Council Recommendation of 14 May 2008 on the broad economic policy guidelines for the Member States and the Community (2008-2010)
Date: 2008-05-14
Institutions: Council of the European Union
Subjects: EU Member State, economic growth, economic policy, employment policy, macroeconomics, microeconomics

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(Acts adopted under the EC Treaty/Euratom Treaty whose publication is not obligatory)

II

RECOMMENDATIONS

COUNCIL

COUNCIL RECOMMENDATION

of 14 May 2008

on the broad economic policy guidelines for the Member States and the Community (2008-2010)

(2008/390/EC)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty
Community, and in particular to Article 99(2) thereof,

establishing the European

Having regard to the recommendation from the Commission,

Having regard to the discussion by the European Council on 13
and 14 March 2008,

Whereas a Resolution on the recommendation from the
Commission was adopted by the European Parliament,

HEREBY RECOMMENDS:

SECTION A

MACROECONOMIC POLICIES FOR GROWTH AND JOBS

A.1. Macroeconomic policies creating the conditions for more

growth and jobs

Securing economic stability to raise employment and growth potential

Sound macroeconomic policies and structural
reforms on
product, labour and capital markets are essential to support a
well balanced economic growth and the full realisation of
by
growth potential. Monetary policies
to this
pursuing price

and, without prejudice

can contribute

stability

towards

objective, by supporting other general economic policies with
regard to growth and employment. For new Member States, it
will be important that monetary and exchange rate policies
rate
contribute
regimes constitute an important part of the overall economic
and monetary policy framework and should be orientated
towards achieving real and sustainable nominal convergence.
Participation in ERM II,
after
at
accession, should help those endeavours.

achieving convergence. Exchange

an appropriate

stage

in particular

Securing a sound budgetary position will allow the full and
symmetric play of the automatic budgetary stabilisers over the
cycle with a view to stabilising output around potential. For
those Member States
already achieved sound
that have
budgetary positions, the challenge is to retain that position.
it is vital to take all the
For the remaining Member States,
necessary corrective measures to achieve their medium term
budgetary objectives
conditions
improve, thus avoiding pro-cyclical policies and putting them-
selves in a position in which sufficient room for the full play of
automatic stabilisers over the cycle is ensured prior to the next
economic downturn.
in accordance with the
report on the SGP reform endorsed by the European Council
on 22 March 2005, euro area and ERM II Member States that
have not yet reached their medium-term budgetary objectives
in cyclically
(MTOs) should achieve an annual adjustment
adjusted terms, net of one-offs and other temporary measures,
of 0,5 % of GDP as a benchmark.

In particular,

if economic

economic

to the diversity of

individual Member States

the MTOs are differentiated
For
and budgetary
according
In line with the 2005 SGP
positions and developments.
take into
the MTOs will be reviewed to better
reform,
account
the ageing-induced fiscal burden. Moreover, also in
accordance with the 2005 reform, introducing or strengthening
national
including monitoring
mechanisms can usefully complement the Pact and support its
objectives.

rules and institutions,

fiscal

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is

for

and

rapid

deficits,

expansion

to operate in an environment of

some
An additional macroeconomic policy challenge
Member States
fast
catching up, which is to varying degrees accompanied by
external
financial
credit
deepening. Fiscal restraint, effective financial supervision and
promoting competitiveness are essential
in order to contain
external and internal imbalances. A cautious fiscal stance is an
important way to keep external deficits within the range where
sound external financing can be secured. In addition to contri-
buting to sound budgetary positions, fiscal restraint can also
limit the risk of surging domestic demand causing persistently
higher inflation and the occurrence of macro-financial risks
in real exchange rates and a
which could cause swings
protracted loss of competitiveness. Structural
reforms and
appropriate coordination of policies play an essential role in
helping economies to withstand possible adverse developments
in the global economy.

in line with the well

Member States should address the economic implications of
ageing,
established three pronged
strategy for tackling the budgetary implications of ageing. This
includes an appropriate combination of policies to achieve a
satisfactory pace of debt reduction, including by attaining the
MTOs, and to provide incentives to raise employment rates and
labour supply, so as to offset the impact of future declines in
the share of persons of working age, as well as reforms to
pension and health care systems.
to
modernise social protection systems so as to ensure that they
are financially viable, provide incentives to the working age
population to actively participate in the labour market, while
at the same time supporting their goals in terms of access and
adequacy.
Improved interaction between social protection
systems and labour markets can remove distortions and
encourage the extension of working lives against a background
of
expectancy. Health promotion policies,
including preventive health care, could help to increase the
share of life spent in good health and thus support the sustain-
ability of health care systems.

is also essential

increased life

It

Guideline 1. To secure economic stability for sustainable growth

1. In line with the Stability and Growth Pact, Member States
should respect their medium-term budgetary objectives. As
long as this objective has not yet been achieved, they should
the necessary corrective measures to achieve it.
take all
Member States
fiscal policies.
those Member States
it
Furthermore,
having an excessive deficit take effective action in order to
ensure a prompt correction of excessive deficits.

should avoid pro-cyclical
is necessary that

2. Member States posting current account deficits that risk
being unsustainable should work towards correcting them
by implementing structural
reforms, boosting external
competitiveness and, where appropriate, contributing to
their correction via fiscal policies. See also integrated
guideline ‘To contribute to a dynamic and well-functioning
EMU’ (No 6).

