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Stability and growth pact and economic policy coordination

Stability and growth pact and economic policy coordination

Outline of the Community (European Union) legislation about Stability and growth pact and economic policy coordination

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Stability and growth pact and economic policy coordination

Stability and growth pact and economic policy coordination

The Stability and Growth Pact is intended to ensure that Member States maintain budget discipline in order to avoid excessive deficits. It therefore contributes to monetary stability. Member States coordinate their economic policies at European level.

STABILITY AND GROWTH PACT

Implementation of the pact

  • Resolution of the Amsterdam European Council on the stability and growth pact
  • Surveillance of budgetary policies
  • The corrective arm: the excessive deficit procedure
  • Requirements for budgetary frameworks of the Member States

Implementation of the pact

  • A European Economic Recovery Plan
  • Reporting of planned deficits by Member States
  • European financial stabilisation mechanism

ECONOMIC POLICY COORDINATION

Basic provisions

  • Resolution of the European Council on economic policy coordination (1997)
  • Reinforcing economic policy coordination
  • Streamlining of annual economic and employment policy coordination cycles

Council recommendations

  • Broad guidelines for economic policies
  • Broad Economic Policy Guidelines (2008- 2010)
  • Broad economic policy guidelines (2005- 2008)
  • Broad economic policy guidelines 2003-2005
  • Broad economic policy guidelines (2002)
  • Broad economic policy guidelines (2001)
  • Broad economic policy guidelines (2000)
  • Broad economic policy guidelines (1999)
  • Broad economic policy guidelines (1998)
  • Broad economic policy guidelines (1997)
  • Broad economic policy guidelines (1996)

Public finances in Member States

  • Ensuring the effectiveness of the preventive arm of the Stability and Growth Pact: Public Finances in EMU – 2007
  • Long-term sustainability of public finances in the EU
  • Revising the Stability and Growth Pact: Public Finances in EMU 2006
  • Public finances in Member States in 2005
  • Public finances in Member States in 2004

The European economy

  • The European economy: 2007 Review
  • The European economy: 2006 review – strengthening the euro area
  • The European economy: 2004 Review
  • The OECD and the examination of EC economic policies

Declaration on the Euro area

  • 2009 Annual Statement on the Euro Area
  • 2007 Annual Statement on the Euro Area

Broad economic policy guidelines 2003-2005

Broad economic policy guidelines 2003-2005

Outline of the Community (European Union) legislation about Broad economic policy guidelines 2003-2005

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Stability and growth pact and economic policy coordination

Broad economic policy guidelines 2003-2005

The broad economic policy guidelines are the main instrument for coordinating the economic policies of the Member States. For the first time they cover a period of three consecutive years in order to rationalise and synchronise the process of coordinating economic policies with employment policy. The broad outlines for 2003-2005 emphasise the contribution of economic policies to the Lisbon programme, which seeks to make the European Union the most competitive and dynamic knowledge-based economy in the world.

Document or Iniciative

Council Recommendation 2003/555/EC of 26 June 2003 on the broad guidelines of the economic policies of the Member States and the Community (2003-2005) [See amending acts].

Summary

The first part contains the general guidelines for all Member States and the Community and a section devoted to the challenges specific to the euro area. The second part contains recommendations for individual Member States and takes account of their specific situations. The Commission has updated the broad guidelines for 2004 in a new recommendation that includes the 10 new Member States in the current framework for economic policy coordination. The policy guidelines for the EU15 remain entirely relevant.

GENERAL ECONOMIC POLICY GUIDELINES

Meeting the Lisbon strategic goal

Lisbon Programme. In spring 2000 the European Union set itself the goal of becoming “the most competitive and dynamic knowledge-based economy in the world”. To help it achieve this goal, it decided to rationalise the various processes for coordinating economic policy and employment policy. The broad economic policy guidelines emphasise the contribution of these policies to the Lisbon programme between 2003 and 2005. They focus on the key economic policy issues and the priorities for the coming three years. They also contain recommendations for the short term, which will be adjusted each year, if necessary.

Employment policy. In addition to these broad economic policy guidelines, Member States must apply the employment guidelines and related recommendations.

Strengthening the EU’s economy

Economic growth. Economic growth has been significantly weaker than anticipated because of geopolitical tensions, a slowdown in external demand and falling confidence among businesses and consumers. Employment prospects are therefore likely to deteriorate in 2003. Inflation has remained just above 2%, but could drop below that level in future. Economic policies must therefore bolster confidence and thereby help to create conditions for stronger domestic demand and job creation in the short term and an expansion of growth potential in the medium term.

Growth and stability-oriented macroeconomic policies

Macroeconomic policies. These play a key role in sustaining growth and employment and in preserving price stability. Member States should, in particular:

  • reach or maintain budgetary positions that are close to balance or in surplus throughout the economic cycle;
  • correct any excessive deficits in line with the stability and growth pact;
  • subject to this, avoid pro-cyclical policies that counteract the symmetric play of the automatic stabilisers over the cycle.

Member States should promote the right framework for wage negotiations by the social partners. It is important that they ensure that:

  • nominal wage increases are consistent with price stability and productivity gains. Labour cost increases should remain moderate to allow more job-creating investment.

Economic reforms to raise Europe’s growth potential

Structural reforms. Structural reforms are essential to increase the EU’s growth potential. To yield maximum synergies, they should be implemented in a comprehensive and coordinated way. The Member States should introduce the following measures over the next three years (the reforms to boost employment are described in detail in the employment guidelines):

Employment:

  • make the tax and benefits system more employment-friendly;
  • make sure that wage bargaining systems take account of differences in productivity and that these are reflected in wages;
  • review labour market regulations (access to the labour market, employment protection, more flexible work organisation);
  • facilitate labour mobility (both geographical and occupational);
  • ensure efficient active labour market policies.

Productivity:

  • foster competition in the markets for goods and services (by increasing the transposition rate of internal market directives, by further opening up public procurement, by ensuring the independence of competition authorities and by reducing and reorienting state aid etc.);
  • accelerate the integration of EU capital markets (by implementing the Risk Capital Action Plan by 2003 and the Financial Services Action Plan by 2005);
  • foster entrepreneurship and the creation of small and medium-sized Enterprises (SMEs);
  • promote investment in knowledge, new technologies and innovation by increasing public and private expenditure on research and development (R&D) to make progress towards the 3% of GDP objective, for example by developing a framework conducive to R&D, facilitating the protection of intellectual property, promoting the e-Europe 2005 Action Plan, developing the Galileo satellite navigation system and improving education and training;
  • enhance the contribution of the public sector to growth (by providing more growth-enhancing, cost-effective investment in physical and human capital and knowledge, increasing the efficiency of the public sector and promoting joint public-private initiatives, etc.).

Strengthening sustainability

Long-term sustainability of public finances:

  • reduce public debt ratios to cater for the ageing of the population. Member States with government debt ratios above the 60% of the GDP reference value should ensure a satisfactory pace of government debt reduction towards that value;
  • design, introduce and effectively implement reforms of pension systems, for example encouraging people to extend their working lives, linking benefits to contributions better and improving access to supplementary pension schemes, etc.;
  • like the Member States, the Community should apply strict budgetary discipline.

Economic and social cohesion:

  • modernise social protection systems while ensuring an adequate level of protection and fighting poverty and exclusion;
  • improve the functioning of markets to encourage private investment in regions that lag behind, ensure that public support, including from EU sources, is focused on investment in human capital and infrastructure, and that investment programmes are designed and administered efficiently.

Environment: efficient management of natural resources:

  • reduce sectoral subsidies, tax exemptions and other incentives that have a negative environmental impact;
  • reduce subsidies to non-renewable energy, promote energy efficiency and increase the proportion of renewable energy;
  • adjust the system of transport taxes, charges and subsidies to better reflect environmental damage and social costs and to increase competition in transport modes such as rail freight;
  • renew efforts to meet the commitments under the Kyoto protocol, for example by introducing a greenhouse gas emissions trading scheme.

Challenges specific to the euro area

Challenges. Economic growth failed to fulfil its potential in 2002. The guidelines list four challenges for the euro area:

  • to strengthen potential growth,
  • to cater for balanced macroeconomic policies,
  • to monitor inflation differences,
  • to strengthen economic policy coordination.

Recommendations. The Council advises national decision-makers in the euro area to strive for an economic policy mix that is compatible with price stability and with business and consumer confidence. Countries in the euro area should maintain budgetary positions that are close to balance or in surplus throughout the economic cycle in cyclically adjusted terms. Where necessary, they must ensure an annual improvement of at least 0.5% of GDP, and those countries with excessive deficits need to correct them. They are asked to analyse the causes of inflation differences in order to take measures in sectors where such differences are undesirable. As far as policy coordination is concerned, the members of the euro area should deepen the analysis and discussion of economic developments (exchange of information, external representation, etc.) and improve the efficiency of coordination procedures in the area of structural reforms.

COUNTRY-SPECIFIC ECONOMIC POLICY GUIDELINES

The second part of the broad economic policy guidelines contains a section for each of the Member States, setting out the challenges and, within the overall strategy, specific recommendations taking account of differences in performance, outlook and structures. Only the main challenges facing each Member State are listed below.

Belgium

  • continue the budgetary adjustments in the forthcoming years, in particular with a view to ensuring the long-term sustainability of public finances in the face of population ageing;
  • increase participation and employment rates, especially for older workers and women;
  • enhance competition in certain service sectors, increase the efficiency of the public administration and improve the business environment.

Denmark

  • ensure an adequate labour supply in view of the ageing of the population;
  • enhance competition in certain sectors and improve the efficiency of the public sector.

Germany

  • promote job creation and adaptability and mobilise the unutilised employment potential;
  • increase productivity through improvements in the business environment and the efficiency of the education system;
  • reduce the general government deficit to below 3% of GDP in 2005;
  • secure the long-term viability of pension and health-care systems.

Greece

  • take appropriate measures to reach a budgetary position close to balance or in surplus;
  • increase the low level of productivity;
  • reduce the high rate of structural unemployment and increase employment rates, particularly for women.

For additional information on the budgetary data provided by the Greek authorities to the Community, please consult the Eurostat report.

Spain

  • raise the low employment rates, especially among women, and reduce wide regional labour market disparities;
  • increase the low level of productivity;
  • ensure the long-term sustainability of public finances in the face of population ageing.

