Opinion of the Economic and Social Committee on the "Broad Economic Policy Guidelines 2001"
Date: 2001-05-31
Institutions: European Economic and Social Committee
Subjects: Economic and Monetary Union, European Union, economic policy

7.8.2001

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9.2.2.
The Mobilisation role: Closely connected to the
Forum role, the ESC member organizations can act at national
and local levels in order to raise awareness of the issues, inspire
debate, channel opinions and act as communicators in a wide
sense.

9.2.3.
The quality Watch-dog role: The Commission will
have the general responsibility for evaluation and follow-up of

the SDS, including producing statistical base material. How-
ever, there will be a need for evaluation work also in other
forms. The Committee is willing to take on a Watch-dog role
vis-à-vis the SDS, focusing on quality assessments of the
implementation work and possibly publishing an annual
scoreboard. Such an exercise could feed in to the annual
European summit follow-up of the full Lisbon and SD strategy.

Brussels, 31 May 2001.

The President

of the Economic and Social Committee

Göke FRERICHS

Opinion of the Economic and Social Committee on the ‘Broad Economic Policy Guidelines 2001’

(2001/C 221/28)

On 28 February 2001, the Economic and Social Committee, acting under Rule 23(3) of its Rules of
Procedure, decided to draw up an opinion on the ‘Broad Economic Policy Guidelines 2001’.

The Economic and Social Committee decided to appoint Mr Simpson as rapporteur-general for this
opinion.

At its 382nd plenary session (meeting of 31 May 2001), the Economic and Social Committee adopted
the following opinion by 86 votes to one, with one abstention.

1.

Introduction

effectiveness of the Union. This annual review also offers an
important opportunity for the ESC to influence the decision-
making processes affecting the European economy.

The Economic and Social Committee welcomes this
1.1.
opportunity to assess and comment on the recently published
draft Broad Economic Policy Guidelines (BEPG) (1) for 2001
that will be considered by the European Council at its meeting
in Göteborg on 15-16 June 2001.

1.2.
This process of an annual review and further refine-
ment of the BEPG has now assumed an important place in the
co-ordination and management of economic policy within the
European Union. The evolution of an overall strategy in which
the Commission and the Governments of the Member States
contribute, both to the debate and then accept the obligations
of the agreed policies, represents a major strengthening of the

The publication of the Commission recommendations
1.3.
for the 2001 BEPG has coincided with the publication of the
economic forecasts for 2001 prepared by the Commission.
These forecasts confirm that the background to the preparation
of the Guidelines is now less favourable than in 2000 due to
adverse developments, and also that
the less favourable
conditions have evolved, in the main, outside the European
Union.

(1) Commission recommendations for the 2001 Broad Guidelines of
the Economic Policies of the Member States and the Community;
ECFIN/228/01 25 April 2001.

1.3.1.
To facilitate the effective consideration of the BEPG
by the ESC and the other European institutions, as well as the
Governments of the Member States, the economic forecasts
should be published in advance of the publication of the BEPG.

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1.3.2.
In the course of the years 2001 and 2002, an historic
and politically important event will occur: the introduction of
the notes and coins of the Single Currency, in all twelve EMU
Member States in January 2002. Whilst this practical step will
itself have little direct impact on short-term economic trends,
nevertheless it will give a major impetus to the development
of the Single Market with its associated benefits for the
Community and symbolises the greater cohesion and relevance
of the BEPG for the people and Governments of the 12 Member
States now making this change.

1.4.
The ESC agrees with the main themes set out in the
2001 BEPG. In this Opinion, the Committee presents some of
the issues that merit particular emphasis either to seek a
strengthening of these policies or to encourage the Council to
give a more operational context to the priorities, as was
recommended by the ECOFIN Council on 12 March 2001.

2.

The Broad Economic Policy Guidelines and the EU’s
economic policy goals

The Broad Economic Policy Guidelines (BEPG) are
2.1.
central to the achievement of the Union’s strategic goal for the
next ten years: ‘to become the most competitive and dynamic
knowledge-based economy in the world, capable of sustainable
economic growth with more and better jobs and greater social
cohesion’ (1). They are the major mechanism for the co-
ordination and orientation of Member States economic policy
under the Stability and Growth Pact and the Luxembourg,
Cardiff and Cologne processes within the Lisbon framework.