To safeguard economic and fiscal sustainability as a basis for increased
employment

Without changes in policies and behavioural changes more
widely, Europe’s ageing population poses risks to the long-
term sustainability of
the European Union economy from
lower potential output growth per capita due to a reduction
in the share of the working age population, and rising spending
insurance, health and long-term care
on pensions,
systems. If not addressed in a timely manner, these potential
developments would lead to a substantial increase in the debt
burden. As documented in the Commission’s Sustainability
Report, several Member States are exposed to high sustainability
risk, and a number of others to medium risk.

social

Guideline 2. To safeguard economic and fiscal sustainability as a
basis for increased employment

Member States should, in view of the projected costs of ageing
populations:

1. undertake a satisfactory pace of government debt reduction

to strengthen public finances;

2. reform and re-enforce pension, social insurance and health
they are financially viable,

care systems to ensure that
socially adequate and accessible;

3. take measures to increase labour market participation and
labour supply especially amongst women, young and older
workers, and promote a lifecycle approach to work in order
to increase hours worked in the economy.

See also integrated guideline ‘Promote a lifecycle approach to
work’ (Nos 18, and 4, 19, 21).

Promote a growth and employment-orientated and efficient allocation
of resources

Well-designed tax and expenditure systems that promote an
efficient allocation of resources are a necessity for the public
sector
to make a full contribution towards growth and
employment. This can be achieved by redirecting expenditure

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towards growth-enhancing categories such as Research and
Development (R & D), physical infrastructure, environmentally
friendly technologies, human capital and knowledge, without
jeopardising the goals of economic stability and sustainability.
Public resources have to be used in the most efficient and
effective manner. Member States can help to control expen-
diture categories through adequate budgetary institutions and
fiscal
frameworks such as the use of expenditure rules and
performance budgeting, which moves the focus away from
putting
spending
individual
assessment mechanisms in place to ensure that
reform measures
are well-
reform packages
and overall
designed. Key priorities for the EU economy are to ensure
that tax structures and their interaction with benefit systems
increase incentives to work and to invest, to promote higher
growth through more employment and investment and to
enhance the efficiency and effectiveness of expenditure in
order to improve the quality of public finances.

achievements

towards

actual

and

by

Guideline 3. To promote a growth- and employment-orientated
and efficient allocation of resources

Member States should, without prejudice to guidelines on
economic stability and sustainability, re-direct the composition
of public expenditure towards growth-enhancing categories in
line with the Lisbon strategy, adapt tax structures to strengthen
growth potential, ensure that mechanisms are in place to assess
the relationship between public spending and the achievement
of policy objectives, and ensure the overall coherence of reform
packages.

See also integrated guideline ‘To encourage the sustainable use
of resources and strengthen the synergies between environmen-
tal protection and growth’ (No 11).

Ensure that wage developments contribute to growth and stability and
complement structural reforms

Wage developments can contribute to stable macroeconomic
conditions and an employment
friendly policy mix. This
requires that real wage increases are in line with the underlying
rate of productivity growth over
the medium term and
consistent with a rate of profitability that allows for produc-
tivity, capacity and employment-enhancing investment. This
requires that temporary factors such as variation in productivity
caused by cyclical factors or one off rises in the headline rate of
inflation do not cause an unsustainable trend in wage growth
and that wage developments
labour market
reflect
conditions.
In countries with declining market shares, wage
moderation together with reforms boosting productivity are
necessary so as to ensure that unit
in
order
to restore competitiveness. These issues need to be
taken into account in the continued dialogue and information
exchange between monetary and fiscal authorities and the social
partners via the Macroeconomic Dialogue.

labour costs adjust

local

Guideline 4. To ensure that wage developments contribute to
macroeconomic stability and growth and to increase adapt-
ability, Member States should encourage the right framework
conditions for wage-bargaining systems, while fully respecting
the social partners, with a view to promoting
the role of
nominal wage and labour cost developments consistent with
price stability and the trend in productivity over the medium
term,
taking into account differences across skills and local
labour market conditions.

also integrated guideline

See
labour cost developments and wage-setting mechanisms’
22).

employment-friendly
(No

‘Ensure

Promote coherent macroeconomic, structural and employment policies

is

to provide
sound macroeconomic policies
The role of
conditions conducive to employment creation and growth.
Structural reforms, consistent with sound fiscal positions in
the short and medium term, are essential to increase produc-
tivity and employment in the medium-term, thus leading to the
full realisation and strengthening of growth potential. They also
contribute to fiscal sustainability, macroeconomic stability and
resilience to shocks. At the same time, appropriate macroe-
conomic policies are key for reaping the full growth and
employment benefits of structural reforms. A key feature of
Member States’ overall economic strategy is to ensure that
they have a consistent set of structural policies that support
the macroeconomic framework and vice versa.
In particular,
market reforms and investment
in human capital need to
improve the overall adaptability and adjustment capacity of
economies in response to changes in both cyclical economic
conditions and longer-term trends such as globalisation and
technology. In this regard, reform of tax and benefit systems
are important in order to make work pay and minimise disin-
centives for labour market participation.

