Opinion of the European Economic and Social Committee on The EU Economy: 2006 Review — Strengthening the euro area: key policy priorities COM(2006) 714 final — SEC(2006) 1490
Date: 2007-09-26
Institutions: European Economic and Social Committee
Subjects: economic analysis, economic convergence, economic policy, economic statistics, euro area, macroeconomics, national budget, participating country (euro area)

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Opinion of the European Economic and Social Committee on ‘The EU Economy: 2006 Review —
Strengthening the euro area: key policy priorities’

COM(2006) 714 final — SEC(2006) 1490

(2008/C 10/22)

On 11 January 2007 the Commission decided to consult the European Economic and Social Committee,
under Article 262 of the Treaty establishing the European Community, on The EU Economy: 2006 Review —
Strengthening the euro area: key policy priorities.

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 4 September 2007. The rappor-
teur was Mr Burani and the co-rapporteur was Mr Derruine.

At its 438th plenary session, on 26 September 2007, the European Economic and Social Committee
adopted the following opinion by 133 votes to two, with five abstentions.

1. Conclusions and recommendations

ensure optimum protection for consumer interests and, where
necessary, market vigilance.

1.1
The Committee broadly supports the Commission docu-
ment, but nevertheless wishes to add a few comments, including
some already expressed before, even before the adoption of the
euro. The Commission expresses various veiled criticisms of
certain aspects of Member States policies. The EESC agrees with
the substance of this but recalls that governments are often
faced with unavoidable domestic political demands or external
events (energy crises, war situations, etc.) that are beyond their
control.

1.5 Wage bargaining should, as the Commission demands,
the implications of monetary union. The
take into account
EESC hopes it will be possible to achieve convergence among
economic, monetary and employment policies by means of
joint Eurogroup and Employment Council meetings. Conver-
time to
if only in principle, could contribute over
gence,
genuine harmonisation of the various policies.

1.2
The long-term sustainability of budgetary policies is
problematic when there is a lack of policy continuity from new
governments coming to power over time. The same can be said
for structural reforms, which can be influenced considerably
depending on the subjective leanings of
the government in
office. In view of the above, the EESC agrees with the Commis-
sion on the need for structural reforms to be completed with
the necessary policy continuity.

The Commission's

1.6
recommendation to take greater
account of the international dimension mirrors a criticism made
by the EESC even before the euro was adopted. The emergence
of the Asian countries should not be seen as a threat, but rather
as a challenge to rise to in terms of competitiveness and innova-
tion.

The flexibility of the markets for goods and services is
1.3
one aspect of economic policy where governments have to seek
the agreement of the social partners. Liberalisation, which has
had varying degrees of success in the various countries and
sectors, should be carried out with caution, taking into account
the specific circumstances of each country and sector.

1.7
The euro area should be championed by individual
governments. They should abstain from blaming the euro for
national economic problems while failing to mention the bene-
fits of having adopted the single currency. It would also be
helpful if the countries that did not join the euro at the start
gave clear indications of their future intentions, not only to
inform the euro area public, but also to ensure that future euro
policies are framed in the knowledge of which and how many
economies will be included.

1.4
The integration of the financial markets, already achieved
to a large degree for corporate services, poses more problems
for the retail markets. Furthermore, most of the obstacles are of
an objective nature (differences in language,
the nature of
services, etc.). These are problems that cannot be resolved
through legislation or regulations, but rather by the market,
where possible. The existing rules should be sufficient
to
progress with integration. At most, standards will be needed to

1.8
The EESC points out that the importance the euro has
acquired as an international currency should strengthen its
application for a seat on the International Monetary Fund. This
the current
involve taking the place of one of
would not
members, but rather adding a member. The objection that the
IMF statutes do not permit this appears shaky and a mere
pretext.

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1.9
One rather controversial idea, offered with the sole aim
of testing the waters for future possible consideration, is that of
a European stabilisation fund, to be fed by tax surpluses in
favourable periods, to finance projects of Community interest.