2.2.
The crucial objective is that the Broad Guidelines
should offer a prospect of going beyond purely aspirational
statements so that within the European Union there are plans
and implementation strategies, both at a community level and
in each Member State, to ensure that the goals can be achieved.

2.3.
The overarching nature of the Broad Guidelines means
that they encompass a wide range of analysis and policy
considerations, both for the short and medium-term. This
fourfold distinction provides the structure for this opinion
which has sections on the EU economy in 2001 and in the
medium term, and economic policy in 2001 and in the
medium term. Given the breadth of issues in the BEPG this
opinion will of necessity be selective. The Committee has

decided to concentrate on the general guidelines for policy
within the EU and not on the more detailed implications for
individual Member States. However, the success or failure of
the BEPG does depend on the actions within the Member
States being consistent with the overall guidelines.

The Committee would, however, wish to state its
2.4.
agreement with the Commission when it suggests that the
2001 BEPG should identify and consider the appropriate
policies on a limited number of central themes, including:

— ensuring growth- and stability-orientated macro-econ-

omic policies;

— improving the quality and sustainability of public fin-

ances;

— invigorating labour markets;

— efficient product (goods and services) markets;

— promoting the efficiency and integration of EU financial

services markets;

— encouraging entrepreneurship;

— fostering the knowledge-based economy;

— enhancing environmental sustainability; and would fur-
ther add, as a horizontal issue relevant to several of these
themes;

— the need to monitor and respond to demographic change
including that of an ageing population and the impli-
cations of falling birth rates.

3.

The EU economy in 2001

that

3.1.
The Committee has already commented on the excel-
lent outcome for the economy of the European Union during
the year 2000 (2). EU GDP grew by 3,4 % and 2,6 million jobs
were created. Particularly notable was the fact
the
intensity of growth had increased, so that
employment
employment levels now seem more responsive to the expan-
sion of GDP. Despite robust growth,
inflation remained
subdued at 2,1 %. Although above the ECB target this seems
to have been a spike caused by oil price rises and the fall in the
value of the Euro, thus underlying inflation, (excluding energy
prices and unprocessed food) was 1,3 %. Internal inflationary
pressure remained limited, with labour costs only growing by
2,3 %. Since labour productivity grew by 1,5 %, real unit
labour costs thus declined by 0,4 % (3).

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

(3) Report from the Commission on the implementation of the 2000

paragraph 5.

BEPG, 7.3.2001, COM(2001) 105, p. 7 and 37.

(2) ESC Opinion on the 2000 Broad Economic Policy Guidelines OJ

C 139, 11.5.2001.

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3.2.
Despite this good progress in 2000 some problems
continued. Unemployment remains high at 8,2 % of the labour
force, which means that 14,5 million people in the EU are still
seeking a job. Towards the end of the year 2000 there were
signs that the fall in the external value of the Euro had been
halted but most of the gains have since unwound. It seems
likely at some stage there will be a rebound in the value of the
Euro which would be a further factor ameliorating any
inflationary pressure in the Union. Thus, most of the easing of
the monetary conditions index for the euro area is the result
of the fall in the euro exchange rate. A euro rising too quickly
would lead to a tightening of monetary conditions.

The 2001 BEPGs will have a less favourable economic
3.3.
environment within which to work, the growth of the EU GDP
started to slow in the second quarter of 2000. The world
economic situation has also deteriorated, with the dramatic
slow-down in the expansion of the US economy, further
weakening in economic conditions in Japan and continued
high oil prices. The Commission remains relatively optimistic
for the EU with forecast growth of 2,8 % in 2001 and 2,9 % in
2002. This optimism is based on the limited impact of the
world economy on the EU because of the relatively small
external
trade sector and the continued robust domestic
demand. However, even if these growth rates were achieved,
they fall below the ambition of an expansion rate of 3 % or
more.