Guideline 5. To promote greater coherence between macroe-
conomic, structural and employment policies

Member States should pursue labour and product markets
reforms that at the same time increase the growth potential
and support the macroeconomic framework by increasing flex-
ibility, factor mobility and adjustment capacity in labour and
technological
product markets in response to globalisation,
In particular,
advances, demand shift, and cyclical changes.
Member States
in tax and benefit
reforms
incentives and to make work pay;
increase adaptability of labour markets combining employment
flexibility and security and improve employability by investing
in human capital.

renew impetus

to improve

should:

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See also integrated guideline ‘Promote flexibility combined with
employment security and reduce labour market segmentation,
having due regard to the role of the social partners’ (No 21, No
19).

A.2. Ensuring a dynamic and well-functioning euro-area

for a two-year

to play its full role in international monetary and economic
policy cooperation. While the appointment of a Eurogroup
President
term of office as of 2005 has
brought greater stability to the external representation of the
euro-area, the external representation of the euro-area should be
further improved in line with the existing agreements, so that
the euro-area can take a leading strategic role in the develop-
ment of the global economic system that is commensurate with
its economic weight.

euro-area

countries with favourable

Since the creation of the euro-area almost 10 years ago four
further countries joined the euro-area. The euro has helped to
embed economic stability in euro-area countries, consequently
financing
providing
conditions and mitigating the effects of external exchange rate
fluctuations. Subdued growth performance in some parts of the
euro-area and persistent divergences in growth and inflation
between euro-area countries raise questions as to whether
in the euro-area is working smoothly,
internal adjustment
suggesting that economic policies and governance structures
may not yet have fully adjusted to draw the full benefit from
the monetary union. Since euro-area countries can no longer
make independent use of monetary or exchange rate policies,
further structural reforms are key to foster smooth adjustment
to economic shocks and regain competitiveness, thus firmly
putting economic growth on a sustainable basis.

the current

safeguarding

juncture,
confidence

long-term sustainability

that
is important
it
among consumers

The policy mix in the euro-area needs to support economic
and
growth while
the
stability. At
policy mix underpins
and
investors, which also implies commitment
to medium-term
stability. Budgetary policy has
to ensure a fiscal position
which can support price stability, and is consistent with the
need to prepare for the impact of ageing populations on the
one hand and to accomplish a composition of public expen-
diture and revenues that fosters economic growth on the other.
In April 2007, the Eurogroup agreed that ‘taking advantage of
the favourable cyclical conditions, most euro-area members
would achieve their MTOs in 2008 or 2009 and all of them
should aim for 2010 at the latest.’ Due to the high share of the
public sector in economic activity in the euro-area, the quality
of public finances has a considerable influence on economic
performance. It is also crucial that resources are spent in an
efficient and effective manner, with a view to enhancing growth
potential, and to minimise the distortions arising from the
financing of public activity. Comprehensive structural reforms
will allow the euro-area to raise its growth potential over time
and ensure that stronger growth does not build up potential for
higher inflation. Reforms catering for more adaptable, inclusive
and integrated labour markets, more competition on product
markets and deeper financial market integration accompanied
by growth and stability-oriented macroeconomic policies are
particularly salient for euro-area Member States as they have
an important impact on their capacity to adequately adjust to
shocks.

strongest

Spill-over effects are most powerful and the need for a common
agenda is
in the euro-area. Sharing a common
currency and a common monetary policy offers an extra
dimension to coordination that could strengthen the role of
the euro-area in delivering growth and jobs for the whole EU.

Guideline 6. To contribute to a dynamic and well-functioning
EMU, euro-area Member States need to ensure better coordi-
nation of their economic and budgetary policies, in particular:

1. pay particular attention to fiscal sustainability of their public
finances in full compliance with the Stability and Growth
Pact;

2. contribute to a policy mix that supports economic recovery
and is compatible with price stability, and thereby enhances
confidence among business and consumers in the short run,
while being compatible with long term sustainable growth;

3. press forward with structural reforms that will increase euro-
area long-term potential growth and will improve its produc-
tivity, competitiveness and economic adjustment to asym-
metric shocks, paying particular attention to employment
policies; and

To contribute to international economic stability and better
represent its economic interests, it is critical for the euro area

4. ensure that the euro-area’s influence in the global economic

system is commensurate with its economic weight.

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SECTION B

MICROECONOMIC REFORMS TO RAISE EUROPE’S GROWTH
POTENTIAL

the

several

requires making progress

are
innovation. Raising

Structural reforms are essential to increase the EU’s growth
potential and support macroeconomic stability, because they
increase
the European
efficiency and adaptability of
fuelled by competition,
economy. Productivity gains
Europe’s
investment,
human capital,
growth potential
in both job
creation and productivity growth. After lagging US productivity
growth for more than a decade, productivity growth in the EU
has accelerated since mid-2005, although productivity growth
this
in
improvement is a major challenge facing the Union, especially
in the light of its ageing population. Population ageing alone is
estimated to reduce by nearly half the current rate of potential
growth. A continuation of
the productivity upswing, better
educated, skilled and motivated labour force and increasing
the hours worked are thus indispensable to maintain and
increase future living standards, and to ensure a high level of
social protection. Moreover, greater cooperation between the
different government levels will allow for more coherent, coor-
dinated and effective policy making.

