Opinion of the Economic and Social Committee on the "Coordination of economic policies in the long term"
Date: 2002-05-29
Institutions: European Economic and Social Committee
Subjects: Economic and Monetary Union, Treaty on European Union, division of powers, economic policy, institutional balance (EU), macroeconomics

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4.2.6.
Provision should be made for adequate technical and
financial resources to publicise the system among the general

public and to train professionals who will be involved in
making it operative.

Brussels, 29 May 2002.

The President

of the Economic and Social Committee

Göke FRERICHS

Opinion of the Economic and Social Committee on the ‘Coordination of economic policies in the
long term’

(2002/C 221/16)

In a letter sent by the Commission President, Mr Prodi, on 10 January 2002, the Commission asked the
Economic and Social Committee, under Article 262 of the Treaty establishing the European Community,
to draw up an opinion on: ‘Coordination of economic policies in the long term’.

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 7 May 2002. The
rapporteur was Mrs Konitzer.

At its 391st plenary session of 29 and 30 May 2002 (meeting of 29 May) the Economic and Social
Committee adopted the following opinion with 79 votes in favour and two abstentions.

1. Background

1.1.
Following his speech of 28 November 2001 to the
plenary session of the European Economic and Social Com-
mittee (EESC), the president of the European Commission,
Romano Prodi, in a letter dated 10 January 2002, asked the
EESC to draw up a number of exploratory opinions and studies
on issues including the coordination of economic policies in
the long term and the relationship between the broad econ-
omic policy guidelines of the economic policies of the Member
States and of the Community and the economic and stability
programmes of the Member States. This exploratory opinion
is an initial contribution by the EESC on the subject.

1.2.
Traditionally the EESC expresses its views on issues
related to the coordination of economic policy in its own-

initiative opinions (1) on the broad economic policy guidelines
for the Member States and the Community (2).

In recent years the EESC has also adopted other own-initiative
opinions on topical
issues relating to the coordination of
economic policy and its procedures, which also looked at more
fundamental questions such as exploiting the Community’s
employment and growth potential, overcoming obstacles to
growth and the possible contributions of the economic-policy
actors to an optimum macroeconomic policy mix for the
Community (3).

(1) Before the Maastricht Treaty consultation of the EESC (and the
Parliament) on the annual report on the economic situation in
the Community was mandatory on the basis of the Council’s
convergence decision of 18 February 1974 (74/120/EEC,
Article 4). These opinions were the EESC’s contribution to the
economic policy guidelines.

(2) OJ C 221, 7.8.2001, p. 177 — OJ C 139, 11.5.2001, p. 72

— OJ C 48, 21.2.2002.

(3) OJ C 139, 11.5.2001, p. 60 — OJ C 139, 11.5.2001, p. 51

— CES 1487/2001 — OJ C 48, 21.2.2002.

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1.3.
This increased interest in the coordination of economic
policy and its procedures can essentially be explained by the
following four points:

(i)

The success of the realisation of monetary union contrasts
with the Community’s lack of success to date (1)
in
exploiting its considerable employment and growth
potential
(cf. the Lisbon objectives). Despite positive
initiatives, significant results have so far not been forth-
coming. And yet progress in this area is of decisive
importance for the future of the Community. And this
can only be achieved by better designed and coordinated
economic policies.

(ii) The completion of monetary union with the successful
entry into circulation of the euro on schedule is strength-
ening people’s political Community awareness and open-
ing up the way to further progress towards a true
economic and social union.

(iii) The enlargement of the Community from its current
15 Member States to 25 or more makes it all the more
necessary to study, in the context of institutional reform,
the procedures for the coordination of economic policy
and the role of the Community institutions involved
(Commission, Council, Parliament, EESC),
in order to
ensure that the enlarged Community remains capable of
effective economic-policy action.

(iv) The Convention on reform of the EU set up by the Laeken
European Council should also look at the Treaty-related
and institutional aspects of economic policy coordi-
nation. This will require expert submissions which,
at Community level, should mainly come from the
Commission, the Parliament and the EESC. This opinion
is intended to be the EESC’s first contribution to this
debate.