1.10
In general, the Committee finds the Commission report
acceptable, but would point out that, like the many other docu-
ments on the euro, it fails to do justice to the importance of the
political dimension of the single currency. The importance of
the euro and its consequences and prospects go way beyond
implications. The true
mere economic,
cement holding the Union together is the fact that it has chosen
to pool the interests of different countries within a common
currency.

financial or

social

2.4
The lack of realism early on is now reflected in the criti-
cisms — justifiable but foreseeable from the outset — that are
now being made of the Eurogroup countries' economic poli-
cies: national budgets ought to be drawn up on the basis of
common macroeconomic hypotheses. The wishes of
the
presidency, expressed at the Eurogroup ministers' meeting on
6 November 2006, have not been acted upon: national budgets
are still
far from being based on the necessary economic
policy coordination.

2.5
It must also be understood that it is exceedingly difficult
to coordinate economic policies when countries have differing
socio-economic situations and differing if not divergent political
objectives. Just to have convergent policies would be a major
improvement. Convergence depends on a multitude of factors,
but mainly on employment, the scale and nature of which is
the result of a whole web of other policies.

2. Introduction

The Commission has published a communication on the
2.1
state of the EU economy in 2006, focusing in particular on poli-
tical priorities for strengthening the euro area. This document is
based on another entitled ‘Adjustment Dynamics in the Euro
area — Experiences and Challenges’ (1), which as usual is valu-
able for providing a more in-depth analysis.

2.5.1
Two integrated strategies at least are provided by the
broad economic policy guidelines and the European employ-
ment strategy guidelines. A broad degree of convergence, at
least in an attempt to reach harmonisation over time, could be
achieved by organising a joint Eurogroup and Employment and
Social Affairs Council meeting involving Eurogroup ministers
only. The ideas generated by such a meeting could provide valu-
able pointers for the annual spring Council meeting.

an

annual

document with

It is now customary for the EESC to comment on the
2.2
own-initiative
Commission's
opinion (2). With this opinion, the Committee intends to reaf-
firm views and recommendations it has already made known.
These will be referred to in the present opinion when appro-
priate. It also wishes to contribute to the debate on the func-
tioning of the EMU, introducing new elements, such as a joint
Council of euro-area finance and employment ministers and a
tentative proposal to establish a European stabilisation fund.

2.3 Meanwhile, looking back at the history of the establish-
ment of the single currency, one cannot help noting that several
measures adopted or recommended recently by the Commission
can be matched to comments made by the EESC in its 1997
opinion (3) regarding the rigidity of some of the founding
principles of the Stability and Growth Pact. It was pointed out
then that the nature of the economic climate and national poli-
cies had not been given due consideration when setting and
applying the reference parameters. The EESC's suggestions were
not accepted then, but their validity has been borne out by
time (4).

(1) Provisional document — part of the ‘EU Economy Review’ series,

published by the DG for economic and financial affairs.

(2) See Appendix for list of recent opinions on the broad economic policy

guidelines.

(3) Opinion on arrangements for stage three of economic and monetary

union, OJ C 287 of 22.9.1997, p. 74.

(4) The EESC suggested for instance that the ‘convergence criteria, particu-
larly those on government deficit and debt, should be reviewed regu-
larly e.g. every ten years’. This suggestion was rejected, but events have
shown the need to adopt a revised stability and growth pact, even
earlier than the ten years proposed by the EESC.

3. The Commission document

The communication's three admirably neat sections set
3.1
out past experience, specific considerations and the Commis-
sion's
repeating
tacitly accepted truths and principles that over the years have
become part and parcel of the economic policy guidelines.

recommendations. The Commission avoids

3.2 Taking stock of the experience of the early years of the euro

the debates

The Commission looks back at

that
3.2.1
preceded the euro's launch in 1999. The fundamental issue was
‘how the participating countries would adjust to shocks and
low labour
differences in competitiveness in a context of
mobility,
and services
markets and the retention of national budgetary autonomy’.
These questions remain today, but the pessimists who predicted
that monetary union would be short-lived have been proved
wrong.

integration of product

incomplete

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The success stories, or at least

3.2.2
the positive proof
provided by the euro, cannot be denied: the currency is
strong and stable; it has reacted well to common external and
internal shocks and has battled effectively against inflation. The
Member States have enjoyed ‘the most
favourable financing
conditions ever’. In addition, the EESC would add that a number
of the euro area countries have been spared the inflation that
their national currencies would certainly have suffered as a
result of worsening economic and budgetary conditions. The
euro, the world's second currency, has shielded Member States
from the monetary and financial shocks that would otherwise
have hindered growth, done away with jobs and destroyed the
trust of economic operators.