Sustaining

sectors

stalled.

service

has

B.1. Knowledge and innovation — engines of sustainable

growth

Knowledge accumulated through investment in R & D, inno-
vation, education, skills and life long learning, is a key driver of
long-run growth. Policies aimed at
in
knowledge and strengthening the innovation capacity of the
EU economy are at
the Lisbon strategy for
growth and employment. This is why national and regional
programmes for the period 2007-2013 have been increasingly
targeted on investments in these fields in accordance with the
Lisbon objectives.

increasing investment

the heart of

Increase and improve investment in R & D, with a view to establishing
the European Knowledge Area

A high level of R & D is a crucial
input to the innovative
process and therefore makes an important contribution to our
future competitiveness. R & D affects economic growth through
various channels: first, it can contribute to the creation of new
markets or production processes; second, it can lead to incre-
existing products
in already
mental
and
improvements
increases the capacity of a
production processes;
it
country to absorb new technologies; and fourth,
it promotes
the innovative potential. In achieving sustainable growth, envi-
ronmental technologies and eco-innovation play an important
role.

third,

decreased

to GDP has

since 2000.
slightly
compared
Moreover, only around 55 % of research spending in the EU
is financed by the business sector. Low levels of private R & D
investments are identified as one of the main explanations for
the EU/US innovation gap. More rapid progress towards estab-
lishing the European Research Area,
including meeting the
collective EU target of raising research investment to 3 % of
GDP by 2010 is needed. Member States are invited to report
on their R & D expenditure targets and the measures to achieve
these in their National Reform programmes and the annual
Implementation Reports paying attention in particular to inte-
grating the European dimension within their national R & D
policies. The main challenge is to put
in place framework
conditions, instruments and incentives for companies to invest
more in research.

incentive to private spending on innovation.

Public research expenditure must be made more effective and
the links between public research and the private sector have to
be improved. Poles and networks of excellence should be
strengthened and modern research infrastructure developed in
a coordinated way, better overall use should be made of public
support mechanisms to boost private sector innovation, and a
better leverage effect of public investments and a modernised
management of research institutions and universities should be
ensured. It is also essential to ensure that companies operate in
since competition provides an
a competitive environment
important
In
addition, a determined effort must be made to increase the
number and quality of researchers active in Europe, in particular
by attracting more students into scientific, technical and engi-
neering disciplines, enhancing the career development and
reducing the barriers to international, European and inter-
sectoral mobility of researchers, including the recruitment and
re-integration of excellent expatriate and foreign researchers,
and students. The European dimension of R & D should be
strengthened in terms of
financing, development of a
researchers and an optimal number of
critical mass of
in priority areas
research infrastructures at
to
requiring large
mobility of researchers, university teaching staff and students.
To enhance the capacity of creating and adopting new
knowledge, more efforts are required in improving and main-
taining the quality of education, particularly of higher education.

and through reducing barriers

the EU level

funds,

joint

Guideline 7. To increase and improve investment in R & D, in
particular by private business, the overall objective for 2010 of
3 % of GDP is confirmed with an adequate split between private
and public investment, Member States will define specific inter-
mediate levels. Member States should further develop a mix of
measures appropriate to foster R & D,
in particular business
R & D, through:

The EU is currently spending about 1,85 % of GDP on R & D
(although ranging from below 0,5 % to nearly 4 % of GDP
level of R & D spending
across Member States). The

1.

framework

improved
that
conditions
companies operate in a sufficiently competitive and attractive
environment;

ensuring

and

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2. more effective and efficient public expenditure on R & D and

developing PPPs;

inno-
innovation in services and non-technological
regions,
vation, and improving businesses’ access to finance, especially
to risk capital.

3. developing and strengthening centres of excellence of educa-
tional and research institutions in Member States, as well as
creating new ones where appropriate, and improving the
technologies between public
cooperation and transfer of
research institute and private enterprises;

It is necessary for the EU to find solutions for a patent litigation
system and a Community patent.

Guideline 8. To facilitate all forms of innovation, Member States
should focus on:

4. developing and making better use of incentives to leverage

private R & D;

1.

improvements in innovation support services,
for dissemination and technology transfer;

in particular

5. modernising the management of research institutions and

universities;

2. the creation and development of innovation poles, networks
and incubators bringing together universities, research insti-
tutions and enterprises, including at regional and local level,
helping to bridge the technology gap between regions;

6. ensuring a sufficient

supply of qualified researchers by
attracting more students into scientific, technical and engi-
neering disciplines and enhancing the career development
and the European,
international as well as inter-sectoral
mobility of researchers and development personnel.

Facilitate innovation

The dynamism of the European economy is dependent on its
capacity for creativity and innovation. The economic framework
conditions for innovation need to be in place. This implies well-
functioning financial and product markets as well as efficient
and affordable means to enforce intellectual property rights.
Innovations are often introduced to the market by new enter-
prises, which may meet particular difficulties
in obtaining
finance. Measures to encourage the creation and growth of
including improving access to finance,
innovative enterprises,
should therefore
activity. Technology
innovation
diffusion, and policies to better integrate national
and education systems, can be fostered by the development of
innovation poles and networks as well as by innovation support
services targeted at SMEs. Knowledge transfer via researcher
mobility,
(FDI) or imported tech-
investment
foreign direct
lagging countries and
nology is particularly beneficial
regions. It is also crucial to strengthen further the integration
of the knowledge triangle of R & D, education and innovation.
In particular, high quality education and training systems are
among the prerequisites for excellence and innovation.

innovative

enhance

for

The EU’s broad based innovation strategy therefore addresses
intellectual property rights, standardisation, the use of public
procurement
technology
initiatives, boosting innovation in lead markets, cooperation
between higher education,
including
innovation in
open source-type

research and business
encouraging

innovation,

innovation,

stimulate

joint

to

3. the encouragement of cross-border knowledge transfer,

including from foreign direct investment;

4. encouraging public procurement of innovative products and

services;

5. better access to domestic and international finance;

6. efficient

and affordable means

to enforce

intellectual

property rights.