1.4.
The Barcelona European Council, in point 7 of the
Presidency Conclusions, also stressed the need for improved
coordination of economic policy in relation to three points.
The EESC would make the following comments on these
points:

(i)

It welcomes the intention to improve and harmonise
euro-area statistics and indicators; this is an obvious
necessity.

(ii) The call for a systematic analysis of the overall policy-
mix in the euro area is, in its opinion, extremely important
for a policy aimed at growth and employment which also
ensures price stability. An analysis of this kind should,
however, cover not only monetary and fiscal policy (in

the sense of budgetary policy) but also the wages policy
of the social partners. Wage trends are just as important
as public-sector budgets for the overall policy-mix of the
euro area!

(iii)

It welcomes the call on the Commission to submit
proposals for improving the coordination of economic
policy in time for the Spring 2003 meeting of the
European Council. This opportunity should be met by
the Commission with determination and initiative. Where
changes are needed to the Treaty they should be proposed.
The proposals should be submitted in time for them to
be debated by the Convention.

This EESC Opinion is intended as a contribution to the debate.

2. The Maastricht Treaty and current economic policy
coordination practice in the EMU and the Community

2.1. The philosophy behind the Maastricht Treaty

The Treaty’s chapter on economic policy (Articles 98-
2.1.1.
104) 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 Community, as defined in
Article 2 of the EC Treaty (2). ‘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) recommen-
dation of the Council, drawn up on the basis of a recommen-
dation put forward by the Commission and the conclusions of
the European Council. The Council
informs the European
Parliament of its recommendation. An essentially intergovern-
mental process has been introduced for monitoring implemen-
tation of the broad guidelines. If it is established that the
guidelines are not being followed, a further recommendation
may be forwarded to the Member State concerned;
this
recommendation may be published (as 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 prescriptions set out in
the chapter of the EC Treaty on economic policy are the
provisions relating to budgetary policy. These provisions (3)
are designed to ensure that the budgetary policies remaining
within the remit of the Member States do not jeopardise the
centralised monetary policy of the European System of Central
Banks (ESCB) aimed at maintaining price stability. The Stability
and Growth Pact backs up and consolidates these provisions
within the framework of the European Economic and Monet-
ary Union (EMU).

( 1) In point 5 of

the Barcelona
the Presidency Conclusions of
European Summit (15 and 16 March 2002), the European Council
praises the rapid reaction of economic policy to the slowing
economy in 2001. The EESC believes that, whilst a severe
recession was avoided, there is no cause for complacency. The
Community is still far from being on a growth path, which will
need to last for ten years or more if the Lisbon objectives are to
be achieved.

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

article.

(3) 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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2.1.2.
The chapter of the Treaty dealing with monetary
policy (Articles 105-111) identifies the maintenance of price
stability at the primary objective of the European System of
Central Banks (ESCB) (Article 105, first sentence).
‘Without
prejudice to the objective of price stability, the ESCB shall
support the general economic policies in the Community with
a view to contributing to the achievement of the objectives of
the Community as laid down in Article 2’ (Article 105, second
sentence).

The economic and monetary-policy provisions of
2.1.3.
the Treaty summarised here point up the high priority assigned
to the price stability objective and show that the Treaty
contains virtually no provisions with regard to the content of
the macroeconomic policy mix and general economic policy.
The procedural rules for coordination of economic policy are
underdeveloped.

2.2.

The further development of the Treaty and current procedures

The Maastricht Treaty’s relative reticence on the subject of
economic policy has been subsequently remedied in various,
not always transparent ways:

— Under the Treaty of Amsterdam a new title on employ-
ment was added to the EC Treaty; this title reintroduces
the Community procedure with respect to the employ-
ment policy guidelines, which are drawn up by the
Council acting by a qualified majority on a proposal
from the Commission after consulting the European
Parliament, the European Economic and Social Com-
mittee and the Committee of the Regions [Article 128(2)].
The Treaty of Maastricht no longer makes provision for
the Community procedure in respect of the guidelines for
economic policy (Article 99(2), which requires only a
Commission recommendation and makes no provision
for consultation!). The Community procedure means that
the Council acts exclusively on a proposal from the
Commission, which the Council may amend by a unani-
mous vote but which it has to adopt by a qualified
majority. This procedure has proved its worth throughout
the history of European integration.
It ensures that
reasonable account is taken of the Community interest
and that Council decisions are coherent.

