Opinion of the Economic and Social Committee on the "Contribution of the Economic and Social Committee in respect of the broad economic policy guidelines for the Member States and the Community for 2002"
Date: 2002-03-20
Institutions: European Economic and Social Committee
Subjects: EU Member State, European Community, European Economic and Social Committee, economic planning, economic policy

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Official Journal of the European Communities

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Opinion of the Economic and Social Committee on the ‘Contribution of the Economic and Social
Committee in respect of the broad economic policy guidelines for the Member States and the
Community for 2002’

(2002/C 125/12)

On 29 November 2001, the Economic and Social Committee (ESC) decided to draw up an own-initiative
opinion, in accordance with Rule 23 of its Rules of Procedure, on the ‘Contribution of the European
Economic and Social Committee in respect of the broad economic policy guidelines for the Member
States and the Community for 2002’.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was
responsible for preparing the Committee’s work on the subject, adopted its opinion on 25 February
2002. The rapporteur was Mrs Konitzer.

At its 389th Plenary Session, held on 20 and 21 March 2002 (meeting of 20 March), the Committee
adopted the following opinion by a unanimous vote.

1. Purpose of the ESC’s opinion

The purpose of this opinion is to:

— provide input in support of the formulation by the
Commission and the Council of the broad guidelines of
economic policy for 2002;

— make a contribution to the public debate on the coordi-
nation of economic policy at EU level and the content of
such a policy;

— promote the internal debate on this matter within the
organisations and socio-economic groups represented on
the ESC.

2. Existing procedures for coordinating economic policy
and the need to develop and streamline these pro-
cedures

2.1. The philosophy behind the Maastricht Treaty

The chapter on economic policy (Articles 98 to 104) set out
in the EC Treaty basically leaves responsibility for economic
policy in the hands of the Member States. Economic policy is
however regarded as a matter of common concern. National
policies are to be coordinated so as to enable them to
contribute to the realisation of the objectives of the Com-
munity, as defined in Article 2 of the EC Treaty (1). ‘The broad
guidelines of the economic policies of the Member States and
of the Community’ constitute the Community’s key economic
policy document. This document takes the form of a (non-
binding) recommendation of the Council, drawn up on the
basis of a recommendation put forward by the Commission
and the conclusions of the European Council. The Council
informs the European Parliament of its recommendation. An
intergovernmental process has been introduced for monitoring
implementation of the broad guidelines. If infringements are
identified, a further recommendation may be forwarded to

(1) Growth and employment are amongst the objectives listed in this

article.

the Member State concerned; this recommendation may be
published (by way of a sanction). Apart from the principle of
ensuring an open market economy with free competition
and promoting efficient allocation of resources, the only
substantive economic policy objectives set out in the chapter
of the EC Treaty on economic policy are the provisions relating
to budgetary policy. These provisions (2) are designed to ensure
that the budgetary policies remaining within the remit of the
Member States do not jeopardise the monetary policy defined
centrally by the European System of Central Banks (ESCB) with
the aim of maintaining price stability. The Stability and Growth
Pact backs up and consolidates these provisions within the
framework of the European Economic and Monetary Union
(EEMU).

The procedures and substantive goals set out in the

2.2.
Treaty have been expanded and developed in various ways:

— under the Treaty of Amsterdam a new title on employment
was added to the EC Treaty; this title reintroduces the Com-
munity procedure in respect of employment policy guide-
lines. The Treaty of Maastricht no longer makes provision
for the Community procedure in respect of the guidelines for
economic policy (proposal by the Commission, which the
Council may amend only by a unanimous vote but which it
has to adopt by a qualified majority);

— the above measures were followed by the so-called

‘processes’, namely:

— the Luxembourg Process dealing with labour market

policy,

— the Cardiff Process dealing with structural policy (in

the goods and factor markets); and

— the Cologne Process dealing with the macro-econ-
omic dialogue between decision-makers in the fields
of monetary policy, budgetary policy and wage
policy, aimed at improving the macro-economic
policy mix in the EMU;

(2) Monetary measures may not be taken to finance government
deficits: state bodies may not have privileged access to capital
markets; Member States shall not be liable for the debts of other
states or public bodies; excessive government deficits are to be
avoided (Articles 101 to 104 of the EC Treaty).