The diffusion of information and communication technologies
in line with the objectives and actions of the i2010
(ICT),
is also an important way to improve productivity
initiative,
and, consequently, economic growth. The EU has been unable
to reap the full benefits of the Information and communication
technologies (ICT), due especially to the continuing under-
investment in ICT, organisational innovation and digital skills.
Wider and more effective use of ICT and the establishment of a
seamless Single Market in electronic communication services
will bolster the future competitiveness of European businesses.
It is also important to reduce and prevent fragmentation of the
‘e-Internal Market’ by putting in place interoperable e-services
between the Member States in all segments. Open ICT standards
are useful as a basis for interoperability and innovation. Security
of networks, the security and privacy of information, as well as
convergence should also be ensured. Member States should
including
encourage the deployment of broadband networks,
for
to develop the
knowledge economy and reduce regional disparities in terms
of economic,
social and cultural development, and foster
growth and innovation in new services by promoting the
deployment of very high speed broadband networks.

the poorly served regions,

in order

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Guideline 9. To facilitate the spread and effective use of ICT and
build a fully inclusive information society, Member States
should:

1. encourage the widespread use of ICT in public services, SMEs

and households;

2. fix the necessary framework for the related changes in the

organisation of work in the economy;

3. promote a strong European industrial presence in the key

segments of ICT;

failures in
Member States cannot successfully tackle market
isolation, should be analysed and exploited. The EU has still
not managed to fully realise
technological potential.
European industrial policy should endeavour to create level
playing field for business based on fair competition. The
pooling of European excellence and the development of
public-private partnerships and cooperation between Member
States where the benefits for society are larger than those for
the private sector will help tap this technological potential.

its

policy means

Guideline 10. To strengthen the competitive advantages of its
industrial base, Europe needs a solid industrial fabric throughout
its territory. The necessary pursuit of a modern and active
industrial
competitive
advantages of the industrial base, including by contributing to
attractive framework conditions for both manufacturing and
services, while ensuring the complementarity of the action at
national,
transnational and European level. Member States
should:

strengthening

the

4. encourage the development of strong ICT and content

industries, and well-functioning markets;

1. start by identifying the added value and competitiveness
factors in key industrial sectors, and addressing the chal-
lenges of globalisation;

5. ensure the security of networks and information, as well as
convergence and interoperability in order to establish an
information area without frontiers;

6. encourage the deployment of broad band networks including
in order to develop the
for the poorly served regions,
knowledge economy See also integrated guideline ‘Promote
flexibility combined with employment security and reduce
labour market segmentation, having due regard to the role
of the social partners’ (No 21).

2. also focus on the development of new technologies and

markets:

(a)

this implies in particular commitment to promote new
technological
initiatives based on public private part-
nerships and cooperation between Member States, that
help tackle genuine market failures;

(b) this also implies

the creation and development of
networks of regional or local clusters across the EU
with greater involvement of SMEs.

To strengthen the competitive advantages of the European industrial
base

A strong industrial base is of key importance for Europe’s
economy. The competitiveness of
the EU depends on the
ability of the economy to reorient activities towards sectors
with higher productivity. An approach where public policies
are conducive to innovation, employment, and regional and
integrated, supports upgrading the EU
other policies are well
in order to enhance and sustain
industrial base. Furthermore,
economic and technological leadership, Europe must increase its
capacity to develop and market new technologies, including ICT
and environmental
technologies. The synergies from jointly
addressing research, regulatory and financing challenges at the
European level, where for reasons of scale or scope individual

See also integrated guideline ‘Improve matching of
market needs’ (No 20).

labour

Encourage the sustainable use of resources

Lasting success for the Union also depends on addressing a
range of resource and environmental challenges which,
if left
unchecked or dealt with in a way which is not cost effective,
will act as a brake on future growth. Recent developments have
emphasised the importance of energy efficiency and reducing
the vulnerability of
the European economy to oil prices
variations. An integrated approach to climate and energy
policy is needed to increase the security of supply, ensure the

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economically more

reductions
countries

and
to contributing

the EU economy and the availability of
competitiveness of
affordable energy, and combat climate change. Member States
and the Community must both contribute to achieving the EU
targets of at least a 20 % reduction in greenhouse gas emissions,
renewable energies as well as a 20 %
a 20 % share of
improvement
in energy efficiency by 2020, as well as the
preparation of a 30 % reduction in greenhouse gas emissions
by 2020 as the EU’s contribution to a global and compre-
hensive agreement for the period beyond 2012, provided that
other developed countries commit themselves to comparable
advanced
emission
Policies
developing
should be developed to ensure the targets are met
in the
most economically efficient way and on a least cost basis. A
key challenge will be to ensure that the transition to a low-
carbon economy is handled in a way that is consistent with EU
competitiveness, supports sound and sustainable management
of public finances and that contributes to broader growth
objectives consistent with the Lisbon Strategy for Growth and
Jobs. It is of vital importance that Member States continue the
fight against climate change in order that the global temperature
increase does not exceed 2 °C above pre-industrial levels, and
implementing the Kyoto as well as the 2020 targets in a cost-
effective way. Member States should halt the loss of biological
diversity between now and 2010, and preserve ecosystem
services,
in particular by incorporating this requirement into
other policies, given the importance of biodiversity for certain
economic sectors.

adequately.