3.2.3
However, the success stories are contrasted by certain
perennial problems. In many cases, individual economies have
had trouble adjusting to developments in their own countries,
with widely differing results. These divergences have been
reflected in inflation and growth rates. The adjustments
resulting from the slow-down in the economies should have
enabled faster growth trends in the medium term, following an
initial loss in competitiveness. This did not happen, however, or
the
at
Commission concludes, ‘the euro area has not yet been able to
achieve high growth and employment over a sustained period’.
The EESC will comment on this statement below.

least only happened to a degree.

‘More generally’,

The Commission also recognises that the difficulties
3.2.4
adjusting are not only or mainly the result of delays in imple-
menting fiscal and structural reforms: they may also be due to
the regime imposed by the monetary union rules.

In the early years of EMU, real effective exchange
3.2.5
rates showed imbalances and fluctuations. For some Member
States this was compounded by a sharp fall in interest rates and
‘a relaxation of credit constraints on households following an
in the more integrated financial
improved access to credit
market’, with direct effects on the consumption of durable and
non-durable goods. For durable goods (real estate) in particular,
certain economies experienced large-scale investment abroad,
which served to increase current account deficits.

3.2.6
One general statement made by the Commission, based
on the example of the Netherlands, refers to the ‘hazards in
designing fiscal policies in “good times”’. In the Netherlands,
a strongly favourable economy at the beginning of the decade
had pro-cyclical effects on the labour and financial markets and,
ultimately, on fiscal policy. External conditions generated a
sudden downturn which in turn necessitated the adoption of
drastic containment countermeasures.

Prices and wages are a further factor at play here: at
3.2.7
national
they adjusted too slowly to cyclical changes,
level
despite a general background of wage moderation, which mean-
while contributed to declining unemployment. Poor growth in
productivity put the burden of real depreciation on prices and
wages but mainly on the latter. These phenomena interact at
international
to generate changes in demand and also
level
repercussions on competitiveness.

Lastly, there were widely differing results with nominal
3.2.8
and real convergence, which could be instructive if analysed in
a critical and objective way. The Commission states that the
differing trends were ‘partly’ the reflection of different national
policies. The EESC would note here that
the global and
European economic situation generally had similar effects on all
the countries, whereas any differences recorded were largely the
result of national policies. The examples of Spain, Italy, Portugal
and Ireland, mentioned by the Commission, offer glaring proof
that, under
the results of
thrifty and spendthrift fiscal policies are totally different.

favourable economic conditions,

3.3 Action needed to ensure the smooth-running of the euro area

3.3.1
‘specific policy considerations’
rather coincide with,
coming years.

This chapter deserves special attention as the five
follow constitute, or
the Commission's priorities for the

that

3.3.2
Consideration 1: Budgetary policies must be run
even more prudently. In essence, the measures to adopt coin-
cide with those that were approved for the reformed stability
and growth pact, and they should by now have been taken on
board by governments, and not only by those in the euro area.
Hence the recommendation to take the long-term sustain-
ability of budgetary policies into account — something which
may seem obvious, but is clearly not always observed when
annual plans are drawn up.

3.3.3
Consideration 2: Markets for goods and services
must become more flexible. The Commission speaks of
‘greater downwards price flexibility’, something that is impossible to
obtain when prices are rigid. In such situations there is resis-
tance to adjusting nominal wages, as this would generate greater
reductions in real wages. It is also necessary to encourage a real-
location of resources among companies and among sectors.
All this — price flexibility and the redistribution of resources —
depends on the creation of open and competitive markets. It
may also be necessary to review fiscal and spending policies (or
certain aspects of them), both at EU level and nationally and
regionally.

