European Parliament resolution on public finances in the economic and monetary union (EMU) (2005/2166(INI))
Date: 2006-05-17
Institutions: Committee on Economic and Monetary Affairs, European Parliament
Subjects: Economic and Monetary Union, budget policy, economic policy, macroeconomics, public finance

7.12.2006

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Official Journal of the European Union

C 297 E/233

Wednesday, 17 May 2006

P6_TA(2006)0214

Public finances in the EMU

European Parliament resolution on public finances in the economic and monetary union (EMU)
(2005/2166(INI))

The European Parliament,

— having regard to the Commission communication on Public

finances

in EMU — 2005

(COM(2005)0231),

— having regard to the Commission's

integrated guidelines

for growth and jobs

(2005-2008)

(COM(2005)0141),

— having regard to the Commission's Economic forecasts of Autumn 2005 (1),

— having regard to Council Regulation (EC) No 1056/2005 of 27 June 2005 amending Regulation (EC)
No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure (2),

— having regard to the Council Recommendation to Italy of 12 July 2005, with a view to bringing an end

to the situation of an excessive government deficit (3),

— having regard to the Council Decision 2005/729/EC of 7 June 2005 abrogating Decision 2005/136/EC

on the existence of an excessive deficit in the Netherlands (4),

— having regard to the Council Recommendation of 7 October 2005 with a view to bringing an end to

the situation of an excessive government deficit in Portugal (5),

— having regard to the Council Decision 2005/843/EC of 8 November 2005 establishing, in accordance
with Article 104(8) of the Treaty establishing the European Community, that the action taken by
Hungary in response to the Council recommendation of 8 March 2005 pursuant to Article 104(7) of
the Treaty is proving to be inadequate (6),

— having regard to the Council Decision of 24 January 2006 on the existence of an excessive deficit in the

United Kingdom (7),

— having regard to the European Trade Union Institute 2005 Annual Report on the Coordination of

Collective Bargaining in Europe,

— having regard to the International Monetary Fund (IMF) World Economic Outlook on Globalization and

External Imbalances of April 2005,

— having regard to Rule 45 of its Rules of Procedure,

— having regard to the report of the Committee on Economic and Monetary Affairs (A6-0162/2006),

1.
Expresses its concern about, first, the persistently slow growth in Europe since 2002, accelerating, in
the euro zone, only gradually from 0,6 % in 2003 to 1,3 % in 2005, in contrast with the US growth rate of
3,5 % in 2005 and the rebound of Japan's economy driven by private final domestic demand; second, the
persistently high unemployment of 9 % in EU-25 and 8,1 % in EU-15; and, third, about the output gap,
currently at -1 % of GDP, demonstrating that EU economic growth remains substantially below long-term
potential, constrained by structural rigidities, weak internal demand, and a lack of proper balance in the
macroeconomic policy mix; stresses that the European economy's potential for growth remains excessively
low, at about 2 %, which is much lower than that registered elsewhere in the world; considers that this
potential for growth is insufficient for job creation and reducing unemployment rates or for the develop-
ment of EU-25;

(1) European Economy, No 5/2005.
(2) OJ L 174, 7.7.2005, p. 5.
(3) 11124/05, ECOFIN 242.
(4) OJ L 274, 20.10.2005, p. 89.
(5) 12401/05, ECOFIN 289.
(6) OJ L 314, 30.11.2005, p. 18.
(7) 5366/06, ECOFIN 11.

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2.
Stresses the risk of rapid adjustments to global imbalances, which could lead to a decrease in demand
in the US thus resulting in lower exports and weaker growth in the EU, and stresses that this effect could be
further magnified by fluctuations in the euro exchange rate against the US dollar;

3. Notes the adverse implications of oil-price volatility and increases on internal demand and growth in
the EU and the threat of its secondary effects; welcomes the responsible behaviour of social and economic
actors to prevent these implications, notwithstanding weak household consumption; points out that stable,
outward-looking and competitive macro-economic policy-setting is a necessary precondition for a sustain-
able public finance policy;

4.
Expresses its concern in regard to weak private consumption, especially in certain Member States,
which has contributed to low growth rates in the EU and thus to the current global imbalances, and which
is due to the prevailing climate of uncertainty about jobs and pensions, the persistent high level of unem-
ployment, and the slow growth of real wages; recalls the commitment to promote nominal wages and
labour cost developments consistent with price stability and the trend in productivity over the medium term
in Integrated guideline No 4;

5. Welcomes the upturn in the pace of investment expenditure due to the revival of confidence among
entrepreneurs and current stabilised profit margins, as referred to in the Autumn 2005 economic outlooks
of both the IMF and the Commission; considers that there is still room and need for further acceleration in
investment activity and thus calls for structural reforms and additional measures that would permanently
improve the investment climate and boost investments;

6.
Supports the reorientation of public policies and expenditure towards innovation, renewable energies,
education and training, research, information technologies, telecommunication, and transportation networks
etc;

7. Regrets that the EU Financial Framework for 2007-2013 does not reflect sufficiently the priority given
to the expenditures in the objectives of the Lisbon Strategy; stresses that the contributions to the EU budget
should be considered against future benefits, taking into account their positive spill-over and leverage effects,
providing that the EU budget is sufficiently orientated towards expenditures bringing clear added value;