3.4.
The Committee considers that the Commission fore-
casts are themselves optimistic. The Committee believes that
further EU and national measures will have to be taken if the
growth necessary to maintain a significant reduction in
unemployment is to continue. In addition, the Commission
and the Member States need to adopt a more determined and
consistent approach to ensuring the verifiable implementation
of the growth and employment promoting measures adopted
by the Council.

3.5.
Impressive strides have been taken in fiscal consoli-
dation so that in contrast to the situation of a few years ago
many Member States have budgets close to balance or in
surplus. There is, however, some indication of a lessening of
resolve because although the overall budget deficit is still
falling cyclically corrected budget deficits are predicted to rise
in 2001 (1). This situation calls for careful monitoring because
several Member States are committed to programmes to make
tax systems more efficient and employment friendly. These
developments are to be welcomed but reductions in marginal
tax rates may reduce revenue, further increasing public sector
deficits or reducing any surplus.

(1) European Commission recommendation for the 2001 Broad

Guidelines on economic policies, COM(2001) 224, p. 9.

4.

The EU Economy in the medium term

4.1.
The large imbalances in international payments that
have built up during America’s long economic boom and the
continuing problems in Japan mean that in the medium term
the international economic environment is likely to remain
less supportive of growth in the EU. This could lead to a
recovery in the external value of the Euro that would reduce
inflation in the euro-area and have a dampening effect on
export growth and would thus require a further easing of
internal monetary conditions.

4.2.
One of the motivations for the development of EMU
was to give the EU the ability to act independently in economic
policy. Consequently, a more difficult external environment
should be seen as a challenge for European policy makers to
ensure that the EU economy is able to continue stable growth.

4.3. With the exception of the less favourable external
environment, the challenges facing the EU in the medium term
have remained essentially the same as those considered in the
2000 BEPG: (1) return to full employment (2) the development
of a more dynamic knowledge-based economy (3) improving
public finances whilst anticipating demographic trends includ-
ing preparing for the extra costs of an ageing population (4)
the improvement of social cohesion in the Union and (5)
enhancing environmental
sustainability. Since these are
medium term objectives it is inevitable that the scope for
improvement from year to year will be limited. The route to
the achievement of these goals is seen to be through a stable
macroeconomic framework and the creation of a more
competitive and flexible EU internal market by: invigorating
the labour market; product and service (particularly financial
services) market reforms; and in stimulating entrepreneurship,
R&D, innovation and improving the skills and qualifications
of the workforce.

4.4.
Productivity needs to be raised so as to improve living
standards and employment; this is to be accomplished by the
creation of a knowledge based economy. In view of the recent
developments in the USA, estimates of the impact of the
e-economy on productivity in the long term may have to be
revised. Rapid rates of productivity growth in the US may have
been associated with levels of investment and demand during
an unsustainable boom.

4.5.
Productivity should also be viewed in the wider context
where part of the difference in GDP per person employed
between the EU and the US is the result of the longer hours
worked in the US. Whilst raising productivity is desirable,
doing this by raising the number of hours worked would not
be attractive.

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5.

Economic Policy in 2001

it

5.1.
Although the external environment has changed, the
mechanisms to achieve growth and stability remain the
same. The European Central Bank (ECB) bears the primary
responsibility for discretionary short-term macroeconomic
policy adjustment (1). The BEPG provides the fiscal policy
framework within which the ECB sets interest rates. Experience
with the operation of fiscal policy has led to general acceptance
that
is undesirable to make discretionary changes for
macroeconomic stabilisation. Policy is oriented towards the
medium term balance or surplus but in the short term the
aggregate fiscal stance will be determined by the operation
of automatic fiscal stabilisers. For this system to operate
successfully it is important that the ECB makes timely adjust-
ments to interest rates and that Member States fiscal positions
are such that automatic stabilisers can be allowed to function
freely.

5.2. With the increasingly unfavourable outlook for the
world economy the Committee had a concern that interest
rates had not been reduced by the ECB to meet the potential
threat of a downturn in the EU. The Committee welcomes the
recent decision by the ECB to reduce interest rates by
0,25 percentage points. Given the uncertainty of the current
economic developments, the Committee expects the ECB to
maintain a flexible approach to the setting of interest rates if
the economic outlook deteriorates further.