(a)

spread of environmentally friendly and eco-efficient tech-
inside the internal market on the one hand
nologies,
particularly in transport and energy,
in order to
reduce the vulnerability of the European economy to oil
price variations, and (b) towards the rest of the world on
the other hand as a sector with a considerable export
potential;

inter alia,

2. promote the development of means of

internalisation of
external environmental costs and decoupling of economic
growth from environmental degradations. The implemen-
tation of these priorities should be in line with existing
Community legislation and with the actions and instruments
proposed in the Environmental Technologies Action Plan
the use of market based
(a)
(ETAP),
instruments,
the
promotion of
sustainable production and consumption
patterns including the greening of public procurement, (d)
paying particular attention to SMEs, and (e) a reform of
subsidies that have considerable negative effects on the envi-
ronment and are incompatible with sustainable development,
with a view to eliminating them gradually;

(b) risk funds and R & D funding,

inter alia,

through:

(c)

technologies

is of crucial

so that prices better

The development of an efficient and sustainable transport policy
including by allowing an effective internalisation of external
importance. The use of market-based
costs,
instruments,
environmental
reflect
damage and social costs, plays a key role in this context, and
it is important to let appropriate price signals play out fully.
There should also be a strengthening of
the EU emissions
trading scheme. Promoting the development and use of envi-
ronment-friendly
the
greening of public procurement with particular attention to
SMEs, and the removal of environmentally harmful subsidies
alongside other policy instruments including taxation, environ-
mental
innovative
performance and enhance the contribution to sustainable deve-
lopment. For example, EU companies are amongst the world
leaders in developing new renewable energy technologies. In a
context of continued upward pressure on energy prices, and
accumulating threats to the climate,
it is important to push
energy efficiency improvements as a contribution to both
growth and sustainable development.

eco-innovations,

and charging

can improve

subsidies

and

3. pursue the objective of halting the loss of biological diversity
between now and 2010, in particular by incorporating this
requirement
into other policies, given the importance of
biodiversity for certain economic sectors;

4. continue to fight against climate change, while implementing
the Kyoto targets in a cost-effective way, particularly in
regard to SMEs.

See also integrated guideline ‘To promote a growth- and
resources’
employment-orientated and efficient allocation of
(No 3).

Guideline 11. To encourage the sustainable use of resources and
strengthen the synergies between environmental protection and
growth, Member States should:

1. give priority to energy efficiency and co-generation, the deve-
lopment of sustainable, renewable, energies and the rapid

B.2. Making Europe a more attractive place to invest and

work

The attractiveness of the European Union as an investment
inter alia, on the size and openness of its
location depends,
markets,
its regulatory environment, the quality of its labour
force and its infrastructure.

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Extend and deepen the internal market

4. apply EU public procurement rules effectively;

Whilst the internal market for goods is relatively well integrated,
services markets remain, legally or de facto, rather fragmented.
The complete and timely implementation of
the Services
Directive will be a significant step towards a fully operational
Internal Market for services. The elimination of all obstacles
including through administrative burden reduction to cross-
border activities will help unleash the untapped potential of
the services sector in Europe. Improving the tax environment
is important. The functioning of the Single Market may be
improved through continuing efforts
to tackle tax fraud,
eliminate harmful tax competition and through strengthened
cooperation on taxation between Member States and, where
appropriate, at European level, while respecting national compe-
tences. Work in this area will continue,
including addressing
obstacles to the Internal Market. Finally, the full integration of
financial markets by implementing the strategy set out in the
White Paper on Financial Services 2005-2010 would raise
output and employment by allowing more efficient allocation
of capital and creating better conditions for business finance.

of

proceedings

infringement

Member States have made progress in the transposition of
internal market directives. Nevertheless further improvement
should remain a priority in order to reap the benefits of a
Single European market. Furthermore, directives are often not
implemented or applied correctly, as illustrated by the high
number
the
Commission. Member States should exchange best practice
with each other and cooperate with the Commission to
ensure that they deliver the full benefits of
internal market
legislation to their citizens and businesses. For example, there
is considerable scope for
in public
further
procurement practices. Such improvements would be reflected
in an increase in the share of public procurement publicly
advertised. Moreover, more open procurement would lead to
significant budgetary savings for the Member States.

improvements

launched

by

Guideline 12. To extend and deepen the internal market,
Member States should:

1. speed up the transposition of internal market directives;

2. give priority to stricter and better enforcement of internal

market legislation;

3. eliminate remaining obstacles to cross-border activity;

5. promote a fully operational internal market of services, while

preserving the European social model;

6. accelerate financial market integration by a consistent and
coherent implementation and enforcement of the Financial
Services Action Plan See also integrated guideline ‘To
improve matching of labour market needs’ (No 20).