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Consideration 3: Financial market

3.3.4
integration
needs to be accelerated. Major progress has been made in this
area, but according to the Commission there is still a long way
to go to tap the full potential of the financial markets in the
euro area. Greater
integration could reduce the impact of
economic shocks on incomes and on national credit markets.
The Financial Services Action Plan and ongoing initiatives
should deliver significant results.

d. promoting the enlargement of the euro area;

e. getting closer to the citizens.

The EESC will comment on these individual points later.

3.3.5
Consideration 4: Wage setting must internalise the
implications of monetary union. The social partners involved
in the wage bargaining process must have access to the informa-
tion they need to calculate whether wage trends are appropriate
and to be able to assess the implications for adjustment
processes. A wage policy that is in line with development plans
should help to avoid significant ‘overshooting’ in intra-euro area
real effective exchange rates.

3.3.6
Consideration 5: The global dimension must be
taken into account. This aspect needs to be considered ‘in a
more systematic way’. Economic policies at euro-area and
national levels have often underestimated this aspect, despite its
importance when it comes to determining economic
great
policy. The impact of the euro, or of its exchange rates, on
other players in the world economy must be carefully assessed,
as trade, finance and economic policy strategies depend on it.

3.4 The way ahead to a stronger euro area

In this chapter, the Commission sets out the measures
3.4.1
that are needed to strengthen and complete monetary
union, a priority that in the current international context is
becoming a matter of urgency. One sentence in particular
‘Recent divergences have to some degree
should be highlighted:
reflected initial developments that affected member economies in the
run-up to the euro area's creation in 1999’. This holds the explana-
tion, at least in part, for the divergences in growth and policy
that have marked the last nine years.

4. The EESC's comments

4.1 Consideration 1: Budgetary policies must be run even more

prudently.

4.1.1
The Committee agrees with the Commission's thinly
veiled criticisms of the policies of certain Member States who
sometimes seem more interested in presenting annual plans that
are in line with the convergence criteria than in adopting a
strategy to strengthen their fiscal positions. These criticisms
should also be viewed in the light of opinions expressed by the
Committee well before the single currency was adopted (5): no
government is totally at liberty to adopt its own appro-
priate budgetary policy, free of constraints and influences.

4.1.2
In addition to the constraints imposed by the conver-
gence rules — which are supposedly already written into an
‘appropriate’ budgetary policy — there are others of an internal
and external nature. Of those of an internal nature it is suffi-
cient to mention structural constraints and those relating to
structural reforms that have yet to be implemented. The external
constraints include general trends in the global economy and in
particular energy costs; the effects of this factor differ enor-
mously from one country to another, but it is never considered
among the causes for divergent economic policies. It has to be
admitted that countries that are totally or almost totally depen-
dent on energy supplies from abroad are in a very different posi-
tion from those that have a smaller deficit or, in a few cases,
that are net exporters of energy.

3.4.2
The ‘way ahead’ set out by the Commission is
summed up here by the headings listed below. Their content is
largely self-evident and there are also vast numbers of docu-
ments on the individual subjects. The way ahead will involve:

a. accelerating structural reforms and fostering integration;

b. further strengthening fiscal positions and improving the

quality of national budgets;

c. reinforcing coordination within and outside the euro area;

The Committee also notes that in the past, structural
4.1.3
reforms, as listed in point 4.1.6 below, have not always yielded
the desired results. What is needed, therefore, is better coordina-
tion of the reforms, within each country and at Community
level, as well as consistency with macroeconomic policies
designed to support competitiveness and employment. This has
not always been the case in the past; disappointing growth
trends — found in almost all countries — highlight the way in
which in some countries growth has been almost an ‘indepen-
dent variable’ in the reforms.

(5) ‘Governments are not always able to conduct their economies as they
would like to, and (…) forecasts — even the most authoritative — can
prove to be wrong’: 1997 opinion cited in Footnote 3.

