

FIN

S

UK

US

EU-
15

Economic reform - Capital raised on stock markets
Amount of new capital raised by domestic companies as a percentage of GDP

1997

1999

0.4

0.3

0.2

0.1

0.0

30

25

20

15

10

5

0

B

DK

D

EL

E

F

IRL

I

L

NL

A

P

FIN 

S 

UK EU-15

Japan US

Source:  EVCA and FIBV.

32

Graph 9: Labour market situation in the EU

%

* EL is 1995 and 1999.

Unemployment rate

1995
2000

24

20

16

12

8

4

0

B

DK

D

EL*

E

F

IRL

I

L

NL

A

P

FIN

S

UK EU-15

%

100

Employment rate

* Data for 2000 are estimates. Data for Sweden is 1996 and 2000.

1995
2000

80

60

40

20

0

16

12

8

4

0

B

DK

D

EL

E

F

IRL

I

L

NL

A

P

FIN

S

UK EU-15

%

* L, NL and UK are   
1995 and 1999.

Long-term unemployment rate

1995
2000

B

DK

D

EL

E

F

IRL

I

L*

NL*

A

P

FIN

S

UK* EU-15

Employment rate of older workers

1995
1999

%

100

80

60

40

20

0

B

DK

D

EL

E

F

IRL

I

L

NL

A

P

FIN

S

UK EU-15

Source:  Commission services.

33

Table 1: Evolution in estimates of government budgets for 2000*

Stability/
Convergence
  Programme* 1)

Estimated outturn 2)

Difference

Real GDP
growth
(% change)

Budget
balance
(% GDP)

Real GDP
growth
(% change)

Budget
balance
(% GDP)

Real GDP
growth
(% change)

Budget
balance
(% GDP)

B

D

E

F

IRL

I

L

NL

A

P

FIN

Euro area

DK

EL

S

UK

EU-15

2.5

2½
3.7
        3.0
7.4

2.2
4.9

2½
2.8

3.3
3.9

2.8

1.6
3.8

3.0

4)

   21/4 
2.7

-1.0
   -1.0 3)
-0.8

-1.7
  3.3

-1.5
  2.5

-0.6
-1.7

-1.5
  4.7

-1.0

  2.1
-1.2

  2.1
     0.2 4)

-0.7

3.9
3.0
4.1

3.3
10.5

2.9
8.5

3.9
3.5

3.0
5.7

3.5

2.6
4.1

4.0
3.0

3.4

-0.0
-1.0
-0.3

-1.4
 4.5

-1.5
  4.9

  1.3
 -1.5

 -1.7
  6.7

 -0.7

  2.5
-0.9

 4.0
  2.1

  0.0

1.4
 0.5
0.4

0.3
3.1

0.7
3.6

1.4
0.7

      -0.3
1.8

0.7

1.0
0.3

1.0
      3/4 5)
0.7

 1.0
  0.0
  0.5

  0.3
  1.2

  0.0
  2.4

  1.9
  0.2

-0.2
 2.0

 0.3

 0.4
 0.3

 1.9
    1.9 5)

  0.7

* Excluding UMTS proceeds.
1) First round of updates of late 1999/early 2000.
2) Commisson services Autumn 2000 Economic Forecasts or provisional outturn data.
3) Addendum of 1 February 2000.
4) Financial year.
5) Indicative, since comparison between financial year and calendar year figures.
Source: Commission services.

34

Table 2: Change in actual and cyclically-adjusted budget balances in 2000 *
(% of GDP)

Actual
balance
2000 1)

1

-0.0

-1.0

-0.3

-1.4

 4.5

-1.5

 4.9

 1.3

-1.5

-1.7

 6.7

-0.7

 2.5

-0.9

 4.0

 2.1

 0.0

Change
in
balance
99/00

2
= 3 - 4 - 5
= 6 + 7
 0.7

 0.4

 0.9

 0.4

 2.4

 0.3

 0.5

 0.3

 0.6

 0.3

 4.9

 0.6

-0.6

 0.9

 2.2

 0.8

 0.6

Change in balance due to:

Change in balance
due to:

Change in CAB due
to:

Change
revenues

Change
primary
exp.

Change
interest
exp.

Change
cyclical
comp.

3

4

5

6

Change
CAB

7
= -5 + 9

Change
interest
exp.