Ensure open and competitive markets inside and outside Europe

An open global trading system is of essential interest for the EU.
As the world’s leading trader and investor, our openness allows
lower cost inputs for industry,
lower prices for consumers, a
competitive stimulus for business, and new investment. At the
same time, it is important for the EU to use its influence in
international negotiations to press for increasingly open markets
which should lead to reciprocal benefits. Therefore the EU
remains committed to further breaking down barriers to trade
and investment, and it will stand firm against unfair practices in
trade, investment and distorted competition. It is also important
to work with our key trading partners to create a common
space of compatible regulatory provisions and standards,
including cooperation at international level to enhance the effi-
ciency and stability of international financial markets.

the

to promote

Competition policy has played a key role in ensuring a level
playing field for firms in the EU. It can also be beneficial to
in
look at the wider regulatory framework around markets,
order
to
conditions which allow firms
compete effectively, especially taking into account external
aspects of competitiveness during the development and imple-
mentation of our own internal policies. A further opening of
to competition can be achieved by a
European markets
reduction in the general
level of remaining State aid. This
movement must be accompanied by a redeployment of
remaining State aid in favour of support for certain horizontal
objectives. The review of State aid rules has facilitated this.

because

reforms

Structural
that ease market entry are particularly
effective for enhancing competition. These will be particularly
in markets that were previously sheltered from
important
the
anticompetitive
competition
existence of monopolies, over-regulation (for example permits,
licences, minimum capital requirements,
legal barriers, shop
opening hours, regulated prices, etc. may hinder the develop-
ment of an effective competitive environment), or because of
trade protection.

behaviour,

of

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Official Journal of the European Union

27.5.2008

transport,

In addition, the implementation of agreed measures to open up
the network industries to competition (in the areas of electricity
and gas,
telecommunications and postal services)
should help ensure lower overall prices and greater choice
general
the delivery of
whilst
economic interest to all citizens. Competition and regulatory
authorities should ensure competition in liberalised markets.
The satisfactory delivery of high quality services of general
economic interest at an affordable price must be guaranteed.

guaranteeing

services of

4. a reduction in State aid that distorts competition;

5.

in line with the Community Framework, a redeployment of
aid in favour of support for certain horizontal objectives
innovation and the optimisation of
such as
human capital and for well-identified market failures;

research,

Empowered consumers who make informed choices will more
quickly reward efficient operators. Further efforts are needed to
improve the enforcement of consumer legislation which both
empowers consumers and opens up the internal market
to
more intense competition at retail level.

6. the promotion of external openness, also in a multilateral

context;

External openness to trade and investment, by increasing both
exports and imports,
is an important spur to growth and
employment and can reinforce structural reform. An open
and strong system of global trade rules is of vital importance
for the European economy. The successful completion of an
ambitious and balanced agreement in the framework of the
Doha-Round as well as the development of bilateral and
regional
should further open up
markets to trade and investment, thus contributing to raising
potential growth. The EU stands ready to assist its trade and
investment partners
standards and in
in fostering global
particular to support capacity building in developing countries.

agreements,

trade

free

Guideline 13. To ensure open and competitive markets inside
and outside Europe and to reap the benefits of globalisation,
Member States should give priority to:

1. the removal of regulatory,
unduly hinder competition;

trade and other barriers that

2. a more effective enforcement of competition policy;

3. selective screening of markets and regulations by compe-
tition and regulatory authorities in order to identify and
remove obstacles to competition and market entry;

to competition in order

7. full implementation of the agreed measures to open up the
network industries
to ensure
effective competition in European wide integrated markets.
At
the delivery, at affordable prices, of
effective services of general economic interest has an
important
role to play in a competitive and dynamic
economy.

the same time,

Improve European and national regulation

Market regulation is essential to create an environment in which
commercial transactions can take place at a competitive price. It
also serves to correct market failures or to protect market parti-
cipants. Nevertheless, the cumulative impact of legislation and
regulation may impose
is
substantial
therefore important
that legislation is well-designed, propor-
tionate and regularly reviewed. The quality of the European
and national
joint
commitment and shared responsibility at both the EU and
Member State level.

regulatory environments is a matter of

economic

costs.

It

social

approach to better

assessed to identify

and environmental
carefully

The better regulation culture has begun to take root in the EU.
In the Commission’s
regulation,
the
impacts of new or
economic,
revised legislation are
the
potential
trade-offs and synergies between different policy
objectives. Moreover, existing regulation is screened for simpli-
fication potential, including of administrative burdens, and its
impact on competitiveness is assessed. Finally, the Commission
has adopted an approach to measuring the administrative costs
of new and existing EU legislation, and an ambitious target has
been set to achieve a 25 % reduction in the burden arising from
EU legislation and its national transposition by 2012.