France

  • rapidly reduce the general government deficit to below 3% of GDP;
  • increase labour market participation and reduce structural unemployment;
  • ensure the long-term sustainability of public finances in the face of population ageing;
  • ensure competition in the network industries and accelerate the adoption of internal-market measures in order to create a level playing-field.

Ireland

  • achieve a smooth transition from double-digit economic growth to lower, sustainable growth by ensuring stable macroeconomic conditions and strengthening the supply side of the economy.

Italy

  • avoid an excessive deficit;
  • rapidly consolidate public finances and ensure the long-term sustainability of public finances in the face of population ageing;
  • raise the low employment rate, especially among women and older workers, and reduce the wide economic disparities between north and south;
  • strengthen the knowledge-based economy;
  • improve the business environment and enhance competition in the energy and service sectors.

Luxembourg

  • increase participation and employment rates, especially for older workers;
  • improve the business environment and encourage entrepreneurship in order to achieve a more balanced economic structure.

Netherlands

  • pursue budgetary adjustment in the coming years in the face of weaker potential growth and the budgetary costs of ageing;
  • take additional measures to avoid an excessive deficit;
  • draw currently inactive people into the labour market;
  • tackle the relatively slow productivity growth (increased competition and more business investment in R&D).

Austria

  • ensure the sustainability of public finances in the face of population ageing;
  • continue to improve the technology base and encourage business investment in R&D and innovation;
  • promote effective competition in areas such as the press, food distribution, pharmacies, insurance, furniture retailers and network industries.

Portugal

  • take additional measures to avoid an excessive deficit;
  • accelerate the consolidation of public finances and curb the rapid growth in public expenditure;
  • increase overall competitiveness (make the education system more efficient, invest in R&D, increase competition and check the high nominal wage growth);
  • ensure the long-term sustainability of public finances in the face of population ageing.

Finland

  • reduce the high level of structural unemployment and increase the employment rate of older workers;
  • enhance competition in certain sectors and improve the efficiency of the public sector.

Sweden

  • ensure an adequate labour supply in view of the ageing of the population;
  • enhance competition in certain sectors and improve the efficiency of the public sector.

United Kingdom

  • strengthen the budgetary position to avoid budgetary imbalances
  • increase the relatively low level of productivity;
  • address the high numbers of working-age people claiming sickness and disability benefits and sustain labour supply in the longer term;
  • improve the quality and efficiency of public services.

Cyprus

  • ensure a reduction of the general government deficit on a sustainable basis;
  • increase the diversification of the economy towards higher value-added activities.

Czech Republic

  • reduce the general government deficit and ensure the sustainability of public finances;
  • reform retirement and healthcare systems;
  • address labour-market structural problems;
  • improve conditions for accelerated productivity growth;
  • promote entrepreneurship.

Estonia

  • address the sizeable current account deficit through an appropriate budgetary policy;
  • address labour-market structural problems;
  • improve conditions for increasing productivity;
  • develop effective competition in network industries such as electricity, gas and telecommunications.

Hungary

  • ensure a further reduction of general government deficit on a sustainable basis;
  • increase employment rates and address labour-market structural problems;
  • enhance cost competitiveness through wage moderation policies;
  • improve conditions for increasing productivity;
  • develop effective competition in network industries such as electricity, gas and telecommunications.

Latvia

  • achieve a more pronounced reduction in the general government deficit on a sustainable basis;
  • increase employment rates and address labour-market structural problems;
  • enhance cost competitiveness through wage moderation policies;
  • improve conditions for increasing productivity;
  • develop effective competition in network industries such as electricity, gas and telecommunications.

Lithuania

  • address labour-market structural problems;
  • maintain low general government deficits;
  • improve conditions increasing productivity;
  • develop effective competition in network industries such as electricity, gas and telecommunications.

Malta

  • ensure a reduction of the general government deficit on a sustainable basis and the long-term sustainability of public finances;
  • increase employment rates, especially among women;
  • encourage effective competition, taking into account the specific characteristics of the small domestic economy.

Poland

  • urgently address the deep-seated structural problems in the labour market;
  • ensure a reduction of the general government deficits on a sustainable basis and the long-term sustainability of public finances;
  • improve conditions for increasing productivity;
  • speed up the restructuring of the economy and accelerate privatisation in industry;
  • improve the business environment.

Slovakia

  • ensure a further reduction of the general government deficit on a sustainable basis;
  • continue to address the deep-seated structural problems in the labour market;
  • improve the business environment and support entrepreneurship;
  • improve conditions for increasing productivity.

Slovenia

  • lower inflation in a sustainable way;
  • increase employment rates, especially for older workers;
  • improve conditions for sustained productivity growth;
  • promote the development of effective competition in all segments of the economy, notably in network industries such as electricity, gas and telecommunications.

References

Act Entry into force Deadline for transposition in the Member States Official Journal
Council Recommendation 2003/555/EC Official Journal L 195 of 01.08.2003
Amending act(s) Entry into force Deadline for transposition in the Member States Official Journal
Commission Recommendation on the update of the BEPGs (2003-05) [COM(2004) 238]

Related Acts

Commission Recommendation on the Broad Economic Policy Guidelines for the Member States and the Community [COM(2005) 141 final – Not published in the Official Journal]
On 12 April 2005 the Commission presented a Recommendation concerning the broad economic policy guidelines for the period 2005-08. In the Recommendation it relaunches the Lisbon strategy and sets out to reflect those objectives in the BEPGs.

The Commission discusses:

  • Macroeconomic policies for growth and jobs.

The Member States must:

– achieve a balanced budget;

– safeguard economic sustainability;

– promote an efficient allocation of resources;

– ensure coherent macroeconomic and structural policies;

– ensure that wage developments contribute to macroeconomic stability;

– ensure a dynamic and well-functioning euro area.

  • Macroeconomic reforms to raise growth potential.

The Commission recommends that the Member States:

– extend and deepen the internal market by speeding up transposal of directives;

– ensure open and competitive markets;

– create a more attractive business environment;

– facilitate access by small and medium-sized enterprises to financing;

– develop proper transport infrastructures;

– encourage research and endeavour to improve innovation services, especially for technology transfers;

– encourage sustainable use of resources and strengthen the synergies between environmental protection and growth;

– concentrate on developing new technologies and markets.

The Recommendation is an integral part of the growth and employment guidelines (2005-08). It forms Part I of the single document. Part II comprises a proposal for a Council Decision on the employment guidelines for the Member States.

Commission Communication: Second Implementation Report on the 2003-05 BEPGs (presented in accordance with Article 99(3) of the EC Treaty) [COM(2005) 8 final – Not published in the Official Journal]

The Commission concludes in its second report that progress in implementing the BEPGs for 2003-05 is mixed. Some Member States are making faster progress than others: Belgium, Denmark, Finland, Ireland, the Netherlands and the United Kingdom have given a relatively good follow-up. As regards the new Member States, implementation is heading in the right direction, particularly in Cyprus and Slovakia. The Commission considers that the business environment is more favourable, that competition policies have become more effective and that environmental sustainability has been improved. It notes that the pace of labour market reforms appears to have been maintained. By contrast, it regrets that progress in the transition to a knowledge-based economy has been limited. In addition, the market integration process appears to have slowed down. It is concerned that a number of Member States do not have a sound budgetary position and/or have not set about correcting their excessive deficits. The long-term sustainability of public finances was still not secured in 14 Member States in 2004. The overall pace of the reform remained unchanged in 2004. Clearly, given the current pace of reform, full implementation of the BEPGs for 2003-05 will not be secured and it will, therefore, be difficult to fulfil the ambitions spelt out in Lisbon.

Commission Communication on the implementation of the 2003-05 broad economic policy guidelines [COM(2004) 20 final – Not published in the Official Journal]

In this communication, the Commission examines the measures taken or planned in 2003. It also sets out the information required for updating the guidelines in 2004. A detailed evaluation of the implementation of the specific recommendations for each country is given in an annex [SEC(2004) 44 – Not published in the Official Journal].

In general, the Commission found that the pace of reforms had accelerated in certain areas, such as labour markets, competition, the business environment, new technologies, education and reform of pension systems. However, there was insufficient progress in the areas of market integration, investment in research, and social and environmental sustainability. The Commission was also concerned about the deterioration in budgetary positions in several Member States.

 

Broad economic policy guidelines

Broad economic policy guidelines

Outline of the Community (European Union) legislation about Broad economic policy guidelines

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Stability and growth pact and economic policy coordination

Broad economic policy guidelines (1996)

1) Objective

To ensure closer coordination of economic policies and sustained convergence of the economic performance of the Member States and of the Community.

2) Document or Iniciative

Council Recommendation of 8 July 1996 on the broad guidelines of the economic policies of the Member States and of the Community [Official Journal L 179, 18.07.1996].

3) Summary

As a result of the marked slowdown in economic activity at the end of 1995/beginning of 1996, the Community had been unable to make significant progress towards achieving certain fundamental economic objectives, namely the promotion of sustainable, non-inflationary growth and a high level of employment.
Nevertheless, economic fundamentals (low inflation, absence of exchange-rate tensions, improved investment profitability, etc.) were favourable, leading to expectations of a rebound in economic activity.
All parties were encouraged to conduct their economic policies in such a way as to contribute to the achievement of the Community´s objectives and to improve coordination of their policies.

The Council reaffirmed the need for a stable macroeconomic framework characterised by:

  • a stability-oriented monetary policy;
  • sustained efforts to consolidate public finances;
  • nominal wage trends consistent with the price stability objective; real wage trends below the increase in productivity in order to strengthen the profitability of employment-creating investment.

To reinforce both the credibility of the macroeconomic framework and the effectiveness of the coordination process, Member States were invited to present updated convergence programmes reflecting a strong political commitment.

As far as price stability was concerned, nine Member States (Belgium, Denmark, Germany, France, Ireland, Luxembourg, the Netherlands, Austria and Finland) had already met the objective of an inflation rate below 3 %.
In Sweden and the United Kingdom, where inflation had fallen significantly, policies should aim to consolidate the results achieved.
Those countries where inflation was expected to be between 3% and 5 % in 1996 (Spain, Italy and Portugal) should endeavour to reduce the inflation rate to below 3 % in 1997.
Despite visible progress achieved in the last few years, Greece should continue and intensify its efforts.

Member States should continue to treat their exchange-rate policies as a matter of common interest.