— 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, services and capital markets); and

— the Cologne process dealing with the macro-
economic dialogue between the parties involved in
monetary, budgetary and wages policy, aimed at
improving the macroeconomic policy mix in the
EMU.

— The above ‘processes’ were complemented by the goals
set out at the Lisbon European Council
in respect of
growth, technological progress and full employment and
those of the Gothenburg European Council in relation to
environmental policy.

— 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 EESC 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;

— The important role played by the various Community
committees in the economic, fiscal and employment
policy spheres (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 representing the interests of the
Community; the impression has also been conveyed of
rivalry between the committees, lack of transparency over
decision-making and problems over the composition of
the committees.

— Over and beyond the central role of the ECOFIN Council,
the influence of other Council formations (e.g. Employ-
ment and Social Affairs, Internal Market, Environment
etc.) on the broad economic policy guidelines has also
increased.

— Economic policy is now also on the agenda for the spring
meeting of the European Council, which is intended to
provide further input for the drawing up of the broad
economic policy guidelines.

— 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.

3. The division of powers in the field of economic
policy and the representation of the Community
interest

3.1.
Although current procedures have developed in an
unsystematic and often non-transparent way, they do nonethe-
less have a certain logic which should be developed further.

The division of powers in the field of economic policy must in
general take account of the interests both of the various levels
of government in the Member States (local authorities, regions
or states, central or federal government) and of the Com-
munity. It should also be borne in mind that the overall
macroeconomic policy mix is determined by three groups
of autonomous actors: the ESCB for monetary policy, the
governments of the Member States for budgetary policy and
the social partners for wages policy.

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Even in a monetary union with — necessarily — centralised
monetary policy, economic-policy powers should and must be
centralised only to the extent necessary for the satisfactory
operation of the economic and monetary union. The Com-
munity interest should, however, be appropriately represented.
The representation of the Community interest concerns all the
Community institutions; the Commission should exercise close
supervision and should ensure that all Member States are
treated equally.

(ii)

The nature and intensity of the representation of the
3.2.
Community interest depends on the policy area, and the
following distinctions can be made:

(i)

(ii)

(iii)

(iv)

the budgetary rules laid down in the Treaty (Articles 101
in conjunction with the stability and growth
to 104,
pact), which are to ensure that national budgetary policies
do not conflict with the centralised monetary policy;

the macroeconomic policy mix in the monetary union
and in the Member States of the Community (including
the macroeconomic dialogue/‘Cologne process’);

the structural policies for the labour market (‘Luxembourg
process’) and the goods, services and capital markets in
general (‘Cardiff process’);

(iii)

the need for a general economic assessment (further
development of the Lisbon approach, longer-term econ-
omic-policy vision and the short and longer-term role of
the Community in the world).

3.3.
areas:

(i)

The following comments can be made on these four

The approach adopted in the budgetary rules can in
principle be regarded as satisfactory: Treaty prohibition
on (a) the monetary financing of public-sector deficits
(Article 101), (b) privileged access for public-sector
bodies to the capital markets (Article 102), and (c) the
assumption by governments of budgetary responsi-
bility for the commitments of other public authorities
or states (Article 103); and a Treaty requirement to
avoid excessive government deficits (Article 104) with
suitable monitoring of compliance. In the framework
of the stability and growth pact, efforts should be made
during the next economic upswing to reduce structural
deficits sufficiently to ensure that in future there is the
necessary scope for budgetary policy flexibility over
the economic cycle as part of the overall economic
policy mix. In order to ensure that certain priority
infra-
government expenditure (research, education,
structure etc.) does not suffer as a result of
the
budgetary-policy restraint which is in many cases
necessary, reference values for these expenditure cate-
gories could be introduced into the national stability
programmes and monitored at Community level. In
order to take proper account of the quality of public
it is also important to focus more in
expenditure,
future on structural aspects of public-sector budgets,
going beyond pure balance considerations.