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— the above ‘Processes’ were backed up by the goals set out
at the Lisbon European Council in respect of growth,
technological progress and full employment;

— a further development has been the introduction of an
opaque mix of consultations, arrangements in respect of
non-mandatory opinions from the European Parliament,
the ESC and the social partners, and endeavours by the
Commission and the European Parliament to stimulate
public debate on EU economic policy issues: cooperation
between economic research institutes, Brussels Economic
Forum;

— as regards government representatives, the important role
played by the various committees (the Economic and
Financial Committee, the Economic Policy Committee
and the Employment Committee) has been further
enhanced; this development has partly taken place at the
expense of the role of the Commission as the body
the
representing the interests of
impression has also been conveyed of rivalry, lack of
transparency and problems over the membership of the
committees;

the Community;

— at Council level, an informal ‘Eurogroup’ has been set up
to address the coordination of economic policy and the
development of the policy mix in the EMU; the Eurogroup
has however not been given decision-making powers
under the Treaty.

2.3. Appraisal of the treaty-based approach to general economic

policy

Euro notes and coins have now been introduced and
2.3.1.
a constitutional convention has been set up for the EU. Against
this background and with a view to the impending enlargement
of the EU, the question arises as to whether the procedure
for drawing up the broad economic policy guidelines and
monitoring their implementation has matched up to expec-
tations and whether it can meet the challenges of the future.

2.3.2.
On the positive side, it should be noted that it has
been possible to establish the stability requirements for the
successful realisation of EMU and that observance of the
budgetary rules set out in the EC Treaty and the Stability and
Growth Pact are helping to avoid negative spillovers affecting
the fiscal policies of the partner states and the common
monetary policy of the monetary union. The wages and
incomes policy pursued by both sides of industry, which is not
referred to in the EC Treaty, has also meshed with the
stability requirements of monetary union better than many
had expected. The monetary union as a whole has thus
developed a policy mix which — in spite of the current cyclical
weakness which is mainly the result of external factors — is
more conducive to promoting growth and employment than
would have been possible had the monetary union not been
established.

2.3.3.
Attention should, however, also be drawn to a series
of negative factors. A number of key Member States have
failed to take advantage of favourable economic conditions to
press ahead sufficiently with budgetary consolidation to enable
them to make full use of the automatic stabilisers or to pursue
a forceful counter-cyclical policy when the economic situation
became less favourable. This problem has been compounded
by the fact in many states public investment and expenditure
on training and maintaining human resources have been
adversely affected by the budgetary consolidation measures;
this is not only having a detrimental effect on internal demand
at present but also threatens to pave the way for future
bottlenecks in maintaining growth and a return to full
employment. From an overall standpoint, the Community and
the monetary union, have not yet managed to formulate a
blueprint for an entirely consistent macro-economic policy,
supported by a broad consensus, which would provide the
monetary union with a policy mix of monetary, budgetary and
wage-policy measures, that would — as far as possible — avoid
the internal and external causes of inflationary overheating and
counteract economic downturns. The aim of such a policy mix
— backed up by an increase in productive capacity — would
be to achieve as constant as possible growth in aggregate
demand. Only against such a background can investment
expand sufficiently — backed up by a high level of aggregate
profitability — to make it possible for the Community to tap
into its considerable potential for growth and employment in
accordance with the objectives set out in Article 2 of the EC
Treaty and defined by the Lisbon European Council.

2.4.

Proposals for improvement put forward by the ESC

2.4.1.
Since the establishment of monetary union, the EU
has had an even greater input in determining basic economic
policy data and the macro-economic policy mix. At EU level,
too, economic policy is regarded as a public matter. Whilst
pragmatic further development of the Maastricht approach
appears to be complicated, inefficient and lacking in trans-
parency, it does clearly demonstrate the scale of the action
which needs to be carried out. The impending enlargement of
the EU will escalate the need for action. The Convention set
up at Laeken to address the further development of the
Community could provide an opportunity to improve the
provisions of the Treaty, following an in-depth debate.