The state of public finances in the Community remained unsatisfactory given the slippages identified relative to announced targets, which were admittedly due in part to the slowdown in economic activity. Member States should strengthen their budgetary consolidation programmes, in particular so as to restore their credibility and to boost confidence on the financial markets..

Three countries already respected the 3 % of GDP reference value: Luxembourg, Ireland and Denmark. The latter two should move towards more ambitious medium-term targets.
Budgetary consolidation remained the central policy priority for Italy, whose primary focus had to be action to combat tax evasion.
Greece needed to make sustained efforts on all fronts.
The ten remaining countries were undoubtedly able to make the additional effort required to reach the 3 % reference value by resolutely implementing the budgetary component of their convergence programmes.

Over and above the specific characteristics of each country, some general principles were spelt out:

  • restraining expenditure increases, as opposed to increasing the overall tax burden further;
  • re-directing government spending towards investment in infrastructure, human capital and active labour market measures;
  • improving the efficiency of public services;
  • ensuring that a reduction in the overall tax burden, desirable in many Member States, did not endanger deficit reduction.

Like the Member States, the Community was called upon to maintain strict budgetary discipline.

Macroeconomic action should be supplemented by measures aimed at improving the functioning of product and service markets. This required reinforcement of competition policies, curbing of state aid, and better transposal of single market legislation.
It was also desirable that measures be taken rapidly to promote innovation, facilitate the emergence of the information society and create a working environment more conducive to initiative and to the development of small and medium-sized enterprises.

Significantly improving the employment situation required not only durable and buoyant economic growth and efficient product and service markets, but also a broad range of labour market reforms. All the reforms recommended featured in the European employment strategy initiated at the Essen European Council and which the Member States were implementing by means of their multiannual employment programmes. The Commission would do all it could to mobilise all parties around the top priority of fighting unemployment.

4) Implementing Measures

5) Follow-Up Work

On 23 April 1997 the Commission presented its progress report on the implementation of the 1996 broad economic policy guidelines [COM(97) 169 final, not published in the Official Journal].

The macroeconomic policy mix had been in line with the broad guidelines:

  • monetary policies had been credibly oriented towards achieving and maintaining price stability;
  • governments in virtually all Member States had taken significant steps to consolidate their public finances in 1996-97;
  • wage agreements had maintained the annual rise in real wages at a level below the growth in productivity.

This had already brought important benefits: a higher degree of exchange-rate stability within the exchange-rate mechanism had returned and long-term interest rates had converged towards lower levels. The implementation of sound economic policies had allowed the confidence of the business sector to grow and economic activity to be stepped up gradually.

The recovery was likely to accelerate provided that budgetary consolidation policies remained credible and that consumption was less dependent on uncertain job prospects. The average unemployment rate, which had stabilised in the first half of 1996, had fallen marginally since then.

For the Community as a whole, inflation had dropped to 2.4 % in 1996, which was generally in line with predictions. This generalised fall in inflation resulted from a number of factors, including a strict monetary policy, wage moderation and stronger competitive pressures. The prospects for 1997 were even better than the results for 1996.

The credibility of the policies implemented, along with the strengthening of the dollar, had contributed to a more appropriate alignment of exchange rates within the Community: the lira and the Swedish krona had regained the ground lost in 1995 and the pound sterling had appreciated markedly. Finland and Italy had joined the EMS exchange-rate mechanism on 14 October and 25 November 1996 respectively (only Greece, Sweden and the United Kingdom are not members). All the currencies participating in the exchange-rate mechanism had remained within narrow margins against each other, except the Irish pound, which had appreciated considerably, in particular as a result of the rapid growth of the Irish economy.

All Member States except Germany had made progress towards reducing the budget deficit in 1996: the Community average had fallen from 5.0 % of GDP in 1995 to 4.3 % in 1996, and this despite the cyclical deterioration. It should be pointed out that Finland and the Netherlands managed to reduce their deficits to below 3 % of GDP in 1996. All the Member States which had not yet met this objective had adopted measures to attain it in 1997, with the exception of Greece (the Greek Government was aiming for 4.2 %).

On the other hand, the upward trend in the debt ratio had continued in 1996: the Community average had risen from 71.2 % in 1995 to 73.5 % in 1996. It was particularly in Germany, Spain, France, Austria and the United Kingdom that the ratio had continued to rise.

The nature of Member States´ consolidation efforts had not always conformed to the broad guidelines. Thus, the share of GDP attributable to public expenditure had risen in Denmark, France and Italy and the tax burden had increased in Denmark, Spain, France, Italy, Austria, Portugal, Finland and Sweden. In 1997 budgetary consolidation was expected to be achieved mainly through expenditure restraint; the average tax burden was likely to remain constant. Some countries were using one-off measures to achieve budgetary consolidation (this would be particularly true of 1997): such measures would have to be supplemented by measures leading to a lasting improvement in the budgetary situation in order not to undermine confidence in a return to sound public finances.

Numerous measures had been taken at both the Community and the national level to boost the competitiveness and efficiency of the European economies. Progress had been made in the transposal of directives, but more still needed to be done. Likewise, eleven single market measures proposed by the Commission had not yet been adopted by the Council.

Wage trends were increasingly in line with the objective of price stability: at Community level, real wage costs had increased by 1 % while actual growth in labour productivity had settled at 1.5 %. Greece, Portugal, Finland and Sweden had not complied with the recommendation.

As regards employment, the Member States had adopted a broad range of measures covering the priority issues identified at Essen. It was still too early to assess the impact of these reforms on unemployment.


Another Normative about Broad economic policy guidelines

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic

Economic and monetary affairs > Stability and growth pact and economic policy coordination

Broad economic policy guidelines (1997)

1) Objective

To ensure closer coordination of economic policies and sustained convergence of the economic performances of the Member States and of the Community.

2) Document or Iniciative

Council Recommendation of 7 July 1997 on the broad guidelines of the economic policies of the Member States and of the Community [Official Journal L 209 of 02.08.1997].

3) Summary

In a climate of moderate recovery, priority had to be given to two fundamental policy concerns:

  • to reduce unemployment significantly;
  • to maintain efforts towards achieving price stability and budgetary consolidation so that a majority of Member States would be in a position to participate in the single currency as from 1 January 1999.

In the macroeconomic field, the broad guidelines reaffirmed that the common strategy should build further on the following three elements:

  • a stability-oriented monetary policy;
  • sustained efforts to consolidate public finances;
  • nominal wage trends consistent with the price stability objective; real wage trends below the increase in productivity in order to strengthen the profitability of investment.

The more the stability task of monetary policy were facilitated by appropriate budgetary measures and wage developments, the more monetary conditions, including exchange rates and long-term interest rates, would be favourable to growth and employment.

Considerable headway had been made towards price stability and inflation convergence. In April 1997 fourteen Member States had an inflation rate of 2 % or less. This level needed to be maintained. Greece needed to redouble its efforts to reach the targets of 4.5 % by the end of 1997 and 3 % by the end of 1998.

The currencies participating in the exchange-rate mechanism had registered a remarkable degree of stability. Member States should continue to treat their exchange-rate policies as a matter of common interest. Countries not participating in the exchange-rate mechanism were called upon to continue with stability-oriented macroeconomic policies in order to make such participation possible.

A large majority of Member States had taken significant measures to reduce their budget deficits to 3 % of GDP (or even less) in 1997. These efforts needed to be maintained in order to build confidence in the sustainability of the budgetary adjustment, especially in those countries where the 1997 budget contained temporary measures and where the ratio of debt to GDP was not approaching the reference value at a satisfactory pace.
To be sustainable, budgetary projections should clearly indicate the underlying economic assumptions and the medium-term strategy of the Member State concerned (structural reforms, etc.).

The Council reaffirmed the same general principles as outlined in the broad guidelines in previous years:

  • more prominence should be given to expenditure restraint than to an increase in the overall tax burden;
  • government spending priorities should focus on investment in infrastructure and human capital and on active labour market initiatives;
  • a reduction in the tax burden or in social security contributions was desirable in the context of budgetary consolidation; Member States should also review the financial sustainability of their social protection and public pension schemes and implement reforms in good time.

Furthermore, any harmful competition between the tax systems of the Member States should be avoided.

As regards the budget deficit, five Member States met the 3% of GDP reference value in 1996: Luxembourg, Denmark, Ireland, the Netherlands and Finland. Luxembourg apart, they all needed to consolidate these results.
Greece again needed to make sustained efforts in order to meet the targets of its convergence programme, in particular with regard to the efficiency of the tax administration and the reduction in government spending.
The other nine Member States were expected to see their budget deficits reach the reference value of 3% of GDP or less in 1997. They should continue to implement their convergence programmes with determination in order to consolidate these results in the coming years.

It was essential to improve the operation of product and service markets, to stimulate competition, to foster innovation and to ensure efficient price setting in order to promote growth and employment. This improvement would be brought about by making the single market work better, with additional commitment on the part of Member States to:

  • fully transposing and enforcing existing legislation;
  • making further progress on the legal framework in areas such as taxation and company law;
  • completing the liberalisation of energy markets;
  • reducing the burden of over-regulation which led to market fragmentation;
  • avoiding the use of state aid to postpone essential restructuring.

The Commission’s action plan proposed a number of measures which should be in place by 1 January 1999 in order to redynamise the single market.

Labour market reforms and increased investment in knowledge were essential. Various conclusions could be drawn from the positive experience of a number of Member States, especially the conclusion that structural reforms needed to be comprehensive in scope so as to address in a coherent manner the complex issue of incentives in creating and taking up jobs and to exploit policy complimentarity. The process under way should continue and, where necessary, be intensified, with priority being given to:

  • the maintenance of appropriate wage trends;
  • reductions in non-wage labour costs;
  • reform of the taxation and social protection systems;
  • new patterns of work organisation (more flexible working-time arrangements, etc.);
  • adaptation of the whole educational system (including vocational training) to the needs of markets and to the improvement of human capital.

These reforms needed to be supported by a stronger employment orientation in other policies.

4) Implementing Measures

5) Follow-Up Work


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Economic and monetary affairs > Stability and growth pact and economic policy coordination

Broad Economic Policy Guidelines (2008- 2010)

The potential economic stability and growth of the European Union (EU) should be developed through the implementation of adapted national policies. The Council recommends that Member States align their macroeconomic * and microeconomic * policies taking into account changes in European society and fluctuations in the international situation.