Change
primary
CAB

5

9

-0.2

 0.1

 0.1

-0.6

-1.2

-0.2

 0.1

-0.3

-0.9

 2.0

 0.0

-0.2

-1.5

 0.6

-1.7

 0.1

-0.2

-0.7

-0.2

-0.4

-0.8

-3.1

-0.4

-0.5

 0.0

-1.2

 1.9

-2.0

-0.5

-1.0

-0.1

-2.1

-0.4

-0.6

-0.2

-0.1

-0.2

-0.1

-0.4

-0.4

 0.0

-0.5

-0.1

 0.0

-0.3

-0.2

-0.3

-0.3

-1.3

-0.3

-0.3

0.7

0.5

0.3

0.3

0.6

0.4

1.1

0.5

0.2

0.0

0.4

0.4

0.1

0.3

0.7

0.2

0.4

 0.0

 -0.1

 0.5

 0.0

 1.7

 0.3

-0.6

-0.3

 0.2

 0.1

 2.0

 0.1

-0.3

 0.7

 1.0

 0.6

 0.3

-0.2

-0.1

-0.2

-0.1

-0.4

-0.4

 0.0

-0.5

-0.1

 0.0

-0.3

-0.2

-0.3

-0.3

-1.3

-0.3

-0.3

-0.1

-0.2

 0.3

-0.1

 1.2

-0.1

-0.6

-0.8

 0.1

 0.1

 2.1

-0.1

-0.6

 0.4

-0.3

 0.3

 0.0

B

D

E

F

IRL

I

L

NL

A

P

FIN

Euro
Area

DK

EL

S

UK

EU-15

*  Excluding UMTS.
1) Estimated outturn: Commission services Autumn 2000 Economic Forecasts or provisional outturn data. Most recently available

information has been used for columns 1 and 2. Due to imcompleteness of recent information, the remainder of the table is based
on the Commission services Autumn 2000 Economic Forecasts and columns 3 to 9 may not add up to column 2.

Source: Commission services.

35

Table 3: Projections for general government surplus(+)/deficit(-)
(% of GDP)

  Date 1)

1999

2000 2)

2001 2)

2002

2003

2004

B

D

EL

E

F

IRL

I

L

NL

A

P

FIN

Euro
area

DK

S

UK

EU-15

SP   12/-99
UD 12/-00
SP   12/-99 6)
UD 10/-00

CP 12/-99
SP  12/-00

SP   01/-00
UD 01/-01

SP   01/-00
UD 12/-00

SP    12/-99 9)
UD  12/-00

SP   01/-00
UD 12/-00

SP   02/-00
UD 12/-00

SP    11/-99
UD  09/-00

SP   03/-00
UD 12/-00

SP    02/-00
UD  01/-01

SP   09/-99
UD 09/-00

SP   -99
UD -00

-1.1
-0.7
-1.2
-1.4

-1.5
-1.8

-1.3
-1.1

-2.1
-1.8

1.4
2.1

-2.0
-1.9

2.3
4.4

-0.6
 1.0

-2.0
-2.1

-2.0
-2.0

3.1
1.9

-1.4
-1.3

-1.0
-0.1
-1
1½(-1)

-1.2
-0.8

-0.8
-0.3

-1.7
-1.4

3.3
4.7

-1.5
-0.1(-1.3)

2.5
3.0

-0.6
1.7(1.0)

-1.7
-1.4(-1.8)

-1.5
-1.5(-1.9)

4.7
4.5

-1.1
-1.1

4.2
4.7

-0.7
-0.7

4.6
4.4

-0.6
-0.3

-1.0
0.3(-0.7)

-1.0
-0.4(-0.6)

                                                  Convergence programmes

CP  12/-99
UD 12/-00

CP  11/-99
UD 11/-00

CP  12/-99 12)
UD 12/-00 12)
C/SP   -99
UD     -00

2.9
2.8

1.7
1.9

0.3
1.8

-0.9
-0.6

2.1
2.7

2.1
3.4

0.2
1.1

2.2
2.8

2.0
3.5

0.2
0.6

-0.7
0.6(-0.2)

-0.7
0.0(-0.2)

2.3
2.6

2.0
2.0

-0.1
-0.1

-0.4
-0.1

Stability programmes

-0.5
 0.2
-1½
-1½

-0.2
 0.5

-0.4
 0.0

0.0
0.3
-1
-1

0.2
1.5

0.1
0.2

0.2
0.5
-½
-½

2.0

0.2
0.3

0.6 3)