Within the monetary union the interaction of monet-
ary policy, the aim of which is price stability, the
average of the budgetary policies of the Member States
in the monetary union and the average wages policies
of the two sides of industry gives rise to an overall
macroeconomic policy mix for the monetary union
which forms the framework and defines the scope for
the Member States’ (and regions’) own policy mixes
against the background of the single monetary policy.
This overall monetary union policy mix is determined
by the independent central bank, the sovereign govern-
ments of the Member States and the autonomous
social partners in the Community. The autonomy of
these players must be respected. At the same time,
however, the shaping of this macroeconomic policy
mix is a matter of direct Community interest. It has
influence on conditions for growth and
a direct
employment in the monetary union. This Community
interest should be actively expressed by the Com-
mission and specifically taken into account in Council
recommendations, whilst respecting the actors’ auton-
omy. This applies to the broad economic policy
guidelines, the macroeconomic dialogue (Cologne pro-
cess) and the public economic-policy debate.

Alongside macroeconomic policy, the structural poli-
cies for the labour market (‘Luxembourg process’)
and the goods, services and capital markets (‘Cardiff
process’) are also very important
for growth and
employment, particularly in the longer term. Except
for the internal market competition rules, responsi-
bility here lies mainly at national level. This is particu-
larly true of taxation policy, education and training
and the problems arising from demographic trends.
And yet here too the Community interest needs to be
represented — over and above the internal market
rules. In relation to the employment guidelines, this
interest is represented by means of the Commission’s
right of proposal and mandatory consultation of the
Parliament, the EESC, the Committee of the Regions
and the Employment Committee (Article 128 of the
Treaty). The ‘Cardiff process’ on the other hand is
much less formal and also less transparent.

In respect of both structural-policy procedures the
Commission should make it clear how the legitimate
representation of
the Community interest can be
reconciled with the necessary transparency and
efficiency and with the avoidance of bureaucracy.

(iv)

In terms of its economic weight the Community is
already comparable to the USA, and the euro has a
potential comparable to that of the dollar. In the world
monetary and economic dialogue (IMF, G7 etc.) the
euro is represented by the president of the central
bank. But the arrangements for the external economic-
policy representation of the monetary union and the
Community are inadequate. This is detrimental to the
Community interest and should, as a matter of priority,

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be rectified in the course of the next Treaty revision.
The EESC feels that Europe should also speak with a
single voice in relation to its external economic
representation. If the work of the Convention results
in a politically strengthened Commission (e.g. with its
president elected by the Parliament), the Commission,
thus reformed, should be responsible for the external
economic-policy representation of the Community, as
it will then be able to offer greater political weight and
more continuity than the presidency of the ECOFIN
Council which changes periodically. Going beyond this
formal consideration, the prospects for the develop-
ment of the Community’s economic weight should
also be considered. These essentially depend on two
factors:

— exploitation of the Community’s employment
potential (more than 30 million workers) could
in the longer term, over and above productivity
growth, increase the total GDP of the Community
of 15 by an amount almost equal to the GDP of
Germany. Indeed, the additional GDP which could
be generated by the employment of 30 to
35 million more workers would be roughly of
this order;

— the forthcoming enlargement of the Community
will also significantly increase the Community’s
economic potential, and successful catching up
by these countries (following the example of
Ireland) could in the long term multiply the
resulting economic potential. However, the chal-
lenges and risks of enlargement must be con-
sidered, and the economic and social cohesion of
the Community maintained during the transition.

The prospects based on these two factors call for a
long-term strategic assessment of the opportunities
and risks arising from these possible developments.
This includes the problem of sustainable development
and applies both to development within an enlarged
Community and to the Community’s changed role in
the world.

The long-term objectives laid down by the Lisbon
European Council show that the Community insti-
tutions are open to such a debate. This must be pursued
in a careful and responsible way. Once again the
Commission would appear to be the most suitable
focal point for an on-going debate involving the other
Community institutions and the general public.