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4.1.4
The recommendation to take the long-term sustain-
ability of budgetary policies into account (see point 3.3.2)
deserves special comment. These policies are always a combina-
leanings.
tion of economic/social considerations and political
Looking at the history of the euro area countries over the last
10 years, it is clear that very few have witnessed ‘political stabi-
lity’. In all the countries, governments of differing political lean-
ings have taken turns at the helm, as is moreover normal and
this alternation
desirable in a democratic system. However,
makes it difficult to draw up long-term sustainability plans (6),
as their reliability will depend on the stability of governments
over time, as well as on various other external factors.

One specific aspect of the structural reforms in certain
4.1.5
countries concerns the level of government debt, which is
notably higher than the parameter set by the Maastricht criteria
(60 % of GDP) and which is not showing significant improve-
ment year-on-year. In the Committee's view, reducing this debt
by using the budget surplus of a few good years or a one-shot
operation is not enough. What is needed is greater efficiency in
public spending or, if this proves inadequate, a radical review of
its structure.

The Commission's ‘way ahead’ as mentioned in point
4.1.6
3.4.2a) (accelerating structural reforms) is therefore fraught with
difficulties and will be highly susceptible to political trends.
Structural reforms (pensions, health, public administration, liber-
alisation, energy) have a major social impact and the social part-
in ways that differ from country to
ners play a key role,
country. No government can adopt measures, whether rational
or not, that are not acceptable to the public. Recent history
shows that structural reforms are often the fruit of compromise
between diverse
and sometimes divergent demands:
reforms that seem ‘rational’ at one step removed must take
account of real and unavoidable prerogatives.

thought-out

The Committee recognises the importance of carrying
4.1.7
through well
reforms with good coordination
between the Member States. However, some reforms may raise
concern among households, causing them to act prudently and
increase their savings levels. Although, to date, the growth in
savings rates appears negligible when expressed in percentage
points, this is not so when it is expressed in absolute terms.
Between 2001 and 2005 savings increased by less than one
percentage point, but
sum of nearly
EUR 50 billion subtracted from consumer spending (7). For
some,
this is a positive sign, as an increase in consumer
spending that is lower than the increase in savings could also
the
mean increased consumer confidence in the future of
economy. Others however draw attention to foreign investment,

represents

this

a

(6) ‘Given the fluidity of

the political and socio-economic scene at
European and above all at world level, it might be better to talk about
programme declarations rather than programmes; such declarations
would be binding only insofar as they correspond to real economic
developments’: see opinion cited in Footnote 3.

(7) Source: AMECO, the DG ECFIN database.

lamenting the fact that it exceeds investment in Europe. These
different points of view may find common ground in the fact
that the increase in foreign investment in Europe is definitely
one of the positive effects of globalisation.

4.2 Consideration 2: Markets for goods and services must become

more flexible.

4.2.1
The Commission stresses that budgets must be ‘more
supportive of active adjustment’ in the flexibility of markets
for goods and services. Flexibility here means ‘downwards
price flexibility’ in contrast to the experience of the early years
of the euro area. One way of achieving this would be to make
prices less rigid and encourage a better allocation of resources
between companies and between sectors: this would encourage
a wage policy more in line with the need to maintain appro-
priate wage levels and reduce the social costs of the cyclical
adjustment process.

4.2.2
The Commission's reasoning is probably correct, but
the EESC wonders whether it can realistically be applied to all
situations and all countries. The integration of national markets
(see second part of point 3.4.2a) can be encouraged in part by a
government policy of incentives, but wage policy depends to
a large degree on consultation and bargaining between the
social partners. Price flexibility in a free market regime is not there-
fore always or everywhere independent of government provisions. In
practice it is subject to various parties — government, business
leaders and workers — coming to an agreement. The same
the reallocation of resources
could possibly be said about
between companies and sectors, which can certainly be encour-
aged by fiscal or regulatory measures, but in the end depends
on market opportunities and agreements between both sides of
industry.