There are two aspects of the role of the ECB that cause

5.3.
the Committee some concern.

5.4.
First, and on an interpretative issue, the explanation by
the Bank of its decisions on interest rate policy has continued
to refer to the need, primarily, to maintain price stability by a
process of continuous monitoring of inflationary trends. On
the evidence already quoted in this opinion, underlying
inflation in Euroland in 2000 was 2,1 % (1,3 % excluding
energy prices). The concern of the Committee is that inflation
forecasts made in the Bank have been too high.

Second, there remains a critical issue in the regulatory
5.5.
provisions of the ECB. The setting of the maintaining price
stability as the primary objective of the Bank is not, in itself,
questionable but the Committee believes that the Bank should
take a wider view of economic prospects and the balance of
monetary interests when determining its attitude to monetary
variables, particularly interest rates.

Consolidation of the fiscal position of the Member
5.6.
States continued in 2000 but this was as a result of the effect

of rapid growth and the fall in unemployment on revenue and
expenditure. On a cyclically corrected basis public sector
deficits on average were unchanged. The continued improve-
ment in public finances projected in the stability and conver-
gence programmes is predicated upon the continuance of
relatively rapid growth in economic activity. This slight easing
of the fiscal stance predicted for this year is perhaps fortuitously
appropriate because of the likely slow-down in economic
activity. It should not, however, be pursued further because in
the event of a more severe downturn some Member States
could come close to a position of excessive deficit. In the event
of such a downturn actual (not cyclically corrected) deficits
would expand with lower tax revenues and higher expenditure
on social security benefits acting to counteract the downturn.
(i.e. as an automatic stabiliser).

5.7.
During the last year the Commission and the Council
have critically evaluated the fiscal stance in each Member State.
This is a necessary part of the monitoring of the discipline of
the stability and growth conditions. However, the ESC believes
that with the benefit of recent experience, the rationale of the
assessment of whether these policies are unjustifiably pro-
cyclical might now be reviewed to make such judgements in a
wider setting.

5.8.
The Committee notes with satisfaction that in 2001,
as in 2000, nominal wage increases have been and are expected
to remain consistent with price stability and job creation and
in line with developments in productivity and thus have
supported the overall macroeconomic policy.

5.9. Whilst for the euro area it is necessary to ensure
that overall real wage increases do not exceed productivity
growth (2), this is not the case for individual countries. Average
wage increases can exceed average productivity growth in
areas with below average income levels, provided that the
wage growth does not exceed productivity growth in industries
subject to international competition. But more importantly,
wage increases above productivity changes can be an important
part of the adjustment between countries in a monetary
union. Thus, whilst a country with low growth and high
unemployment may have wage increases below productivity
to restore competitiveness, a country with high growth and
low unemployment may adjust by reducing competitiveness
in part through wage increases in excess of productivity. The
ease of adjustment for an uncompetitive country in a monetary
union will be facilitated by more competitive countries losing
some of their cost advantage as a result of differential rates of
domestic inflation.

(1) ESC opinion on Coordination of economic policies as a conse-

quence of EMU OJ C 139, 11.5.2001.

(2) 2001 BEPGs p. 10.

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5.10.
In aggregate, of course, the euro zone overall wage
and price increases should not be, and need not be, inflationary.

6.

Economic Policy in the medium term

The Committee has already considered these issues in relation
to the European Employment Strategy (2) and Member States’
employment policies (3), suggesting that the tax and benefit
systems need to be reformed to provide incentives for the low
paid, older workers, women to seek employment and to
integrate vulnerable groups into the labour market.

6.1.
Short term monetary policy, determined by the ECB,
and fiscal policy within the BEPGs, modified by the external
economic conditions, are the key influences within the remit
institutions that can cause changes in the
of the official
macroeconomic environment for the medium term. Economic
policy in the medium term is therefore concerned with
measures to try to improve the EU economy’s growth potential.
This potentially encompasses all aspects of economic activity
but the following are particularly important:

In an earlier opinion (4) the Committee emphasised
6.2.3.
the problems of trying to increase the employment of older
workers. It is particularly important to change attitudes and
the policy must be forward-looking involving all workers with
measures to encourage life long learning and adaptability
and to encourage employers to offer flexibility in working
arrangements. This should include measures to enhance the
health and safety of all employees in the work place.