4. Paths to progress: transparency; taking account of the

Community interest and institutional balance

In order to remedy the shortcomings in the design and
coordination of economic policy, the following points should
be covered in the discussion:

(i)

(ii)

In order to promote transparency,
the Commission
should submit a systematic survey of all the formal
‘processes’ and consultations
and informal procedures,
involved in the formulation and coordination of econ-
omic policy at Community level and conduct a critical
analysis with a view to simplification and greater
efficiency.

Efforts to promote a broad and informed public debate
on Community economic-policy issues should be stepped
up. The possibility should be considered of setting up
an independent, European expert body to assess the
Community’s economic development and policy, which
would perform a consultative role, stimulating analysis
and public discussion through constructive criticism
is not the
and proposals. The aim of this proposal
establishment of new bodies. Rather, it is intended to
help prevent the various Community institutions setting
up competing councils of experts. The important thing is
to promote informed and independent public discussion
of economic policy issues in the Community and the
monetary union.

(iii) The ideas aimed at improved coordination of changes to
the Treaty put forward in the Commission’s Communi-
cation of 7 February 2001 on ‘strengthening economic
policy coordination within the euro-area’ (1) should be
taken up again and re-examined in the light of the
possible discussions of the Convention and a probable
revision of the Treaty.

(iv)

In order to avoid excessively detailed amendments to the
Treaty, further appraisal should be made of how the
coordination of economic policy can be improved
through secondary legislation on the basis of the Treaty.
Here it should be borne in mind that the scope of
Article 99(5) is restricted to monitoring the implemen-
tation of
the broad economic policy guidelines
[Article 99(3) and (4)]. The possibility of extending the
scope of application of secondary legislation by means of
a Treaty revision should also be looked at [Article 99(5)].

(v) Regarding the work of the Convention, an appraisal
should also be made of the other amendments which it
would appear advisable to make to the chapter on
economic policy in the EC Treaty. The following points
would appear to be of particular interest:

(1) COM(2001) 82 final.

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(v-1) The text of the Treaty (e.g. Article 2 of the Treaty on
European Union and Articles 2, 3, 4 and 98 of the
Treaty establishing the European Community) should
state more clearly that it is the task of economic policy
to make a major contribution to the achievement of
employment and growth objectives (1).

(v-6) The role and composition of the Committees and
cooperation between Committees to be better defined
(Articles 114 and 130) (Economic and Financial Com-
mittee, Economic Policy Committee, Employment Com-
mittee — reference in Treaty plus possibility of second-
ary legislation).

(v-2) The Community interest should be better taken into
account by restoring the Commission’s right to make
proposals for the formulation of the broad economic
policy guidelines [Article 99(2)].

(v-3) The role of the European Parliament should be strength-
ened: mandatory opinion or co-decision as majority
decisions are taken in the Council (Article 99); this point
should be given special attention by the Commission
and the Convention with a view to the efficiency and
democratic legitimacy of the procedure.

(v-4) Mandatory consultation of the European Economic and

Social Committee (Article 99).

(v-5) The case for, and ways of, enshrining the macro-
economic dialogue (2) in the Treaty (possible analogy
with Article 139 within the economic policy chapter
— reference to secondary legislation).

( 1) cf. Nyberg Opinion (OJ C 125, 27.5.2002).
( 2) Following on from the ‘Cologne Process’ dialogue between
representatives of national governments (budgetary policy), the
ECB (monetary policy), the social partners (wage trends) and the
the Community interest) on
Commission (representation of
questions concerning the economic prospects and the macro-
economic policy mix in the monetary union and the Community.

Brussels, 29 May 2002.

(v-7) What should the composition of the ECB Council and

the Executive Board be after enlargement?

(v-8) Can collaboration between the various Council forma-
tions (Ecofin, Employment and Social Affairs, Internal
Market) be improved?

(v-9) Should the Eurogroup be enshrined in the Treaty with

its own decision-making powers?

(v-10) Would it be appropriate to lay down, in the Treaty or in
secondary legislation, a number of simple rules for the
macroeconomic policy mix and structural policies?

(vi)

The EESC considers that
it would be worthwhile
developing further the issues addressed in this opinion
and, if appropriate, proposing new wording amending
the Treaty.

The President

of the Economic and Social Committee

Göke FRERICHS