Liberalisation deserves specific mention, as it can lead
4.2.3
to a redistribution of resources between companies. Despite
formal adherence to the principle,
in practice liberalisation is
understood and carried out in different ways and to varying
degrees from country to country, depending on differing and
sometimes divergent national political orientations. The impact
of these measures on prices (quality is another issue) and on
competition is open to debate, leading to the conclusion that
they have not always or in all cases delivered the desired results.
To conclude, price flexibility and wage policy trends also
depend on the possibility to privatise. Meanwhile, liberalisation
must be conducted when the market allows and the resulting
competition must bring real consumer benefits.

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4.3 Consideration 3: Financial market integration needs to be acceler-

ated.

the efforts of

incentives:
the Commission and the Member
States should focus on reasonable rather than impracticable
objectives.

4.3.1
The Financial Services Action Plan launched three
years ago has yielded good results (the Commission speaks of
‘important progress’) in terms both of payment systems and of
the financial, securities and corporate banking services markets.
In these sectors, financial integration can be said to be at an
advanced stage. The steps still to be taken concern supervisory
measures, voting rights and company mergers: all necessary
measures, but ones whose absence poses no real obstacle to the
integration already in place.

4.3.5
To conclude, the EESC agrees with the Commission's
recommendations on the need to accelerate the integration of the
financial markets as a means of better distributing financial
resources, directing them to the places they are most needed.
However, it would also stress that the existing rules (and the
additional rules under discussion) are sufficient to secure inte-
gration on the basis of market laws. Rules are needed, if at all,
to secure better and more uniform protection for consumer
interests.

4.3.2
A separate issue is the problem raised by the Commis-
sion regarding the retail market for credit and financial
services in general. The Commission states that: ‘Greater finan-
cial integration can smooth the impact of economic shocks on
incomes and on national credit markets’. This statement
is
certainly well-founded; but whether it is really feasible remains
open to discussion. For financial products,
integration at Com-
munity level is a given: no one is against the idea of a citizen of
any country being able to buy or sell securities in any other
country. With regard to financial services — credit in particular —
the situation is more complex: integration at European level
is not an easily reachable goal in the short term.

4.3.3
Financial services along with insurance services are
unusual in that they carry a risk for the seller: the feasibility of
each transaction depends on the reliability of the client. This
makes it necessary to obtain information in a country other
than that of the seller and thus to draw up a contract that
includes procedures to govern any possible litigation or insol-
vency. On the national market, none of this poses a problem,
but integration at Community level with the same rules implies
the use of different languages, and acceptance of the authority
of the laws — and possibly the courts — of the buyer's country.
These conditions generate costs, complications and obstacles
that are difficult
to overcome with legislative or regulatory
provisions. The answer, and what is done in practice, is to open
sales branches in the buyers' country or countries: in this case, it
is not a matter of market integration but rather of enlarging the
internal market in accordance with the principle of the freedom
of establishment. The benefit is to strengthen competition on
national markets and give the consumer more choice.

4.3.4
The further integration of retail financial markets is not
therefore possible in the short term with legislative initiatives or

4.4 Consideration 4: Wage setting must internalise the implications of

monetary union.

The Committee is

4.4.1
surprised by the Commission's
suggestion that the social partners do not have ‘the necessary
information concerning the challenges and the implications of
different lines of action’, and that they therefore are conducting
an irrational wage policy. This view does not compute with the
Commission's own position taken in a study (8), where it states
that ‘during the period 1999-2005 nominal wage developments
in the euro area have been consistent with the goal of price
labour cost
thus indicating negative real unit
stability(…),
growth of
(…) Evidence shows that brightening
- 0,4 %.
economic conditions have not translated into accelerating wage
growth so far; meaning that unit labour cost developments have
remained consistent with price stability and employment-
friendly growth. (…) On average, producers have been able to
maintain profit margins despite strong non-labour input cost
pressures and heightened international competition’.

4.4.2
The Committee gave its views on this issue in an
opinion in 2003 (9), and they are still as valid today. It pointed
out that while wages are a factor in competitiveness, they also
feed demand on the internal market. The EESC stressed that
medium-term growth should keep in step with increasing
productivity, so as to strike a balance between sufficient growth
in demand and competitive prices.