1.

2.

3.

4.

5.

6.

7.

invigorating labour markets;

ensuring efficient product (goods and services) markets;

promote the efficiency and integration of EU financial
services markets;

fostering the knowledge-based economy;

encouraging entrepreneurship;

enhancing environmental sustainability;

improving the quality and sustainability of public fin-
ances;

8. monitoring and responding to demographic trends,

including making preparation for an ageing population.

6.2.

Invigorating labour markets

6.2.1.
Despite continuing high levels of unemployment
there are indications of labour shortages in some regions and
sectors. In addition to unemployment there are also high levels
of inactivity among certain groups of workers particularly
women and older workers. Higher economic growth is vital to
the achievement of higher employment levels and to reduce
the burden of an ageing population. The Committee welcomes
the decision of the Stockholm summit (1) to set intermediate
targets for employment for 2005 of 67 % overall, 57 % for
women and 50 % for the 55-64 age group.

The current tax and benefit systems must be reformed
6.2.2.
to secure effective benefit systems for current and future
generations and to offer incentives to increase employment.

(1) Presidency Conclusions, Stockholm European Council, 24 March

2001, paragraph 9.

The Committee welcomes measures to promote
6.2.4.
labour market participation,
to encourage education and
training, and to encourage capital and labour mobility. The
Committee is concerned however whether even the currently
rather slow rate of progress to fulfil these objectives can
be maintained in the potentially more difficult economic
circumstances that the Union faces in the near future.

6.2.5.
The Committee particularly notes the acknowl-
edgement of key skills shortages affecting the labour market.
There had been an expectation, based on a conclusion reached
at the Stockholm European Council (5) for the creation, by the
Commission, of a high level taskforce on mobility and skills
with the challenge to present an Action Plan to the Economic
Council in the Spring of 2002. The Committee regrets that
this proposal has not been included in the 2001 BEPG.

6.3. Ensuring efficient product (goods and services) markets

6.3.1.
A long standing EU policy central to raising efficiency
is the completion of the Single Market. The fact that it has still
not been realised is due to the ambitious nature of the
objective, its expanding scope over time and some reluctance
on the part of national governments to fully embrace the

(2) The Mid-term review of the three processes that underpin the

European Employment Strategy (OJ C 139, 11.5.2001).

(3) Proposal for a Council Decision on guidelines for Member States’
employment policies for the year 2001 (OJ C 14, 16.1.2001).

(4) OJ C 14, 16.1.2001.
(5) Presidency Conclusions, Stockholm European Council, 24 March

2001, paragraph 15.

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project. Particular problems remain in the liberalisation of
network industries (telecommunications, energy), transport,
financial services, public procurement, establishing a Com-
munity patent, competition and state aids. Generally progress
has been limited in all these areas since Lisbon but only the
more important policies can be considered here.

6.5. Fostering the knowledge-based economy

6.3.2.
Telecommunications are central to the emerging
knowledge economy and liberalisation is necessary to reduce
prices and to encourage investment and innovation. The
progress of further liberalisation measures contained in the
proposal for the ‘Single Communication’s Market’ is seen by
Commission as essential for the establishment of the knowl-
the
edge-based economy. Unfortunately the inability of
Council (1)
for the
telecommunications package to be ‘adopted as soon as possible
this year in order to offer the sector a level playing field ...
across the Union’ is a worrying development. Similar problems
are also apparent in the European Energy and European Sky
initiatives The Committee regrets the slow rate of progress in
these industries particularly as they are interdependent with
the development of the knowledge-based economy to which
the European Council is committed.

the Stockholm summits call

to meet

6.5.1.
The encouragement and enhancement of a knowl-
edge-based society and economy is now a vital process.
Important elements in its realisation include: the size and
effectiveness of R&D, the use of new technologies particularly
the Internet, and education and training of the workforce to
use the new technologies. The Committee has already con-
sidered some of the issues involved in the knowledge economy
in its report on the Lisbon European Council (2) and more
particularly the employment implications (3). These opinions
emphasise the rapid development and all pervasive nature of
the knowledge society and thus its profound effects on the
economy and society. This means that
the use of new
technology is a basic skill needed by everybody, and this has
to be reflected in education and training at all levels. It also
means even greater emphasis on R&D and innovation, as well
as entrepreneurship.