Document or Iniciative

Council Recommendation 2008/390/EC of 14 May 2008 on the broad economic policy guidelines for the Member States and the Community (2008-2010) [Official Journal L 137 of 27.5.2008].

Summary

The recommendation on the broad economic policy guidelines (BEPG) establishes the framework for coordinating the policies of the European Union (EU) Member States.

Macroeconomic policies for growth and jobs

Compliance with guidelines 1 to 5 will contribute towards:

  • securing economic stability for sustainable growth,by calling on Member States to ensure the development of their public finances in line with the Stability and Growth Pact (SGP) and by ensuring that in the case of current account deficits they implement structural reforms and fiscal policies to encourage the competitiveness of their markets;
  • strengthening sustainable economic and fiscal viability,in the context of Europe’s ageing population. Member States must undertakea satisfactory pace of debt reduction and improve the efficiency of their pension, social protection and health care systems. They should encourage the presence of workers in the labour market for a longer period;
  • improving the effectiveness of public finances, by aligning public expenditure to the growth objectives of the renewed Lisbon Strategy and by taking fiscal measures to encourage jobs and investment;
  • ensuring that wage developments support economic growth and stability, by encouraging the creation of framework conditions for wage-bargaining systems as labour costs should encourage price stability and contribute to productivity;
  • coordinating macroeconomic, structural and employment policies, to increase theadjustment capacity in labour and product markets in the worldwide economy following the principle of flexisecurity.

Guideline 6 recommends that States in the euro area coordinate their economic and fiscal policies better in order to contribute to a dynamic and well-functioning euro area. In particular they should pay attention to fiscal sustainability in compliance with the SGP and accelerate structural reforms aimed at productivity, competitiveness and economic adjustment capacity. The euro area should also increase its influence and competitiveness at the international level.

Microeconomic reforms to raise Europe’s growth potential

In accordance with the Lisbon Strategy, guidelines 7 to 11 highlight the importance of knowledge and innovation as factors for competitiveness, growth and sustainable development. Member States and the Community should pursue an integrated approach to climate and energy policy with the aim of increasing the security of supply and the availability of affordable energy, and combating climate change.

Measures taken by Member States should:

  • increase investmentin research and development, particularly by businesses, with a general aim of 3% of Europe’s GDP being invested by 2010. Public-private partnerships should be developed, as well as centres of excellence of educational institutions and national research institutes and the transfer of technologies between public research institutes and businesses;
  • facilitate innovation in all its forms, through the establishment of support services, recourse to public procurement, access to national and international funds and the protection of intellectual property rights. Local and regional innovation poles should contribute to the technological convergence of European territories;
  • accelerate the dissemination and widespread use of information communication technologies (ICTs), by increasing the deployment, power and interoperability of information networks in particular;
  • strengthen the European industrial base, by adopting an approach which strengthens the ability of the economy to reorient its activities towards sectors with higher productivity;
  • use resources in a sustainable way, and create synergies between production, the environment and growth. This implies that Member States should give priority to energy efficiency and tackling climate change.

The European Union (EU) should become more attractive to foreign investors and workers. Guidelines 12 to 16 make recommendations to:

  • extend and deepen the internal market,byeliminating remaining obstacles to cross-border activity in the EU, including activities related to the single market for services and public procurement;
  • ensure open and competitive markets,as a result of implementing competition policy more effectively, including in the network industries. State aid should be directed towards horizontal objectives such as research, innovation and the optimisation of human capital;
  • improve European and national regulationsin terms of their impact on economic, social and environmental areas and on the competitiveness of businesses. Administrative burdens which weigh heavily on enterprises should be reduced;
  • encourage an entrepreneurial culture and create a supportive environment for SMEs, in particular regarding their creation, transfer of ownership and access to finance;
  • expand, connect and modernise European infrastructures,for better integrated markets. Member States should give priority to transeuropean networks (TENs).
Key terms of the Act
  • Macroeconomic policies: this term encompasses policies believed to influence economic factors on ‘a large scale’ such as price levels, unemployment, growth potential, Gross Domestic Product, etc.
  • Microeconomic policies: this term encompasses policies aimed at directing decisions of an economic nature, for example people or morals.

Related Acts

Council Recommendation 2009/531/EC of 25 June 2009 on the 2009 update of the broad guidelines for the economic policies of the Member States and the Community and on the implementation of Member States’ employment policies [OL L 183 of 15.7.2009].

The Council addresses recommendations to Member States to ensure that they take account of the 2009 update of the integrated guidelines for growth and employment. These recommendations are specific to the situation of each State. They have been drawn up in the context of the slowdown in economic activity and employment growth resulting from the international financial crisis.

Member States are to adapt their national reform programmes and to give an account of those adaptations in their annual reports on the implementation of those programmes.

These recommendations, issued as part of the second cycle (2008 – 2010) of the Lisbon strategy for growth and jobs, are presented in the form of a single instrument. The latter is intended for the revision of the broad guidelines for the economic policies and the employment policy guidelines.


Another Normative about Broad economic policy guidelines

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Economic and monetary affairs > Stability and growth pact and economic policy coordination

Broad economic policy guidelines (1998)

1) Objective

To ensure closer coordination of economic policies and sustained convergence of the economic performances of the Member States and of the Community.

2) Document or Iniciative

Council Recommendation of 6 July 1998 on the broad guidelines of the economic policies of the Member States and of the Community [Official Journal L 200 16.07.1998].

3) Summary

Implementation, by the Member States, of policies aimed at achieving a high degree of economic convergence had yielded tangible results, enabling the Council of the European Union to decide on 3 May 1998 that eleven Member States fulfilled the necessary conditions for the adoption of the euro. However, insufficient progress had been made in reducing unemployment in many Member States.

Since the summer of 1997 an increasingly robust economic recovery had taken hold in a context of historically low inflation. The underlying economic fundamentals were sound and improving continuously, indicating solid growth prospects. An even stronger recovery could lead to a slight reduction in the unemployment rate up to 1999.

In the macroeconomic field, the broad guidelines reaffirmed that the common strategy should build further on the following three elements:

  • a monetary policy oriented towards price stability;
  • sustained efforts to achieve and maintain sound budgetary positions consistent with the Stability Pact;
  • nominal wage trends consistent with the price stability objective; real wage trends consistent with the increase in productivity in order to strengthen the profitability of investment.

The more the stability task of monetary policy were facilitated by appropriate budgetary measures and wage developments, the more monetary conditions, including exchange rates and long-term interest rates, would be favourable to growth and employment.

The macroeconomic policy mix of the euro area would result essentially from the interaction of the single monetary policy, on the one hand, and the specific budgetary developments and wage trends in the participating countries, on the other. In order to achieve an appropriate mix, economic policies would be subject to closer surveillance and coordination.

For the “pre-ins” (Denmark, the United Kingdom and Sweden) the need for stability-oriented macroeconomic policies would be equally strong.

Both in the prospective euro area and in Denmark, Sweden and the United Kingdom, the average inflation rate had fallen below 2 %. These countries now needed to conduct their economic policies with a view to maintaining price stability, in order thus to maintain monetary conditions favourable to growth and to avoid unduly wide inflation differentials.

Greece needed to reinforce its efforts to reduce its inflation rate further, in particular in order to contain the consequences of the devaluation of the drachma upon its entering the European exchange-rate mechanism in March 1998.

Additional progress was needed in most Member States in order to ensure compliance with the Stability and Growth Pact’s objective of budgetary positions close to balance or in surplus. Consolidation was required in order to:

  • facilitate the task of the single monetary policy and the monetary policies of the “pre-ins”;
  • be able to keep long-term interest rates at a low level, thereby promoting private investment;
  • ensure that public finances regained the necessary room for manoeuvre so as to cope with adverse economic developments;
  • ensure that public debt ratios above 60 % continued to approach the reference value at a satisfactory pace.

It was also important that Member States provided assurances regarding the continuity of budgetary adjustment.

To this end, the Council reaffirmed the same general principles as identified in the broad guidelines in previous years:

  • more prominence should be given to expenditure restraint than to an increase in the overall tax burden;
  • a reduction in the overall tax burden was desirable in most Member States in order to promote economic dynamism;
  • in cases where government deficits or government debt-to-Gross Domestic Product (GDP) ratios were still high, it was important that any tax reduction should not slow down the pace of deficit reduction;
  • public spending priorities should be directed towards investment in infrastructure and human capital and towards active labour market policies.

In the same way as the Member States, the Community was called upon to continue to maintain strict budgetary discipline.

The country-specific guidelines were as follows:

Belgium should ensure that its commitment to maintaining the primary surplus at 6% of GDP over the medium term was realised, in order to secure a fast decline in the debt ratio, which was still at a very high level.

Germany needed to step up its budgetary adjustment so as to put its debt ratio firmly on a declining path and to bring it back below the reference value in the near future.

Spain should take advantage of current favourable economic conditions to accelerate the achievement of the medium-term target of a budget close to balance or in surplus.

In France budgetary adjustment efforts should be pursued in order to respect the obligations of the Stability and Growth Pact beyond 1999 and to stabilise the debt ratio.

Ireland needed to implement a tight fiscal policy in order to reduce the risk of the economy overheating. As a result of the increasing government surpluses, the debt ratio was expected to fall below the reference value in 1998 and to continue declining thereafter.

Italy needed to step up its budgetary consolidation efforts in order to respect the obligations of the Stability and Growth Pact and to reduce rapidly the debt ratio, which was still at a high level.

Luxembourg was expected to keep a budget surplus along with a very low debt ratio in the coming years.

The Netherlands should refrain from relaxing its budgetary stance in order to ensure a further continuous decline in the debt ratio.

Austria should continue its consolidation efforts in order to achieve the medium-term target of a budgetary position close to balance or in surplus and to keep the debt ratio on a downward path.

Portugal should continue to improve its budgetary position further in order to respect the obligations under the Stability and Growth Pact. The debt ratio was expected to fall below the reference value in 1998 and to continue declining afterwards.

Finland was expecting a budgetary surplus in 1998 and increasing surpluses in the coming years. The planned income tax reduction in 1999 should not undermine this process.

Denmark was expected to increase its budget surplus in the coming years. The debt ratio should fall below the reference value in 1998 and continue to decline afterwards.

Greece needed to continue its budgetary consolidation efforts if it was to realise its goal of joining the euro area by 2001. Its deficit had declined to 4.0 % of GDP in 1997 and should decline to below the reference value in 1998. The debt ratio had declined for the first time in 1997.