4.4.3
In this respect, the EESC recalls the conclusions of the
January 2007 Employment Council and those of the February
2007 Eurogroup on the need to establish decent wage condi-
tions and distribute the fruits of growth more effectively.

(8) European Commission, ‘The contribution of labour cost development
to price stability and competitiveness adjustment in the euro area’,
Quarterly Report on the Euro Area, volume 6, No 1, 2007. (Document
available in English only).

(9) See EESC opinion on the Broad economic policy guidelines 2003-2005,

OJ C 80 of 30.3.2004, p. 120.

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its

The Committee would reiterate

4.4.4
longstanding
stance on the need to bolster macro-economic dialogue so as
to improve coordination and synergies between the various
(monetary, budgetary and
macro-economic policy strands
wage-related). The lack of coordination here serves to harden
the Committee's belief that a system for joint meetings between
the Eurogroup and the Employment Council
is becoming a
necessity rather than simply useful (see point 2.5.1).

4.4.5 Whilst
the Commission expresses its dissatisfaction
with the trends in economic growth and employment, it stran-
gely does not see this as a reason to rethink the direction of the
macroeconomic policies and the recommended policy mix it
has pursued to date. Whilst the structure of budgetary and
monetary policy remains unchanged, the wage-setting policy
should not be the only one being requested to be in line with
the requirements of the monetary union. Such a policy would
transfer to the social partners the responsibility for compen-
sating for the mistakes in other policy areas.

4.5 Consideration 5: The global dimension must be taken into

account.

4.5.1
The EESC totally agrees with the Commission's
self-evident comments on the need to take the international
dimension into account. If there is one comment to make, it is
that the Commission and the Council themselves underesti-
mated this factor when drafting the original text of the stability
and growth pact, despite the EESC's recommendations, which
highlighted the risky nature of long-term plans in the light of
unpredictable political developments on the world stage. It
goes without saying that the events of the last decade have
borne this out, and the next decade looks set to be even more
unpredictable. The value of taking the global dimension into
account when making medium- to long-term plans is therefore
somewhat theoretical.

As for annual plans,

4.5.2
it is obvious that all Member
States, whether euro area members or not, are affected by global
trade conditions, particularly in relation to oil and growing
competition from the Asian powers. Countries whose depen-
dence on oil is relatively minor feel the price cycle less intensely.
The others, however, are heavily affected by economic shocks,
with a resulting impact on internal prices and competitiveness.

Similarly,

the emergence of

the Asian countries is
4.5.3
opening new markets for the more competitive European
countries, while damaging the position of those who have paid
less attention to competitiveness and innovation.
In the
Committee's opinion, too much credence has been given to the
theory that a lack of competitiveness is the result of euro
exchange rates faced with Asian currencies and the dollar. The
problem is largely structural and should be the subject of a
radical policy rethink by governments and social partners.

5. Other ways ahead

A number of

5.1
the ‘ways ahead’ have already been
discussed in connection with the various ‘considerations’. The
Committee will now look at other aspects dealt with by the
Commission.

The Committee takes the view that

5.2
the Commission
should not address EMU from a purely economic angle forget-
ting the political dimension. The monetary area is not an end in
itself but is one element in a wider civil society project, which is
about ‘wanting to live together’. There is no shortage of past
examples of monetary areas that were doomed to implode
because the countries involved made no progress towards inte-
gration (10).
should not be tackled and
projected as simply a technical currency change but as a major
conversion with significant economic, monetary and social
effects’ (11). This is a message to remember at a time when the
27 Member States are in the process of revising the Treaty to
find a way out of an institutional crisis whose many different
roots include widespread economic and social unease.