The Committee also strongly endorses the call on
6.3.3.
Member States to cut the deficits in the transposition of
internal market measures and to reduce the incidence of state
aid where this can increase fair competition in the Single
Market.

6.5.2.
The Committee, therefore, welcomes the proposals to
stimulate R&D, strengthen the legal framework for intellectual
property, implement the e-Europe action plan and improve
ICT skills at advanced and basic levels. The chequered develop-
ment of the EU patent again points to the gap between rhetoric
and achievements in this area. There is also room for
improvement
in the targeting and operation of the EU’s
research programmes.

6.4. Promote the efficiency and integration of EU financial services

markets

The establishment of a European financial market is
6.4.1.
another essential element
for enhancing competitiveness.
Besides being an important industry in its own right, efficient
financial markets are vital to encourage investment and the
integration of financial markets provides an important means
of adjustment within monetary unions. The holdings of assets
and the provision of loans across borders provide an important
mechanism for stabilising incomes in response to shocks. Here
again the Member States’ practical commitment to reform has
been less than wholehearted. The compromise agreement
reached on the Lamfalussy proposals at Stockholm could make
the regulation of financial services more cumbersome.

(1) Council of

the EU, Transport

and Telecommunications,
2340th Council meeting Luxembourg, 4-5 April, 2001, 587/01
(Presse 131).

6.5.3.
Investment both public and private is crucial to the
development of a knowledge-based economy. In its report on
the 2000 guidelines (4) the Committee noted that investment
as a proportion of GDP had fallen significantly since the early
1970s. The absence of new initiatives to stimulate private
investment is of concern since existing policies have failed to
boost the investment rate in the EU. The Committee remains
concerned that public investment, which has been severely
constrained during the process of fiscal consolidation, should
be restored as a vital contribution for the development of the
necessary infrastructure and skills. In support of this argument,
the Committee endorses the Commission recommendation
that Member States should redirect public expenditure towards
human and physical capital accumulation.

(2) ESC Opinion on ‘Employment, economic reform and social
cohesion — Towards a Europe of innovation and knowledge’ (OJ
C 117, 26.4.2000).

(3) ESC Opinion on ‘New knowledge, new jobs’. OJ C 14, 16.1.2001.
(4) ESC Opinion on the 2000 Broad Economic Policy Guidelines (OJ

C 139, 11.5.2001).

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6.6. Encouraging entrepreneurship

aspects of pensions planning, health care and community
services. The Committee commend this as a specific problem
to be tackled with greater urgency.

6.6.1.
One element Europe lacks for a truly dynamic
economy is sufficient entrepreneurial activity. There was some
upturn in activity during the dot.com boom in 1999 and 2000
but this has since waned. The Commission’s failure to produce
an effective report on reducing start-up costs for business is
indicative of slow progress in this area. Provision of venture
capital is vital for enhanced entrepreneurial activity and this is
another area where the development of a single financial
in most
is essential. The regulatory environment
market
European countries is also a problem for the dynamism of the
EU economy, although there are some small signs of change
such as the development of Societas Europaea, often known
as the European Company Statute.

6.8.2.2.
Second, the BEPG endorse efforts to further reduce
the level of public sector debt outstanding in Member States.
Whilst the benefits of lower debt re-payments are acknowl-
edged. There is now a possible need to consider a refinement
of the rules. Some public sector borrowing is incurred for
actions that directly contribute to economic growth and
compare, logically, with investment decisions made by private
firms. Other borrowing may simply be a substitute for what
might be taxation. The Committee suggest that public sector
debt management policies should be reviewed to allow a more
flexible approach.

