WRITTEN QUESTION E-0853/01 by Christopher Huhne (ELDR) to the Commission. Fiscal policy in the Member States.
Date: 2001-03-22
Institutions: European Parliament, Provisional data
Subjects: EU Member State, budget policy, coordination of EMU policies, fiscal policy, stability pact, tax reform

4.12.2001

EN

Official Journal of the European Communities

C 340 E/107

Answer given by Mr Solbes Mira on behalf of the Commission

(27 June 2001)

The Commission has not estimated the impact on eurozone interest rates of changes in the structural
budgetary positions of each of the eurozone members.

In the Commission(cid:146)s economic model, permanent changes in government debt crowd-out private
interest rates in the long term. The degree to which interest rates rise
expenditure and drive up real
depends crucially on the interest sensitivity of consumption. There is no consensus in the literature on the
effect of public debt on interest rates and empirical studies send conflicting signals. Evidence from the
literature testing for Ricardian Equivalence is mixed. Some studies have found support for the notion that
Ricardian Equivalence describes the data quite well and find no correlation between public debt and
interest rates. However, Tanzi and Chalk (1), looking at the Community panel as a group, find that for the
period 1970-1998 a 10 percent of gross domestic product (GDP) increase in the average Community debt-
GDP ratio leads to an increase in real interest rates by 0,6 percentage points. The existence of an impact of
debt on interest rates at the Community level seems to suggest that it is changes in the debt in the region
as a whole that are of more relevance for interest rates than debt of individual countries. However, the size
of the effect they find for the 1980-1998 subsample is much smaller, at 0,1 percentage points.

Simulations with the Commission(cid:146)s economic model, in which Ricardian Equivalence does not fully hold in
the long run, suggest that a permanent increase in the debt to GDP ratio of 10 percentage points can raise
real interest rates in the long term by between 0,2 and 0,3 percentage points.

(1) V. Tanzi and N. Chalk, (cid:145)Impact of Large Public Debt on Growth: a Discussion of Potential Channels(cid:146), EE R & S No 2,

2000.

(2001/C 340 E/123)

WRITTEN QUESTION E-0853/01

by Christopher Huhne (ELDR) to the Commission

(22 March 2001)

Subject: Fiscal policy in the Member States

Does the Commission consider that there are any financial circumstances in which a Member State
government might legitimately pursue a pro-cyclical fiscal policy? If so, what are they?

Answer given by Mr Solbes Mira on behalf of the Commission

(13 June 2001)

The economic policy framework set up by the Maastricht Treaty and complemented by the Stability and
Growth Pact requires that Member States avoid excessive deficits and reach budgetary positions close to
balance or in surplus over the medium term. The co-ordination of economic policies takes, among others,
the form of a set of Broad Economic Policy Guidelines (BEPG), which must be implemented by the
Member States. Concerning the issue of pro-cyclical fiscal policy, the BEPG 2000 specify that (cid:145)given
expected output growth above the potential rate, a pro-cyclical stance of budgetary policy should be
avoided.(cid:146)

Besides amplifying output fluctuations, implementing a pro-cyclical fiscal policy in the upper part of the
cycle could also imply a pro-cyclical tightening in slowdowns, especially for Member States with too high
a deficit and which risk breaching the 3 % reference level. In this case, the EC Treaty foresees that a Member
State could be urged by the Council to improve its budgetary position, which would result in a pro-cyclical
stance. This clause represent a deterrent to prevent bad fiscal behaviour and the pro-cyclical effects are
considered to be less critical than achieving sound budgetary positions.

C 340 E/108

Official Journal of the European Communities

EN

4.12.2001

Nevertheless, exceptions to the guidelines to avoid pro-cyclical fiscal policy can be accepted when the
temporary increase in the deficit is due to a major tax reform (for example in Germany) provided that is
does not imply a risk of breaching the reference value for deficit
levels and does not exacerbates
inflationary pressures.

(2001/C 340 E/124)

WRITTEN QUESTION E-0856/01

by Christopher Huhne (ELDR) to the Commission

(22 March 2001)

Subject: Redeployment of staff

Will the Commission state what percentage of its total staff complement has been redeployed from one
directorate-general to another in each of the last ten years? (In other words, express the total of net
reductions in the complement of any DG in each year as a percentage of the total staff complement).

Answer given by Mr Kinnock on behalf of the Commission

(5 June 2001)

It is not possible for the Commission to provide a detailed answer for all services over the last 10 years in
the form sought by the Honourable Member. This is because both the structure of services and the
assignment of tasks to services have undergone so many modifications that attempts to quantify changes
would not really be meaningful, or a justifiable use of time.

The scale of change has been particularly marked in the case of activities that have, or have had, high
priority and rapid growth. In 1991, for example, all external relations were handled by two services (cid:129) the
Directorate General for External Economic Relations and the Directorate General for Development. During
the subsequent 10 years, substantial numbers of personnel have been shifted to and between Directorates
General dealing with external relations both as a result of internal redeployment and because of fresh
allocations. In 2001, the prime services dealing with external relations are the Directorate General for
Trade,
the
Directorate General
for Enlargement and the European
the Directorate General
Community(cid:146)s Humanitarian Office (ECHO). When the number and structure of services have changed so
much it is clearly not possible to give percentages by service.

the Europe Aid Office For Cooperation,

the Directorate General

for External Relations,

for Development,

In its Reform Strategy White Paper (1) the Commission has proposed more sophisticated mechanisms for
Strategic Planning and Activity-Based Budgeting (Actions 12-16). These changes will begin to be
implemented, on schedule, at the end of this year and, inter alia, they will result in an even more active
policy of resource management (cid:129) including staff redeployments (cid:129) in the future.

Against that background, the most relevant information that is currently available in response to the
Honourable Member(cid:146)s question is that:

(cid:129) re-assignments of staff to other services have generally been made in order to increase resources in
priority areas and to decrease staff where activities are reduced or ended.
In recent times, the
Commission has intensified efforts to allocate staff in ways that reflect changing priorities more
closely,

(cid:129) amongst the consequences of that were decisions of the new Commission in September 1999 which
resulted in internal redeployment of some 1500 persons or 8 % of Commission staff. In addition, in
2000 the Commission conducted a Peer Group review of resources and priorities and that led, or will
lead, to a total of 547 redeployments of personnel to priority areas of the Commission(cid:146)s work in 2001
and 2002. Details of these changes were given in the letter of proposed amendments to the Budget
presented by the Commission to Parliament and Council on 11 September 2000.

(1) COM(2000) 200 final.