Sweden should control government expenditure tightly in order to maintain a surplus.

In the United Kingdom the budget should balance by the end of the decade. The planned measures should be implemented, especially since account should be taken of the need to bring about stable conditions for the economy overall.

The social partners should set wages in line with the following general rules:

  • aggregate nominal wage increases must be consistent with price stability;
  • real wage increases with respect to labour productivity growth should take into account the need to maintain, or even strengthen, the profitability of investment;
  • wage agreements should take better account of differentials in productivity levels according to qualifications, skills and geographical areas;
  • labour-cost differences between Member States should continue to reflect discrepancies in labour productivity.

In EMU a higher degree of adaptability in the wage-formation process would be required because it would play an important role if there were country-specific disturbances. To this end, the social dialogue needed to be strengthened at all levels.

Structural reforms in product, service, capital and, especially, labour markets remained necessary in order to enable Member States to respond to country-specific economic disturbances and to reinforce the Community’s competitiveness.

With regard to improving the efficiency of product, service and capital markets, efforts should focus on:

  • improving the functioning of the single market, in particular by ensuring the prompt implementation of the action plan for the single market with a view to reducing the degree of non-implementation of directives;
  • enhancing competition by streamlining and decentralising the application of the antitrust rules in order to enhance its effectiveness and reduce the costs imposed on enterprises;
  • developing a regulatory and fiscal framework which was more favourable to businesses;
  • removing legal and financial obstacles to the integration of European capital markets.

It was important to modernise labour markets in order to increase the intensity of job creation and to ensure the employability of the labour force. These objectives had also been set out in the employment guidelines. Member States should put the emphasis on:

  • active labour market policies, so that employment services were better placed to perform efficient job-searching and job-matching services, and combining these measures with accompanying measures such as training;
  • measures to make tax and social welfare contribution systems more favourable to employment, in particular by reversing the trend whereby the gap between what workers received and what firms paid was widening;
  • reforming welfare systems, with a view to moving from passive income maintenance systems to welfare support through work; take-home pay should be made more attractive and eligibility criteria adjusted in order to make it more obligatory to look for work or follow a course of training;
  • exchanging experiences and best practices in the field of working arrangements; arrangements to reduce working time should not undermine adaptability or reduce labour supply and output.

4) Implementing Measures

5) Follow-Up Work


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Economic and monetary affairs > Stability and growth pact and economic policy coordination

Broad economic policy guidelines (1999)

1) Objective

To ensure high and sustainable economic growth and employment via a comprehensive and coherent strategy comprising sound macroeconomic policies and policies that improve adaptability.

2) Document or Iniciative

Council Recommendation of 12 July 1999 on the broad guidelines of the economic policies of the Member States and of the Community [Official Journal L 217 of 17.08.1999].

3) Summary

The launch of the euro on 1 January 1999 marks a great achievement in the process of European integration. At the same time, the Union must face new challenges, since the economic and social situation in each of the Member States will be increasingly influenced by economic developments and policies in partner Member States. The lasting success of economic and monetary union will demand discipline from all policy actors, including the social partners, as well as a deepened and strengthened policy coordination. A new institutional framework favourable to growth, employment and price stability has been established together with enhanced surveillance and coordination instruments. Now the task is to put them into practice.

Since the summer of 1998 the economic recovery in Europe has slowed down as a result of the global crisis. On the back of sound economic fundamentals and confidence-building economic policies, economic activity should soon regain momentum and take off again to exceed its potential rate in 2000, against a background of low inflation. With regard to the level of unemployment, although the employment rate remains relatively low, the pace of job creation has quickened, and in 1998 the unemployment rate dropped below 10%. It is the countries that have accompanied sound macroeconomic policies with structural reforms that have achieved the greatest improvement in their performance. It is necessary to invest in infrastructure and skills in order to accelerate the development of those sectors of the economy based on high technology.

The achievement over the medium term of economic growth and high and sustainable employment will require a comprehensive and coherent strategy that consists of three components:

  • sound macroeconomic policies conducive to price stability fully coordinated with wage setting;
  • policies that improve the overall functioning of labour markets;
  • economic reforms that enhance the efficiency and flexibility of goods, services and capital markets.

All economic policy actors are jointly responsible in the strategy to achieve self-sustaining, non-inflationary, investment-supported growth. All actors must ensure that the EU enjoys appropriate wage developments, sound public finances, economic reforms and a stability-oriented monetary policy. The European Employment Pact should define the process whereby all the policy actors enter into a dialogue with a view to achieving the Union’s central economic and social objective of high employment within the framework of a strong and sustained medium-term growth process. There is no doubt that such a project requires coordination both at national and European level. At European level, it is indeed necessary to reinforce the dialogue between the Commission, the Council, the European Central Bank (ECB) and the social partners.

A policy mix conducive to growth, employment and stability in the euro area should comprise commitments regarding budgetary policies, wage developments and structural policies. The progress achieved in budgetary consolidation should be built on. This will create the necessary scope to face adverse cyclical developments, reduce the vulnerability of budgets to rising interest rates, make government spending and taxation more conducive to growth and job creation, and help countries prepare for the longer-term budgetary challenges associated with an ageing population. The Member States must therefore:

  • improve their budgetary positions through expenditure restraint rather than through tax increases;
  • ensure the efficiency of their public finances (for example by reviewing pension systems, investing in human capital, reducing the overall tax burden and strengthening tax coordination at Community level).

The non-euro-area Member States will need to conduct their monetary and budgetary policies so as to maintain and/or improve their convergence in terms of inflation and budgetary position, in preparation for the adoption of the euro. Greece and Denmark must comply with the exchange rate criterion given that their currencies participate in the new exchange-rate mechanism (ERM II).

The euro area is to take on global responsibilities; it must speak with one voice and must be represented effectively.

With regard to the economic situation in each individual Member State, the task is to identify the weak points and seek appropriate policies (macroeconomic, structural) to remedy them. The situation in each country is as follows:

– Economic growth will decelerate in Belgium in 1999 to about its trend rate, but should be sufficient to bring about a decline in unemployment.

– Economic growth in Denmark is likely to slow down in 1999 as economic activity is close to capacity limits and in response to counter-cyclical budgetary measures at central government level. Unemployment is likely to stabilise at its present level.

– Germany is experiencing a very significant slowdown. This is due to a generally greater exposure to weaker world trade and some specific domestic influences (such as the depressed construction industry). This situation could interfere with the decline in unemployment the country had begun to see.

– Economic growth in Greece has been strong in recent years and any slowdown in 1999 is likely to be modest. Unemployment is expected to decline gradually.

– Continued growth is expected in the Spanish economy, although at a somewhat lower rate than in previous years. A further decline in the still very high level of unemployment is anticipated.

– Economic growth in France will decelerate in 1999 to about its trend rate. A further but less rapid decline in unemployment is expected.

– Very rapid growth in the Irish economy is expected to continue in 1999, albeit not as strongly as in the previous two years. Unemployment should decline further at a significant pace.

– Economic growth in Italy is weak, with both domestic and external demand lacking strength, and there has not yet been any significant decline in unemployment.

– Economic activity in Luxembourg in 1999 is not expanding as rapidly as in 1998. The employment rate is very high.

– After several years of rapid expansion, the Dutch economy is slowing down in 1999. The already low unemployment rate is likely to fall further.

– The situation in Austria is similar to that in the Netherlands.

– Economic growth in Portugal is expected to slow, but it will remain close to the trend rate and should allow a further decline in unemployment.

– Although the Finnish economy is expected to slow down in 1999, unemployment should continue to fall.

– The situation in Sweden is similar to that in Finland.

– Economic growth in the United Kingdom in 1999 is likely to be lower, accompanied by a gradual rise in unemployment.

In the matter of budgetary policy, the measures introduced by the Member States under the Stability and Growth Pact have borne fruit in Denmark, Ireland and Sweden. However, most Member States (Belgium, Germany, Greece, Spain, France, Italy and Portugal) must be vigilant as regards their budgetary policies. The other countries must focus on the systematic control of spending in order to maintain the overall balance of their public finances. The first signs of an ageing population are beginning to appear in some Member States (e.g. Finland), which requires adjustment of social spending on pensioners.

Transposal of the single market directives appears to be causing problems in most Member States (Belgium, Greece, Spain, France, Ireland, Italy, Luxembourg, Netherlands, Austria, Portugal and the United Kingdom). Several Member States seem reluctant to carry through the policy of liberalisation in certain areas such as telecommunications, transport, postal services and energy. They should continue and step up their efforts in this direction.

In Germany, Greece, France, Italy, Austria, Portugal and the United Kingdom, measures appear to be required in the field of innovation and it is up to Member States to reduce the administrative red tape which hampers the creation of new businesses.

Some Member States (Spain, Luxembourg, Portugal, Italy, Ireland and France) still have to adapt their national legislation to comply with Community competition law.

The United Kingdom is showing the most encouraging performance in the Union with regard to employment, thanks to an employment policy based on a high level of flexibility. Employment rates in Belgium, Greece, France and Italy are very low and in Spain the rate is extremely poor. It is necessary to introduce training programmes targeting the long-term unemployed and their integration into the working environment. These measures must be accompanied by income tax concessions that will encourage people into work.

4) Implementing Measures

5) Follow-Up Work


Another Normative about Broad economic policy guidelines

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Economic and monetary affairs > Stability and growth pact and economic policy coordination

Broad economic policy guidelines (2000)

1) Objective

To increase the growth potential of the economy and to promote employment and social cohesion via structural reforms and the transition to a knowledge-driven economy while giving operational content to the conclusions of the Lisbon European Council.

2) Document or Iniciative

Council Recommendation of 19 June 2000 on the broad economic policy guidelines of the Member States and the Community [Official Journal L 210, 21.08.2000].

3) Summary

The broad economic policy guidelines (BEPG) give operational content to the conclusions of the Lisbon European Council, which focus on the opportunities afforded by globalisation and a new knowledge-driven economy.

MAIN PRIORITIES AND POLICY REQUIREMENTS

Growth prospects. During the 1990s, the European Union (EU) fostered economic integration and created a solid framework for the conduct of economic policies. The improvements in the framework conditions have not yet been reflected in a stronger economic performance, and this is indicative of the macroeconomic imbalances that prevailed at the time and the structural rigidities still existing in certain Member States. Nevertheless, since the adoption of the previous BEPGs in 1999, economic growth has been increasingly robust and broadly based in the EU thanks to a favourable environment and sound macroeconomic management. This could lead to non-inflationary economic growth of the order of 3% for the Union as a whole in the years ahead.