6.7. Enhancing environmental sustainability

The Committee acknowledges that sustainability is a
6.7.1.
horizontal issue that should inform EU policies generally but
this is the subject of a separate opinion. Only the environmen-
tal aspects are mentioned in this opinion. The Committee
welcomes the proposal that Member States should introduce
and strengthen the market based approach to environmental
issues. Permanent increases in fuel costs should be incorpor-
ated in prices to achieve the necessary market adjustments in
use. The different responses to fuel price changes highlights
the problem caused by the failure to agree on a framework for
energy taxation at the Community level. Where increased
energy prices have very adverse social implications for some
sections of the population, then the scope for finely targeted
compensation, within the constraints of the other EU policies,
should be examined by Member States.

6.8.

Improving the quality and sustainability of public finances

The short term features of the management of public
6.8.1.
sector finances are discussed, briefly, in paragraph 5.6. The
Committee acknowledges that
the rules developed as an
integral part of the new framework have brought a useful
discipline to the Member States of the Union.

6.9. Monitoring and responding to demographic trends, including

making preparation for an ageing population

The European Union faces an ageing population as a
6.9.1.
increased longevity and lower birth rates. Any
result of
approach to the problem of an ageing population must target
both of these elements as well as considering the implications
for immigration policies. An ageing population will put
pressure on public finances through increased spending on
pensions and also as a result of greater demands on health and
social services, and hence affecting taxation.

6.9.2.
Preparations for an ageing population are basically
of three kinds: firstly seeking to ensure a high employment
rate within Europe, secondly the reform of pension systems
and thirdly ensuring the sustainability of public finances. The
issue of employment rates has already been the subject of
section 6.2 in this report so no further consideration is
necessary here. Progress in pension reform has been patchy,
the Committee is well aware of the problems and would
endorse the need to build consensus among the social partners
for reforms, but this should not be used to delay the process.
Delay merely makes the problem more severe and more
difficult to resolve.

6.8.2.
There are, however, two aspects of policy relating to
the management of public sector finances that merit further
refinement.

First, the longer term management of public sector
6.8.2.1.
finances must take explicit account of the probable budgetary
consequences of demographic change. This will impact on

6.9.3.
The Committee notes with concern the trend towards
limiting entitlements to state pensions, which is for many
people the main source of post-retirement income. Failure to
reform pensions policies adds to the difficulties of ensuring
sustainability of public finances already noted in Section 4.3.
The Committee acknowledge that satisfactory solutions may
need actions related to occupational and private pensions as
well as state pension schemes.

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7. Conclusion

The Committee welcomes the new 2001 Broad Econ-
7.1.
omic Policy Guidelines and the general thrust of the strategy
to make the Union the most competitive and dynamic
knowledge based economy in the world. These aspirations
must be converted into real achievements.

7.2.
The Commission assessment for the economy of a
slight slow-down in the rate of economic growth is, in the
view of the Committee, over-optimistic. Rapid action may be
necessary to offset any sudden worsening of the external
economic environment’s potential impact on the EU. Given
this change in the balance of risks it is important that the ECB
should maintain a flexible approach to the setting of interest
rates, as one flexible element of the policy mix in the EMU.

7.3.
The Committee is also concerned that the Council’s
rhetoric on structural reform and the development of the
knowledge-based economy should be matched by commensur-
ate policy actions. Thus the slow pace and limited reforms
agreed in such areas as telecommunications, the Community

Brussels, 31 May 2001.

patent, and financial services give cause for concern over the
Union’s ability to meet its ambitious targets.

These problems of turning words into action also exist
7.4.
at the national level with the very uneven progress of tax,
social security and pension reform.

7.5. Whilst the Committee support the goal of ensuring the
sustainability of public finances, this should not be at the
expense of public investment that is essential for the infrastruc-
ture and human capital required for a knowledge-based society.
It is also essential that companies, as well as Governments,
should continue to invest in the education and training of their
workforce and this should also be encouraged by European
Union and national policies.

7.6. Without a more dynamic process of implementing the
policies of the 2001 BEPG, the risks are that the overall
objective of being the most dynamic knowledge-based econ-
omy will not be achieved. In turn, this would adversely affect
progress to the employment targets and the ability to cope
with the demographic challenges ahead.

The Committee, therefore, commends the 2001 BEPG

7.7.
for early and effective implementation.

The President

of the Economic and Social Committee

Göke FRERICHS