2.4.2.
The ESC wishes to put forward the following sugges-
tions in connection with the formulation by the Commission
of its recommendations for the 2002 broad economic policy
guidelines and with a view to paving the way for the work of
the Convention:

a)

in order to promote transparency,
the Commission
should submit, in connection with the broad economic
policy guidelines for 2002, a systematic survey of all the
procedures and consultations involved in the formulation
of the guidelines and the monitoring of their implemen-
tation. Such a survey would also appear to be necessary
for enhancing the efficiency of
the procedures and
simplifying them;

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b)

c)

d)

the debate on the Commission’s communication of
7 February 2001 on ‘strengthening economic policy
coordination within the euro-area’ (1) should be intensi-
fied (see also the ESC Opinion on Economic policy
coordination as a consequence of the EMU (2) and the
European Parliament report drawn up by Mrs Pervenche
Bérès (3);

an appraisal should be made, in particular, of how the
coordination of economic policy could be improved
through secondary legislation under Article 99(5) of the
EC Treaty;

regarding the work of the Convention, an appraisal
should also be made of the amendments which it would
appear advisable to make to the chapter on economic
policy in the EC Treaty. An examination of the following
points would appear to be of particular interest: the
Community interest could be better taken into account
by restoring the Commission’s right to make proposals
for the formulation of the broad economic policy guide-
lines (Article 99(2) of the EC Treaty); the involvement of
the European Parliament, the ESC and the social partners
in the procedures; the role and membership of the
Committees needs to be better defined and there needs to
be improved coordination between the Committees and
between the various Council formations; the Eurogroup
should be enshrined in the EC Treaty; a number of
straightforward, tangible objectives should be set out in
respect of the macro-economic policy mix and structural
policies.

3. The economic situation, economic prospects and the

challenges facing economic policy

3.1. Role of the ESC

The EESC should put forward suggestions in areas which it
considers particularly important or where it has a particular
competence. The aim is not, however, to take over the task of
the Commission and the Council of defining the broad
guidelines for economic policy.

As regards the broad economic policy guidelines for 2002, the
ESC wishes to confine its observations to the four problem
areas set out below:

— an appraisal of the economic situation and prospects;

— contributions to fine-tuning and improving the macro-

economic policy mix;

— proposals for tackling a number of key structural prob-

lems:

— increasing private and public investment in the
medium term as a prerequisite for growth and a
return to full employment;

(1) COM(2001) 82 final.
(2) OJ C 139, 11.5.2001, p. 60.
(3) A5-0307/2001.

— the ageing population and the challenges which it
poses to economic policy in the longer term.

3.2. Appraisal of the economic situation and economic prospects

Whilst it is doubtless impossible to rule out mistakes when
making forecasts, consideration must nonetheless be given to
finding ways of:

i)

improving the quality of analyses; and

ii)

drawing economic policy conclusions more quickly
against the background of a changing economic situation
and changing economic prospects.

3.2.1.
As regards point 3.2 (i), the Commission should
ensure that the resources available for carrying out analyses
and forecasting work are really adequate and that an in-depth
and transparent dialogue takes place with the Central Bank,
the Member States, international organisations (such as the
OECD and the IMF) and, above all, with economic research
institutes. The public debate on the economic situation and
prospects and the establishment of an appropriate policy-mix
in the EMU as a whole should be stepped up. This is also of
considerable importance to the deliberations on wages and
incomes policy of the two sides of industry, whose decisions
have a considerable impact on the policy mix adopted in the
EMU.