0

2.0

0.3

   -1.2 7)
0.1(-1.0)

   -0.7 7)
-0.6

   -0.3 7)
-0.4

  0.3(0.2) 8)

2.8
4.3

-1.0
-0.8

2.6
2.6

2.9
3.8

-0.6
-0.5

2.9
2.5

4.6

-0.1
 0.0

3.1
2.5

    -1.3 10)
 0.7

-1.5
  -0.75

    -1.1 10)
      0.6 11)
-1.4
 0.0

     1.1 11)
-1.3
 0.0

0.3

    1.9 11)

0.0

0.0
0.0

4.9

0.4

  2.6 4)
  2.7 5)

-0.5
    -1.0 13)

0.2

-0.3
-0.3

4.7
4.5

-0.3
 0.1

2.5
2.6

2.0

-0.4
-0.9

-0.1
 0.0

CP = convergence  programme; SP =  stability  programme;  UD  =  updated  stability/convergence  programme;  1)  Dates  of
adoption by Member States government  of  its  first    and  second  updated  stability    or  convergence  programme  or date  of
adoption of national budget proposal (NB)  for 2001. 2) Government balances in 2000 or 2001 are affected by receipts from
the sale of UMTS licences in several countries. Where relevant and where information is available, two figures are shown:
the first includes the proceeds from UMTS licences and the second (in brackets) excludes these proceeds. 3) Government
surplus of 0.7% of GDP projected for 2005. 4) Government surplus of 2.8% of GDP projected for 2005. 5) Government
surplus of 2.9% of GDP projected  for 2005. 6)  Addendum  to  the  updated  stability programme  as  of  1 February  2000.  7)
Government  deficit  of  1.3%  of  GDP  in  2001,  0.9%  in  2002,  and  0.5%  of  GDP  in  2003  projected  if  international
environment less favourable (annual GDP growth rate of 2.5%). 8) Government deficit of 0.5% of GDP in 2004 projected
in more prudent growth scenario. 9) From 2000 onwards excludes pensions prefunding and associated once off costs. 10.)
Cautious  scenario;  the middle  scenario  projects  a deficit  of  ¾%  of  GDP  in  2001,  ¼%  in  2002  ;  the  favourable  scenario
projects  a  deficit  of  ½%  of  GDP  in  2001  and  a  balanced  government  deficit  (  0%  of  GDP  )  in  2002.  11)  Favourable
scenario,  with  margin  available  used  for  debt  reduction;  in  the  cautious  scenario,  with  margin  available  used  for  debt
reduction, the government surplus is projected to  be  0.3% of GDP  in  2002 and in 2003  and  0.6%  in  2004.  12)  Financial
years. 13) A government deficit of 1.1% of GDP is projected for 2005-06.
Source: National stability and convergence programmes and Commission services.

36

Table 4: Wage developments in 2000
(Annual percentage change)

Nominal
compensation
per employee

Real wages 1)

Labour
productivity

NULC 2)

RULC 3)

B

D

E

F

IRL

I

L

NL

A

P

FIN

Euro area

DK

EL

S

UK

EU-15

3.2
1.2

3.4
1.5

7.7
2.6

5.0
4.2

2.1
5.4

4.1

2.3

4.2

4.6
4.0

4.1

2.7

2.7
1.6

0.1
0.7

3.2
0.7

3.3
1.9

1.3
3.6

0.9

1.1

1.3

2.2
2.7

1.7

1.3

2.6
1.5

1.0
1.3

5.2
1.5

2.2
1.6

2.6
1.5

2.8

1.6

1.7

2.9
2.0

2.2

1.7

0.6
     -0.3

2.4
0.2

2.4
1.0

2.8
2.6

     -0.5
3.9

1.2

0.7

2.4

1.6
1.9

1.9

1.0

  0.1
  0.0

-0.9
-0.6

-1.9
-0.8

  1.1
  0.3

-1.2
  2.1

-1.9

-0.5

-0.4

-0.6
  0.7

-0.4

-0.4

1) Nominal compensation adjusted by the GDP deflator.
2) Nominal unit labour costs.
3) Real unit labour costs.
Source: Commission services.

37