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Member States should set equally ambitious national reduction
targets within their spheres of competence. In order to decrease
administrative burden, e-public services
should be actively
promoted and other ICT tools widely used by the Member
States. More generally, Member States should adopt a compre-
hensive and explicit better regulation strategy, including appro-
priate institutional structures, monitoring tools and resources
and involving appropriate stakeholders. Member States should
systematically assess costs and benefits of legislative initiatives
and revisions. They should improve the quality of regulation,
while preserving their objectives, and simplify existing legis-
lation. They should consult widely on the costs and benefits
of regulatory initiatives; particularly where trade-offs between
different policy objectives are implied. Member States should
to regulation are
also ensure that appropriate alternatives
given full consideration. This is especially important for small
and medium-sized enterprises (SMEs), which usually have only
limited resources to deal with the regulatory requirements
imposed by both Community and national legislation. Hence,
special consideration should be given to whether SMEs could be
exempted in total or in part from administrative requirements.

services

and growth of businesses can be encouraged by improving
conditions for access to finance, more efficient financial inter-
mediation, and strengthening economic incentives. This can
include adapting tax systems to reward success, reducing non-
wage labour costs and reducing the administrative burdens for
start-ups, notably through the provision of relevant business
support
(especially for young entrepreneurs) and
setting up of single contact points. Particular emphasis should
be put on facilitating the transfer of ownership including of
family businesses, and improving rescue and restructuring
proceedings in particular with more efficient bankruptcy laws.
Member States should also promote the diffusion of ICT to
SMEs in order to improve productivity and to foster exportation
by fostering online administrative procedures. Due regard is
needed to the particular barriers experienced by women entre-
preneurs and to identify and develop support to increase the
number of women entrepreneurs. The proposals which will be
part of the upcoming ‘Small Business Act’ for the EU to be
presented by the Commission, should be designed so as to
ensure they contribute to unlocking the growth and jobs
potential of SMEs.

Guideline 14. To create a more competitive business environ-
ment and encourage private initiative through better regulation,
Member States should:

Guideline 15. To promote a more entrepreneurial culture and
create a supportive environment
for SMEs, Member States
should:

1. reduce the administrative burden that bears upon enterprises,

particularly on SMEs and startups;

1.

improve access to finance, in order to favour their creation
in particular micro-loans and other forms of
and growth,
risk capital;

2.

improve the quality of existing and new regulations, while
preserving their objectives, through a systematic and rigorous
assessment of their economic, social (including health) and
environmental
considering and making
progress in measurement of the administrative burden asso-
ciated with regulation, as well as the impact on competi-
tiveness, including in relation to enforcement;

impacts, while

2. strengthen economic incentives, including by simplifying tax

systems and reducing non-wage labour costs;

3. strengthen the innovative potential of SMEs;

3. encourage enterprises in developing their corporate social

responsibility.

Europe needs to foster its entrepreneurial drive more effectively
and it needs more firms willing to embark on creative or inno-
vative ventures. Policies should create a framework for inno-
vative SMEs that have the potential for high added value and
high growth. Learning about entrepreneurship through all forms
of education and training should be supported and relevant
skills provided. The entrepreneurship dimension should be inte-
grated in the life long learning process from school. Part-
nerships with companies should be encouraged. The creation

4. provide relevant support services, like the creation of one-
stop contact points and the stimulation of national support
in order to favour their creation
networks for enterprises,
and growth in line with Small firms’ Charter. In addition,
Member States should reinforce entrepreneurship education
and training for SMEs. They should also facilitate the transfer
of ownership, modernise where necessary their bankruptcy
laws,
restructuring
and
proceedings.

improve

rescue

their

and

See also integrated guidelines ‘To promote a growth- and
resources’
employment-orientated and efficient allocation of
(No 3) and ‘To facilitate all forms of innovation’ (No 8, No
23 and No 24).

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Expand and improve European infrastructure

Modern infrastructure (transport, energy and digital communi-
cation)
is an important factor affecting the attractiveness of
locations. It facilitates mobility of persons, goods and services
throughout the Union. By reducing transport and communi-
cation costs and by widening markets, interconnected and inter-
international
operable trans-European networks help foster
trade
the
ongoing liberalisation of European network industries fosters
competition and drives efficiency gains in these sectors.

internal market dynamics. Moreover,

and fuel

for

In terms of future investment in European infrastructure, the
implementation of 30 priority transport projects identified by
Parliament and Council
in the trans-European network (TEN)
transport guidelines, as well as the completion of the quick-start
cross-border projects
renewable energy and
broadband communications and research (identified under the
European Initiative for Growth) and the implementation of the
transport projects, supported by the Cohesion Fund
other
should
bottlenecks within
Infrastructure
countries also need to be tackled. Appropriate infrastructure
pricing systems can contribute to the efficient use of
infra-
structure and the development of a sustainable modal balance.

transport,

priority.

be

a

TEN networks,

1. develop adequate conditions for resource-efficient transport,
energy and ICT infrastructures, in priority, those included in
the
complementing Community
including in particular cross-border sections
mechanisms,
condition to
an essential
and peripheral
achieving a successful opening up of the network industries
to competition;

regions,

by

as

2. consider the development of public-private partnerships;

3. consider

the case for appropriate infrastructure pricing
systems to ensure the efficient use of
infrastructure and
the development of a sustainable modal balance, empha-
sising technology shift and innovation and taking due
account of environmental costs and the impact on growth.

See also integrated guideline ‘To facilitate the spread and
effective use of
ICT and build a fully inclusive information
society’ (No 9).

Done at Brussels, 14 May 2008.

Guideline 16. To expand, improve and link up European infra-
structure and complete priority cross-border projects with the
particular aim of achieving a greater integration of national
markets within the enlarged EU. Member States should:

For the Council
The President

A. BAJUK