3.2.2.
As regards point 3.2 (ii), it would not appear to be
necessary to change the frequency with which the forecasts are
issued (twice a year); a quarterly report on the development of
the economic situation, for example, would, however, be
beneficial. Improvements in the provision of information on
short-term economic developments should not, however,
trigger a fine-tuning budgetary policy. Under normal circum-
stances, budgetary policy should be conducted on the basis of
medium-term criteria; there should, however, be sufficient
room for manoeuvre to enable the automatic stabilisers to
operate. The structural deficit should be reduced in accordance
with the Stability and Growth Pact, whilst changes in the
cyclical deficit should help to promote short-term economic
stability. Monetary policy can react in a more sensitive way to
changes in the overall economic situation, but account needs
to be taken of
the delayed impact of monetary policy
instruments. The EMU is now on a learning curve as regards
macro-economic policy; against
this background, better
research should be carried out into the experience gained in
pursuing successful macro-economic management, above all
as a result of the monetary policy pursued by the USA in the
1990s. This experience should be taken into account as far as
possible. In addition to these questions relating to the policy
mix for the monetary union as a whole, the specific economic
situation of the individual Member States must of course also
be taken into account. This is above all a task for those
responsible for economic policy in the countries concerned,
and here all areas of economic policy are involved.

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3.2.3.
The present situation (January 2002) appears to be
characterised by stagnation against a background of lack of
internal demand, slightly increasing unemployment and a lack
of consumer and business confidence. The expectation of
lower inflation has however clearly brought about a relaxation
of the policy mix and key factors, such as the aggregate
internal profitability and external cost competitiveness, remain
relatively favourable. As areas outside the EU are also expected
to experience an economic upturn in the run-up to 2003, the
ESC takes the view that a return to a 3 % growth trend in 2003
is plausible, but presupposes the necessary political ambition
and drive. This rate of growth would be supported by
increasing internal and external demand; the necessary pro-
ductive capacity would be available to an adequate extent.

3.3. Contributions to fine-tuning and improving the macro-

economic policy mix

As things stand at present, macro-economic policy has the
task of supporting the expected upturn and transforming it
into a self-sustaining process of lasting growth which would
make it possible to achieve the employment and productivity
objectives set out at the Lisbon European Council.

In its capacity as representative of

In its opinion of November 2001 (1) the ESC has already
addressed the question of what form the interaction between
the budgetary policies of the national governments, the wage
policies of the social partners and the monetary policy of the
European Central Bank should take in the monetary union in
order to secure the most favourable possible policy mix
for promoting growth and employment, whilst safeguarding
in the
stability. This is a matter of Community interest
the
monetary union.
Community interest, the Commission should, whilst respecting
the autonomy of the individual players or groups of players
concerned, define in concrete terms the contributions which
should be made by the individual players in the short and
medium-term. As a general rule, the better budgetary policy
and wage policy take account of the conditions needed for
stability and growth in the short and medium-term, the more
effectively monetary policy will be able — whilst safeguarding
its goal of ensuring stability — to support the general economic
policy with a view to achieving growth and employment. The
room for manoeuvre provided by such an approach should
also be effectively exploited by monetary policy in accordance
with the second sentence of Article 105(1) of the EC Treaty.

The link between (a) the macro-economic policy mix pursued
in the monetary union, and (b) economic upturn and the long-
term growth required for the attainment of the objectives set
out at the Lisbon European Council, is an ideal subject to be
addressed in the macro-economic dialogue (Cologne Process).
As the body representing the Community interest, the Com-
mission should submit a discussion paper on this matter for
consideration as part of the macro-economic dialogue. The
ESC, for its part, is ready to make a substantial contribution to
the debate on this matter.

3.4.

Proposals put forward by the ESC for tackling a number of
key structural problems

3.4.1.

I n c r e a s i n g p r i v a t e a n d p u b l i c i n v e s t -
m e n t
i n t h e m e d i u m t e r m a s a p r e -
r e q u i s i t e f o r g r o w t h a n d a r e t u r n t o
f u l l e m p l o y m e n t

If the productivity and employment goals set out at the Lisbon
European Council are to be achieved, there will have to be a
sharp increase in GDP (which will have to be in excess of 3 %
per year) over a relatively long period (approximately 10 years).
This target clearly outstrips the past trend in productivity
(barely 2 % per year, as an average for the EU). Such a level of
growth can only be achieved if the aggregate level of invest-
ment gradually increases by several percentage points of GDP
(e.g. from the current level of approximately 21 to 22 % to
approximately 25 to 26 %; the level of investment rose by
some 4 percentage points of GDP in the USA in the 1990s).