Key challenges. All Member States are confronted with these challenges. Firstly, restoring full employment is one of the priorities: although it has edged downwards, unemployment remains too high. Moreover, employment and participation rates are also low. As emphasised by the Lisbon European Council in 2000, the employment rate is to be raised to 70% by 2010.
Secondly, innovation and knowledge should become the driving forces for economic growth in Europe. This will require increased adaptability of economic structures, while investment in information and communication technologies (ICT), research and development (R&D) and human resources would have to be increased.
Thirdly, population ageing poses a major challenge for European economies since it has serious effects on saving, investment and public finance. Consolidation of public finance and reforms of pension and health-care systems have been identified with a view to tackling this demographic challenge.
In addition, improving social cohesion, and particularly measures to combat social exclusion, is a priority for Member States. By improving framework conditions for growth and employment, economic policies can make the strongest contribution to social inclusion.
In an increasingly integrated world economy, the reforms needed cannot be considered in isolation from the international context. The EU must therefore pursue a common commercial policy that favours open and competitive markets.
The EU must incorporate its responses to the challenges that exist into a coherent and comprehensive strategy for the medium to long term. The existence of integrated, efficient and competitive markets is a key feature of this strategy.

POLICY RECOMMENDATIONS

Macroeconomic policies:

  • maintain price stability;
  • speed up fiscal consolidation in order to achieve budgetary positions close to balance or in surplus and to lower public debt;
  • encourage the social partners to behave responsibly in order to support wage developments consistent with price stability and job creation.

Speed up fiscal consolidation:

  • take advantage of any additional room for manoeuvre in achieving better-than-expected budgetary positions;
  • achieve earlier than envisaged a budgetary position close to balance or in surplus so as to create sufficient policy headroom to cope with adverse cyclical fluctuations;
  • to reduce public debt as preparation for the challenge associated with population ageing.

Quality and sustainability of public finances:

  • improve public finances through expenditure restraint and introduce mechanisms that help control spending;
  • redirect government spending towards capital, human resources, innovation, R&D and ICT;
  • make work pay by reviewing benefit systems and reducing the tax burden;
  • review pension and health-care systems;
  • improve the efficiency of tax systems;
  • improve the smooth functioning of the internal market through reforms of the VAT system, administrative cooperation and tax coordination between Member States and reach an agreement on the tax package.

Wage developments:

  • foster wage increases that are consistent with price stability and labour productivity growth in order to promote job creation;
  • ensure that collective bargaining systems take account of productivity differentials (according to skill, qualification or geographical area);
  • pursue policy aimed at reducing gender pay differences due to de facto discrimination.

Knowledge-driven economy:

  • promote involvement of the private sector in the financing of R&D expenditure and improve the functioning of risk capital markets;
  • stimulate competition in product and capital markets;
  • support fundamental research and reinforce the links between research establishments and businesses;
  • ensure availability of low-cost, high-speed Internet access;
  • intensify R&D cooperation so as to establish a European area of research and innovation and an EU patent system;
  • invest in appropriate education and training.

Product (goods and services) markets:

  • implement internal market legislation fully and effectively, especially in the area of public procurement, and improve technical standards and mutual recognition;
  • ensure the independence of competition authorities;
  • reduce and improve the monitoring of state aid;
  • complete the liberalisation of the telecommunications market and speed up the liberalisation of the energy, postal and transport sectors;
  • reinforce competition in service sectors, especially in financial services and the distributive sector, and improve the effectiveness of public services and public administration;
  • reduce regulatory burdens on business.

Capital markets:

  • facilitate access to investment capital, including for small and medium-sized enterprises (SMEs), and participation of all investors in an integrated market by eliminating existing barriers;
  • promote integration of government bond markets;
  • promote cross-border activities, notably as regards cross-border payments (BG) (CS) (ET) (GA) (LV) (LT) (HU) (MT) (PL) (RO) (SK) (SL);
  • enhance the comparability of companies’ financial statements;
  • promote the development of new firms and investment in venture capital by way of fiscal measures;
  • ensure more intensive cooperation between financial market regulators and supervisors.

Labour market:

  • implement a comprehensive preventive strategy against long-term unemployment, reduce the tax burden and social security contributions with a view to encouraging job creation, and facilitate access to training and education;
  • reform tax and benefit systems in order to encourage participation in an active working life and to develop an active employment policy;
  • enhance labour mobility and ensure mutual recognition of qualifications and portability of pension entitlements;
  • modernise work organisation (part-time work, job protection);
  • strengthen efforts at securing equal opportunities for men and women, in particular by taking measures to reconcile work and family life.

Sustainable development:

  • strengthen policies based on economic instruments such as taxation and user charges;
  • help achieve the objectives under the Kyoto Protocol;
  • review sectoral subsidies and tax exemptions;
  • work to agree on an appropriate framework for energy taxation at European level.

COUNTRY-SPECIFIC ECONOMIC POLICY GUIDELINES

Belgium: Economic activity is expected to accelerate in 2000 on the back of buoyant domestic demand. Belgium has made further progress towards budgetary adjustment and, according to the stability programme, is set to achieve a budget balance in 2002. The government should aim to reduce the deficit even more sharply than envisaged in the stability programme, to contain real growth of primary expenditure and to use any other room for manoeuvre to reduce government debt.
On product and capital markets, competition in services should be increased, liberalisation of energy sectors speeded up, the administrative burden on business eased and investment in private venture capital encouraged. On the labour market, the government is called on to promote labour mobility and to ensure that wage negotiations better reflect local labour market conditions as well as to reinforce active labour-market policies.

Denmark: Economic growth should recover in Denmark in 2000. The budget surplus is set to reach 2.2% of GDP in 2000. To safeguard the healthy situation of public finances, the government should ensure that the increase in expenditure, notably local government expenditure, does not exceed the ceilings set in the budget and should aim to reduce tax and expenditure ratios while adhering to the commitments set out in the convergence programme.
On product and capital markets, the government is called on to strengthen competition policy, to improve the efficiency of the public sector, to intensify links between research and business and to take measures to encourage venture capital investments. On the labour market, it should reduce the overall tax burden on labour, in particular low incomes, and monitor the reform of early retirement and leave schemes.

Germany: Economic activity should accelerate in 2000. According to the stability programme, the government deficit is set to decrease slightly to 1% of GDP in 2000 before rising to 1.5% in 2001 following a tax reform. The government is called on to exploit any additional opportunities to reduce the deficit faster than envisaged, implement the tax reform with caution so as not to jeopardise budgetary consolidation, and to draw up a structural reform of the social security system, especially pension and health schemes.
On product markets, Germany should ensure an increased opening-up of public procurement, liberalise advertising regulations, improve competitive structures and reduce state aid. In addition, it should pursue the opening-up of the electricity sector and reduce the administrative burden on SMEs. On capital markets, the government should take measures to encourage investment capital.
On the labour market, Germany is called on to reassess its policy towards the eastern part of the country, notably as regards the efficiency of transfers and the general flexibility of the labour market. The government should also reduce the burden of taxes and social security contributions on labour and should reduce disincentives in the tax and benefit systems which discourage labour-market participation.

Greece: Economic growth in Greece will continue at a strong pace. Budgetary consolidation has continued. The government should consider setting as an upper limit the target of 1.2% of GDP for the deficit in 2000 and should secure control of expenditure. It should also pursue the reform of the social security sector and implement the privatisation schedule so as to achieve a faster reduction in government debt.
On product and capital markets, Greece should improve its record of transposing internal market legislation, speed up liberalisation in the telecommunications and energy sectors, promote business start-ups, encourage R&D and investment in ICT, and implement the 1998 Risk Capital Action Plan.
On the labour market, it should reform employment services, in particular with a view to combating long-term unemployment, and ensure full implementation of the reforms already undertaken. It should review wage formation systems with a view to enhancing flexibility and adapting wage developments to productivity differentials at geographical, sectoral and company level.

Spain: The prospects for economic growth in 2000 remain favourable. Fiscal consolidation has made clear progress and should produce a budget surplus in 2002. The government is called on to improve on the targets set in the updated stability programme, to implement the reform of the National Budget Law and to respect fully the existing internal stability pact aimed at bringing expenditure better under control. Reform of the pension system including increased resources for the pension fund reserve should continue.
On product and capital markets, the reform of competition law should be pursued, sector-specific aid reduced, the administrative burden eased, especially for SMEs, and venture capital markets developed with a view to increasing investment.
On the labour market, Spain should review the wage formation system and the social welfare mechanisms at regional and local levels, improve the efficiency of active labour-market policies and review job-protection legislation with a view to enhancing labour-market flexibility.

France: Economic growth in France should remain healthy in 2000. The government deficit was reduced to 1.8% of GDP in 1999. The government is called on to reduce the deficit in 2000 to a level below the one set in the stability programme, to bring expenditure under control and to take every opportunity to reduce the deficit further. In addition, reform of the pension system should be undertaken with a view to ensuring long-term sustainability of government finances.
On product markets, the record in transposing internal market directives should be improved, state aid reduced, the liberalisation of network industries widened and efforts to simplify administrative formalities for business continued. On capital markets, France should facilitate investment by institutional investors in stock markets and improve the tax framework for risk capital.
On the labour market, France is encouraged to reduce the tax burden on labour, review benefit and employment protection systems, and ensure that the 35-hour working week reform does not adversely affect wage costs, labour supply and work organisation.

Ireland: Economic growth will remain exceptional. Government finances are sound. In its budgetary policy, the government should aim to avoid any overheating in the economy, to restrain the growth in public consumption to the level indicated in the stability programme and to accord priority to developing infrastructures while achieving the stability objectives of fiscal policy.
On product and capital markets, Ireland is called on to strengthen competition policy and apply Community law thoroughly, to liberalise the transport sector and to promote venture capital investments. On the labour market, wage developments should be monitored and the participation of women in the labour market increased.