8. Notes that healthy public finances is not a goal in itself but a means by which Member States meet
their public duties; stresses the importance of healthier fiscal positions for qualitative growth, job creation
and the Lisbon Strategy but notes that, owing to the incorrect application of the Stability and Growth Pact
in spite of the fiscal framework, no significant improvement regarding the Member States' fiscal positions
has been achieved since last year; notes that most Member States have not yet achieved the medium-term
objectives as regards their balance of payments; notes that the deficit for 2005 reached 2.9 % of GDP in the
euro zone and 2.7 % across the EU, and that eleven Member States have deficits exceeding 3 % of their GDP,
among which are the four largest EU economies, namely, France, Germany, Italy, and the UK, and that since
summer 2004, ten Member States have been subject to the excessive deficit procedure;

Stresses the importance of actions to address persistent fiscal pressures; welcomes Member State autho-

9.
rities' articulation of policies and public commitments to reduce fiscal deficits;

Expresses its concern about the prospects of

10.
long-term budgetary sustainability considering the
increase of public debt ratios from 69,2 % in 2002 to 71,7 % in 2005 in the euro zone and from 61,4 % in
2002 to 64,1 % in 2005 in EU-25, due to the weak growth of GDP, short-term policies of deficit control
and the lack of a determined effort to reduce budgetary imbalances through structural reforms;

11.
Stresses that, in the context of an EU with low consumer and investor confidence, it is vital to correct
public deficits; is disappointed by the recent trends in public finances, noting that the Member States' deficits
remain much higher than required by the European economy; notes that governments are using the low
growth argument to justify the deficits, despite the fact that the deficits are impeding economic recovery and
making the cycle more acute; calls for a more ambitious reduction in public deficits in 2006 than a mere
economic adjustment made in anticipation of higher European growth;

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12. Calls for more transparency in the public finances of individual Member States, including as regards
implicit liabilities such as public sector pension commitments, which will significantly raise the burden of
debt of the public sector over the coming years;

Wednesday, 17 May 2006

13. Recalls its demand to avoid pro-cyclical policies; stresses the importance of undertaking structural and
tax reforms and simultaneously underlines that due attention should be paid to their proper timing;

14.
Encourages further research into the different kinds and measures of structural and macroeconomic
reforms and their interaction and mutual impact at different phases of the economic cycle in order to iden-
tify the best possible means of strengthening public finances while at the same time realising the Lisbon
Strategy;

15. Underlines that the lack of political will to contain public spending, overoptimistic revenue projec-
tions, creative accounting, and fiscal consolidation based mainly on one-off measures, have largely contrib-
uted to budgetary slippage and the weakness of the fiscal framework;

16. Recommends exploring whether to set a uniform calendar for budgetary procedures across the EU,
possibly on a biannual basis; takes the view that the Member States' budget planning must be based on
uniform assumptions regarding key economic parameters such as trends in oil prices and exchange rates;
thus calls for key economic parameters to be uniformly assessed and established across the EU;

17. Calls upon the Member States to address urgently the challenge of an ageing society and to cope with
the debt dynamics in particular in the Member States facing serious risks to their long-term sustainability;

18.
Encourages a stronger focus on sustainability in budgetary reforms, as regards both expenditure and
revenue measures, preserving sustainable public finance positions and the adequate provision of public
services including fiscal discipline and the risks of explicit and implicit contingent liabilities;

19. Underlines the importance of the efforts of the Commission and the Council to improve statistical
governance improving the reporting of fiscal data with a recommendation to Member States on EU-wide
standards concerning statistical institutes, including principles on professional independence, the confidenti-
ality, reliability, and timeliness of data and the adequacy of resources of statistical institutes and improved
monitoring by the Commission;

20. Considers that there is room for improvement in the accounting of public assets and implicit liabilities
in order to increase transparency and comparability and to provide a sounder basis for taking decisions;
considers that the Commission should launch an initiative in this field;

21. Recommends that the Commission prepare a study on best practices concerning the statistical govern-
ance of fiscal data reporting and the accounting of public assets and liabilities in Member States;

22.
Encourages the production of national reports on the long-term sustainability of public finances in
order to increase awareness and credibility of national commitments and deems that national parliaments
should be involved in such an exercise;

23.
Stresses the importance for the new Member States' fiscal policies to catch up with average EU income
levels and financial development through tax and expenditure policies characterised by efficiency, transpar-
ency and reliability and geared towards increased growth, sustainability, and towards both modernising and
stabilising the economy;

24. Deplores the lack of policy coordination in the euro zone and draws attention to the divergence in
fiscal policies of the Member States in the euro zone and is concerned about possible antagonistic effects of
such a lack of coordination;

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25. Regrets deficiencies in the current framework of macroeconomic coordination within the ECOFIN
Council, as well as the lack of coordination among the Member States; calls on the Commission to carry out
a study concerning the economic advantages and limitations of greater economic policy coordination; calls
for a more active macro-economic dialogue under the Cologne process between ECOFIN, the European
Central Bank, and the European social partners;

26. Calls on the Council to adjust the timetable for macroeconomic coordination to enable the Parliament
to have sufficient time to submit its contribution;

27. Calls on the Eurogroup chairman to propose a detailed action plan for the duration of his term of
office, clearly defining his objectives and planned measures; expects regular reports on the level of imple-
mentation achieved;

28. Calls upon the Member States to assume their obligation under Article 99 of the Treaty to regard their
economic policies as a matter of common concern and to coordinate those policies; reminds the Member
States that better coordinated policies and a better policy mix could improve the aggregate result of their
policies; calls for more awareness of the impact of national economic policy at the EU level and of the obli-
gation to consider economic policy of common interest and to coordinate such policy;

Instructs its President to forward this resolution to the Council, the Commission, the governments

29.
and parliaments of the Member States, and the European social partners.