‘Euro changeover

the

countries who were

5.3
One point worthy of comment is ‘promoting the (…)
euro area’ (see point 3.4.2.d)). The Commission lists the bene-
fits to countries that are already part of the Eurogroup and to
new members; however the latter appear to include only ‘coun-
tries preparing to join the euro’, clearly the countries that most
recently joined the EU. No comment is made however about the
continued absence of
already
members of the EU when the euro was adopted and who used
an opt-out clause: a subject ripe for review. While very much
hoping that these countries will rethink their decisions, the
EESC believes that a comment from the Commission would
help to clarify whether the hypothesis that the opt-out coun-
tries might join should be abandoned definitively. Clarity on
this point is one of a number of factors that could help to deter-
mine future euro-related strategies. Meanwhile, it is hard to see
how the medium- to long-term plans of countries outside the
Eurogroup can avoid taking into account the possibility or the
desire to adopt the single currency.

5.4
The Committee wishes to send out a strong message to
the EMU countries, to encourage them in their efforts to uphold
the Maastricht criteria and promote policy convergence so as to
arrive at real convergence. It is totally unacceptable that certain
countries are clearly adopting relaxed policies without the justifi-
cation of exceptional circumstances. This behaviour damages
their credibility among the other Member States, and by associa-
tion undermines the credibility of the EU as a whole.

(10) The Latin Monetary Union (1861-1920) failed partly owing to the lack
of fiscal discipline between its members (Italy, France, Switzerland,
Belgium and Greece). The monetary union formed in 1873 linking
Sweden (which at the time was in a ‘Personal Union’ with Norway) and
Denmark failed when the political context changed. In contrast, the
German customs union of the 19th century, which grew into a mone-
tary union, was a success owing to the political unification of the
country in 1871. Monetary success and political integration therefore
go hand in hand, as monetary unions are founded on a high degree of
economic policy coordination and therefore on a certain degree of
centralisation.

(11) European Parliament resolution on the enlargement of the euro zone

(2006/2103(INI)), 1 June 2006.

15.1.2008

EN

Official Journal of the European Union

C 10/95

5.5
Lastly, the call to move ‘closer to the citizens’ is one
that is repeated so often that it has become a leitmotiv. Neverthe-
less, it is a crucially important issue that brings into play the
individual governments. The advan-
direct responsibility of
tages brought by the euro are there for all to see. The fact is that
at national level, price stability, easier access to credit and other
benefits are often claimed by governments to be their own
achievements. However, when talk is of the shortcomings (real
or imagined), in particular rising prices, even in cases where the
adoption of the new currency was not the cause, it is the euro
that gets the blame. In politics, it is in no one's interests to give
credit to others, and everyone seeks ways of blaming others for
problems.

6. Further comments by the EESC

6.1
In addition to its considerations on the Commission
document, the EESC wishes to submit two additional comments
for further discussion.

The dynamic of euro exchange

6.2
rates has been
mentioned as a cause of imbalances in Europe's competitiveness
vis-à-vis other countries, the Asian countries in particular. Inas-
much as this aspect may be one of a number of causes (and not

Brussels, 26 September 2007.

the main one, as stated in point 4.5.3) the Committee believes
that the request for the euro area to be allocated a seat on the
International Monetary Fund should be made again more
forcefully. It was proposed in the past that a seat might be
exchanged for those of the Member State participants on the
IMF, but none of them seems prepared to leave in order to
make room for the euro. Although the ideal solution would be
an additional seat for the euro on the IMF, coordination
between the Member State representatives might be a more
realistic short-term prospect. It is hard to understand why a
currency with a fundamental role in international trade should
not be represented. The objection that the IMF's statutes do not
allow it appears rather weak: the effort required to change a
statute would appear minimal compared with the glaring
anomaly of one of the world's main currencies not being able to
play a part in managing world monetary policy.

6.3
The Committee is highly sceptical about the idea of a
European stabilisation fund to reduce the discrepancies in the
growth rate between Member States (12).
If there is to be a
it certainly needs to be
serious discussion about
fleshed out further.

this idea,

The President

of the European Economic and Social Committee

Dimitris DIMITRIADIS

(12) This fund would be financed by all Member States out of a proportion
of the fiscal surplus accumulated when the economy is doing well, and
would fund projects that the Council and the European Parliament
have determined to be priorities and in the Community interest. The
main objection to this is that it entails fiscal discipline being punished,
creating a negative incentive.