Italy: The prospects for economic growth in 2000 and 2001 are favourable. The stability programme provides for a fall in the deficit to 0.1% of GDP in 2003. With this in mind, the government should exploit any additional headroom to reduce government debt, keep control of current primary expenditure, take measures to contain future expenditure by reassessing the pension system and pursue the privatisation programme.
On product and capital markets, Italy is called on to reduce non-agricultural state aid, to simplify the regulatory environment for companies, to strengthen R&D and innovation, and to encourage venture capital investments. On the labour market, unemployment benefit should be improved, employment protection made more flexible, labour-market flexibility enhanced, notably wages, and taxation on labour and social security contributions reduced.

Luxembourg: Economic growth is expected to remain strong in 2000. As regards budgetary policy, the government is called on to monitor current expenditures and to implement social security reforms as a means of preparing for the challenge of an ageing population. On product markets, Luxembourg is encouraged to reform its competition policy with a view to implementing Community rules fully and to promote development of the information society. On the labour market, the tax and benefit system should be reviewed with a view to promoting an increase in the national employment rate.

Netherlands: Economic growth in the Netherlands is likely to accelerate further in 2000. To maintain healthy government finances and a budget surplus, the government is called on to consolidate government finances, notably by monitoring expenditure. The tax reform should not jeopardise the budgetary situation.
On product and capital markets, the Netherlands should make further progress in enforcing the public procurement directives, should pursue the reform of network industries, raise the involvement of the private sector in R&D and encourage venture capital investment. To maintain a sound labour market, obstacles to activity should be dismantled, especially for women and older people, and the number of people who remain outside the labour market supported by passive income support schemes should be reduced.

Austria: Economic growth will accelerate in 2000. The government deficit should be equivalent to 1.7% of GDP. According to the stability programme, the government should aim to exercise stricter expenditure control in the execution of the budget and implement structural reforms designed to improve the budgetary situation in the long term. The announced pension reform should be implemented.
On product markets, the public procurement guidelines should be further transposed, the process of regulatory reform in the energy and transport sectors accelerated and private-sector involvement in R&D encouraged. On capital markets, the government is called on to upgrade the supervisory framework, develop incentives for equity and risk capital investment, and promote venture capital in general. On the labour market, Austria should reform the benefit and pension system, and in particular early retirement, and should reduce the high tax burden on labour.

Portugal: Economic activity is expected to accelerate in 2000. According to the stability programme, the government deficit should fall to 1.5% of GDP. The government is called on to exercise strict control over expenditure in order to achieve, as a minimum, the deficit forecast, to ensure that budgetary policy contributes to correcting the major imbalances in the economy and to reform health and pension systems.
On product markets, state aid should be reduced, competition law brought more closely into line with Community law, administrative procedures simplified, and R&D and ICT diffusion promoted. Portugal should develop the venture capital market. On the labour market, the government is called on to improve education and training, enhance the performance of the labour market, including by making it more flexible, and encourage partnership among social partners.

Finland: The rapid economic growth in recent years should continue. There is even a risk of overheating. According to the stability programme, the budget surplus should remain above 4% of GDP throughout the period 2000-03. Given the risk of overheating, a tight financial stance should be maintained, government expenditure relative to GDP reduced and the tax burden on labour eased.
On product and capital markets, the government is called on to strengthen competition in a range of sectors, to reform competition law, to open up markets for public services, to promote venture capital and to facilitate investments by institutional investors. On the labour market, Finland should review the overall benefit system, make job-searching more effective and reduce taxes, particularly on low wages.

Sweden: The Swedish economy is expected to continue to grow strongly in 2000. In order to achieve its target of a budgetary surplus of 2% of GDP, the government should tighten the stance of budgetary policy, maintain tight expenditure control and reduce the tax burden, while taking account of the need for budgetary consolidation.
On product markets, rules detrimental to competition should be reviewed in a number of areas, notably construction, pharmaceuticals, railways and air transport. On capital markets, the government should facilitate access to risk capital. In order to improve the labour-market situation, it is encouraged to reduce the burden of taxation on labour income and to adapt the benefit and assistance schemes.

United Kingdom: Economic growth in 2000 is expected to be even stronger. A surplus of 1.3% of GDP is anticipated for the financial year 1999/2000. The underlying position of government finances should be kept broadly unchanged.
On product and capital markets, the government is called on to encourage efforts in the fields of R&D and innovation, to invest more in road and rail networks, and to analyse the reasons for the low level of investment in venture capital by pension funds. On the labour market, it should take measures to address the problem of pockets of unemployment in certain regions and long-term unemployment in general.

4) Implementing Measures

5) Follow-Up Work

Commission Report on the implementation of the 2002 broad economic policy guidelines [COM(2001) 105 final – not published in the Official Journal].

KEY ECONOMIC POLICY AREAS

Macroeconomic policies: In 2000 the EU recorded its best economic growth performance of the decade, with GDP growing by 3.4%, thanks to strong domestic and external demand. Higher oil prices moderated this growth slightly towards the end of the year, but inflation, despite gathering pace, remained under control. The ECB raised its key rate on six occasions, to 4.75%. Job creation remained strong and unemployment fell to 8.4%. Budgetary consolidation progressed and the government deficit in the euro area fell to 0.7% (net of UMTS proceeds), slightly better than forecast. Wage developments as a whole remained appropriate.

Fiscal consolidation: All Member States improved their budgetary positions, resulting in an overall decline in government debt. Belgium, Ireland, Luxembourg, the Netherlands, Finland, Sweden and the United Kingdom significantly overachieved their targets. Others were unable to take full advantage of the faster pace of economic growth to improve their budgetary positions.

Quality and sustainabilityof public finances: Unlike in the 1990s, fiscal consolidation is based on expenditure restraint and not on tax increases. Little progress was made in the reform of public expenditure systems even if the issue of expenditure control is increasingly highlighted. Reforms of benefit systems lacked ambition although some efforts were made in certain countries.
As regards pension systems, Denmark, Ireland, the Netherlands, Austria, Sweden and the United Kingdom carried out reforms, while Belgium, Spain, France, Ireland and Finland created or announced the establishment of pension reserve funds. Some progress was made in reducing the tax burden: for the first time since 1970, the overall tax burden is on a declining trend. Measures were taken to reduce the tax burden, notably on low wages, in a number of countries. The Ecofin Council in November 2000 reached a significant agreement on the key points of the implementation of the tax package designed to curb harmful tax competition and reduce distortions within the single market.

Wage developments: Nominal wage increases in 2000 accelerated from the low rate in the previous year and wage moderation continued to prevail in general. No major initiatives have been taken to reform statutory minimum wages or the collective wage-bargaining process.

Knowledge-based economy: Overall spending on R&D remains at 1.8% of GDP, although this differs significantly between Member States. Europe still lags behind as regards private-sector involvement in R&D. Most Member States took steps to encourage firms to increase spending, particularly via tax measures.
The EU has been catching up with the United States in terms of ICT diffusion. The Internet penetration rate increased by 10 percentage points between April and October 2000 (to 28% of the population). However, there are important differences between Member States. Most countries have taken measures to strengthen ICT education and training.

Product markets (goods and services): The functioning of the single market has been improved thanks to progress in transposing directives in most Member States. Most countries have taken steps to open up public procurement (including Spain and Italy) and headway has been made in regard to competition policy and reducing sectoral and ad hoc state aid.
As regards public utilities, liberalisation of the telecommunications sector has contributed to significant reductions in prices for consumers. Progress is less clear in the energy sector, where differences between Member States persist. In the transport and postal sectors, still more needs to be done, including agreement on a general regulatory framework. The absence of a true internal market in services has led the Commission to adopt a new horizontal strategy for this sector. Headway has been made in reforming the regulatory framework: a number of countries have taken measures to reduce the administrative burden on enterprises.

Capital markets: Implementation of the Financial Services Action Plan has progressed well in many priority areas, such as the creation of a “single passport” for investment firms, electronic commerce, financial services and takeover bids. Progress has also been made in implementing the Risk Capital Action Plan. Countries have taken measures to ease constraints on institutional investors as well as fiscal disincentives to risk-taking. To safeguard the EU’s financial stability, the practical functioning of institutional arrangements has been improved, particularly as regards coordination between national supervisors.

Labour markets: The improvement in labour market performance continues and there has been a fall of almost one percentage point in unemployment in 2001. This is due to the cyclical upswing but also to a fall in structural unemployment. It should though be noted that progress has been uneven between Member States since some countries have not taken full advantage of macroeconomic conditions to introduce structural reforms. Member States have made good progress in implementing active and preventive measures to tackle youth and long-term unemployment. There remains scope for further reform of tax and benefit systems designed to introduce incentives to seek and take up employment or to remain in the labour market.
The lack of labour market flexibility is one of the factors underlying high structural unemployment in several Member States. There has been some progress in the modernisation of work organisation but the degree of involvement of the social partners in this area has been disappointing. Measures have been taken in most Member States to address low female employment rates and pay differentials between men and women.

Sustainable development: A number of Member States have taken action to strengthen market-based approaches to environmental issues, e.g. to shift the tax burden from labour to energy. Nevertheless, some Member States continue to grant subsidies for certain sources of energy, such as coal, that have a negative environmental impact. No progress has been made towards agreeing an appropriate framework for energy taxation at Community level.


Another Normative about Broad economic policy guidelines

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic

Economic and monetary affairs > Stability and growth pact and economic policy coordination

Broad economic policy guidelines (2001)

1) Objective

To improve the conditions for economic growth and employment creation by way of an economic policy strategy consisting of growth- and stability-oriented macroeconomic policies and structural reforms aimed at sustainable, employment-creating and non-inflationary growth, with due account being taken of the need for sustainable development.

2) Document or Iniciative

Council Recommendation of 15 June 2001 on the broad economic policy guidelines of the Member States and the Community [Official Journal L 179, 02.07.2001].

3) Summary

General framework. The 2001 broad economic policy guidelines (BEPGs) confirm the policy strategies of the previous BEPGs and extends them further in the light of the outcome of the Stockholm European Council in March 2001. A key objective for the European Union (EU) remains that of achieving full employment, among other things as a means of meeting the challenge of ageing populations. The European Council also stressed that the promotion of sustainable development should be integrated in the BEPGs.
Close coordination among economic policy actors and a dialogue between the Council, the Eurogroup and the European Central Bank (ECB) involving the Commission are essential in fostering harmonious economic developments, notably for the Member States participating in the euro area.