The level of business investment involved here would create
the productive capacities and actual jobs which are necessary
to bring about inflation-free growth; such investment would
also integrate technological progress (productivity) into the
economic process and represent an important demand factor
with a view to the achievement of self-sustaining growth. It
would be useful to estimate, as part of a process of ‘macro-
structural benchmarking’, the levels of investment required for
the EU as a whole, the monetary union and the Member States.
An even more important step, however, would be to define
the key determining factors for bringing about such an increase
in investment;
these factors concern rising demand and
profitability and the achievement of a healthy balance between
savings and investment. It is equally important to specify the
implications of these factors for the development of public
budgets, wage growth and the current account balance and to
discuss these factors, as part of the macro-economic dialogue,
with the players who determine the policy mix.

The share of public investment (2) in aggregate investment has
suffered as a result of budgetary consolidation (the EC average
is as follows: 1970: 4,2 % of GDP; 1980: 3,2 %; 2001: 2,3 %).
There will need to be some increase in the level of public
investment if we are to ensure smooth growth in future
(particularly in the field of infrastructure). (As a rule of thumb,
the level of public investment as a percentage of GDP should
rise to, for example, a figure of the order of the target rate of
growth, namely 3 %.) As the growth process will have to
continue to be marked by budgetary consolidation for some
time to come, reference values covering this field should be set
out in the national multi-annual stability programmes. A
similar course of action could also be adopted in respect of
intangible investment in the field of education.

(1) OJ C 48, 21.2.2002: Opinion on world economic changes: new
economic challenges for the European Union (ECO/086), pages 4,
5 and 6.

(2) The statistical questions which arise in the case of public
investment as part of public-private partnerships should be
specified.

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3.4.2. T h e a g e i n g p o p u l a t i o n a n d t h e c h a l -
t o e c o n o m i c

l e n g e s w h i c h i t p o s e s
p o l i c y i n t h e l o n g e r t e r m

achieving balanced pension schemes, of implementing the
Lisbon strategy, even though this will not resolve the long-
term problem of an ageing population in the next 50 years.

Economic policy will have to contend with challenges in the
longer term linked to the ageing population;
the broad
economic policy guidelines for 2002 should take appropriate
account of these challenges. The ESC has expressed its views
on this matter on several occasions in the recent past (1). It
does therefore not appear to be necessary to address the
individual points once again in this opinion. Furthermore, the
Committee has been requested by Commission President
Prodi (2) to draw up an exploratory opinion further examining
the issue of pension reform. Attention should, however, be
expressly drawn to the fact that an increase in the employment
rate, as foreseen under the Lisbon strategy, would largely offset
the increase in the proportion of older people in the population
over the next 20 years. This fact highlights the importance, for

(1) See, for example, OJ C 48, 21.2.2002, OJ C 36, 8.2.2002, OJ

C 14, 16.1.2001.

(2) In a letter dated 10 January 2002.

Brussels, 20 March 2002.

4. Conclusions

The broad economic policy guidelines for 2002 are being
formulated at a time when the EU’s constitutional convention
is meeting and when euro notes and coins have been
successfully introduced.

There is a discrepancy between the success of the monetary
union, on the one hand, and the EU’s failure up to now to
exploit its tremendous potential for employment and growth.
Consequently, economic policy procedures and the content of
economic policy need to undergo thorough reappraisal. The
impending enlargement of the EU also makes it urgently
necessary to reconsider the procedures for coordinating econ-
omic policy. For these reasons, the ESC has put forward, in
this opinion, a number of initial suggestions covering the
coordination procedures and the content of economic policy.

The President

of the Economic and Social Committee

Göke FRERICHS