Main priorities and policy requirements

Recent and prospective economic developments. Since the adoption of the previous BEPGs, the global economic environment has become distinctly less favourable. While this slowdown is expected to be relatively short-lived, the risks of a less favourable outcome are considerable. Three factors are contributing to the slowdown. Firstly, oil prices increased in the autumn of 2000 and could remain relatively high. Secondly, there has been a sharp contraction in economic activity in the United States and Japan. This development is also affecting economic growth in a number of emerging countries. Third, volatility has remained very high on global equity markets, where a pronounced correction has taken place, especially in technology stocks, reflecting a downward shift in investors’ perception of the long-term profit outlook.
The second year of economic and monetary union (EMU) was a successful one. Economic growth in the euro area was the strongest for a decade, with unemployment falling to its lowest level. Higher oil prices and the downturn in global demand dented growth momentum. Nevertheless, the euro area looks set to continue to enjoy relatively solid economic growth of about 2.75 % in 2001 and 2002. Strongly improved macroeconomic fundamentals, including sustained wage moderation, have engendered a virtuous growth cycle firmly rooted in domestic demand. Furthermore, the large internal market coupled with the single currency makes the euro area less vulnerable and provides a stable base for growth.
The Member States not participating in the euro area, viz. Denmark, the United Kingdom and Sweden, are also being affected by the global economic slowdown. However, good progress on structural reforms and continuing healthy domestic demand position them well to weather the deteriorating external environment.

Short-term challenges. The task is to maintain growth and employment creation. In the context of increasingly less favourable global conditions, the EU and the euro area will have to rely increasingly on their own strengths. Growth- and stability-oriented macroeconomic policies and structural reforms are crucial to further enhancing internal growth dynamics. This could underpin business and consumer confidence.
Budgetary policies should avoid any excess demand. This is buttressing price stability and can facilitate monetary conditions conducive to economic growth and employment creation. In particular, budgetary policies should continue to be geared to the achievement of budgetary positions close to balance or in surplus.
Wage moderation must be preserved, particularly in the Member States already experiencing some labour market bottlenecks. EMU entails additional responsibilities for governments and social partners, who must contribute to a balanced macroeconomic policy mix both at Member State and euro-area level. Moreover, a judicious combination of structural reforms can thus increase further the resilience of the economy in absorbing the impact of shocks.

Medium-term challenges. The main goal is to consolidate the bases for future growth and employment. Although productivity gains have helped to improve potential output growth in recent years, this improvement is still considered insufficient to sustain annual growth rates of 3 % over an extended period of time. The EU must, therefore, improve the functioning of markets by addressing the market imperfections or failures that still exist. This will make for improved use of productive resources. In particular, human resources are currently underutilised in the EU, with unemployment remaining unacceptably high and a relatively low employment rate, especially for older workers and women.
Labour market regulation and institutions should be reviewed so as to diminish obstacles to labour demand and supply. The regulatory framework should encourage people to enter into or remain in the labour market. For this, tax and benefit schemes should be reformed. This increase in labour supply must be accompanied by an improvement in the investment climate. To this end, the EU is focusing on completing the internal market, especially in the service sector, the financial sector and network industries. In addition, fostering entrepreneurship and innovation, which is an integral part of the Lisbon strategy, is necessary in order to increase Europe’s growth potential. To this same end, Member States are called on to encourage private investment in Research and Development R&D.
At world level, the promotion of competition finds its logical complement in the pursuit of a common commercial policy that favours open world trade and a new multilateral trade round within the context of the World Trade Organisation (WTO).

Long-term challenges. In the long term, population ageing is the major challenge facing the EU. In 2050 the EU’s working-age population will have fallen by approximately 40 million people while the old-age dependency ratio will have doubled. The impact on public finances is already beginning to be felt in some Member States. Expenditure on public pensions and healthcare will increase substantially, and this will have considerable consequences for the sustainability of public finances.
Population-ageing will have implications for potential labour supply and the level of aggregate savings and thus for economic growth. Ambitious strategies are needed to address the economic and budgetary challenges: pension systems need to be reformed, e.g. by raising the effective retirement age. Public pension fund reserves would have to be set up and supplementary private pension schemes encouraged.

General recommendations

Implementation of macroeconomic policies:

  • to achieve budget positions of close to balance or in surplus so as to provide a sufficient margin to cope with the impact of adverse cyclical fluctuations;
  • to avoid pro-cyclical fiscal policies;
  • to avoid in certain Member States inflationary pressures and overheating of the economy by tightening budgetary policy, pursuing wage moderation and taking structural reforms further;
  • to ensure that wage increases are consistent with price stability, do not exceed the growth of productivity and take account of productivity differences according to skill, qualification or geographical area.

Quality and sustainability of public finances:

  • to make tax and benefit systems more employment-friendly by reducing the overall tax burden, especially with respect to low-wage labour;
  • to redirect public expenditure towards physical and human capital accumulation and R&D;
  • to enhance the efficiency of public spending by institutional and structural reforms, in particular by controlling spending;
  • to improve the long-term sustainability of public finances by pursuing a strategy combining measures to raise employment rates, rapidly reduce government debt and reform the pension and health systems;
  • to pursue tax coordination in order to avoid harmful tax competition;
  • to maintain strict budgetary discipline at Community level.

Labour market:

  • to implement the employment guidelines and recommendations addressed to Member States by the Council;
  • to promote increased participation in the labour market, especially among women and older workers;
  • to ensure that tax and benefit systems make work pay and to reduce the burden of taxation on labour;
  • to bring down the obstacles to labour mobility within and between Member States, notably through the mutual recognition of qualifications and improved portability of pensions;
  • to facilitate occupational labour mobility by improving education, training and life-long learning;
  • to improve the efficiency of active labour market policies and to target these policies towards those individuals most prone to the risk of long-term unemployment;
  • to promote more flexible work organisation, including working-time arrangements and the regulatory, contractual and legal framework;
  • to reduce gender pay differences due to de facto discrimination.

Product markets (goods and services):

  • to complete the internal market by increasing the rate of transposal of directives, eliminating technical barriers to trade, removing regulatory barriers on service markets and further opening up public procurement;
  • to reinforce competition by accelerating the liberalisation of network industries (energy, rail, air transport and postal services), by ensuring effective independence and effectiveness of the competition authorities and by reducing the overall level of state aid as a proportion of gross domestic product (GDP).

Efficiency and integration of the EU financial services market:

  • to implement the approach endorsed in respect of securities markets legislation;
  • to implement the Financial Services Action Plan by 2005, in particular with a view to creating an integrated securities market by the end of 2003;
  • to set in place a risk capital market through implementation of the Risk Capital Action Plan by 2003;
  • to improve, via increasing linkages, supervisory arrangements across sectors and across borders in the field of prudential supervision.

Entrepreneurship:

  • to create a business-friendly environment by reducing the administrative burden for business, by increasing the efficiency of public services and by simplifying and ensuring a more uniform application of VAT systems;
  • to improve access to the various kinds of funding, especially for small and medium-sized enterprises (SMEs) in their early stages.

Knowledge-based economy:

  • to stimulate R&D and innovation, notably by strengthening intellectual property rights and achieving agreement on how to deliver the Community patent, by improving ties between universities and business, by enhancing collaboration in Europe via networks of centres of excellence and by ensuring sufficient funding;
  • to promote access and use of information and communication technologies (ICT) by implementing the unbundling of the “local loop” in order to reduce the costs of using the Internet, by ensuring more widespread use of the Internet in schools and in public administrations and by strengthening the regulatory framework for e-commerce;
  • to strengthen education and training efforts by increasing the number of experts and the basic skills, in particular ICT skills, of the population and by enhancing the capabilities of education systems to respond to changes in requirements.

Sustainable development:

  • to implement the European sustainable development strategy agreed by the Gothenburg European Council;
  • to introduce and strengthen market-based policies such as taxation and user and polluter charges;
  • to reduce sectoral subsidies and tax exemptions;
  • to intensify the use of economic instruments in order to curb greenhouse gas emissions and fulfil the requirements of the Kyoto Protocol;
  • to agree on an appropriate framework for energy taxation at European level and for the creation of a single market in energy.

Country-specific economic policy guidelines

Belgium: After the economy expanded by 4 % in 2000, real GDP is expected to increase at around 3 % in 2001 and 2002. Belgium managed to balance its budget in 2000. The government is projecting a surplus of 0.2 % in 2001 and 0.3 % in 2002. It should take steps to ensure that the surplus projected in its stability programme is achieved and to contain the increase in expenditure within the limit set. In 2002 and beyond, the budgetary margins should be used to reduce debt.
To prepare the country for the implications of population ageing, a reform of the pension system is needed. On the labour market, the reform of the tax and benefit systems should be continued. In addition, labour market flexibility and labour mobility should be enhanced.
Competition in transport, gas and electricity needs to be increased. Belgium is encouraged to increase the transparency of the links between the public and private sectors, notably at local level, and to simplify the administrative burden on businesses. The risk capital market should be further developed.

Denmark: The economic expansion is expected to slow somewhat to slightly above 2 % in 2001. According to the government, the budget surplus should increase to 2.8 % of GDP in 2001 and 2.6 % in 2002. Denmark should strictly limit the increase in government consumption in 2001 and in the medium term and should maintain high government surpluses.
If the labour market is to remain one of the best in the European Union, the government should further reduce the overall fiscal pressure on labour, especially for low- and medium-wage earners, and should continue reforms of transfer systems. It should also strengthen enforcement of competition rules and should enhance conditions for competition in public procurement and develop the risk capital market by further adapting the fiscal framework so as to facilitate investment.

Germany: Economic growth in Germany should be 2.25 % in 2001 and 2.5 % in 2002. Leaving aside UMTS proceeds, the government deficit fell to 1.0 % of GDP in 2000. According to the stability programme and thanks to the tax reform, the deficit should be 0.5 % in 2001 before falling gradually to zero by 2004. The government should ensure that projected deficits are met. Higher-than-projected revenues should be used to reduce the deficit. It is important to reinforce coordination among the various levels of government in order to establish a national stability pact. The government is called on to pursue pension reform and reform of the healthcare sector.
Active labour market programmes should be made more efficient and targeted towards long-term unemployment. Reforms of the tax system should make work pay. Non-labour costs should also be reduced. Competition on product markets and in public procurement could be reinforced. The higher education system should be reformed in order to meet the shortages of IT personnel. The government is called on to develop the risk capital market.

Greece: Economic activity in Greece is expected to accelerate in 2000, with GDP set to rise by 4.8 % in 2002. The stability programme projects that the Greek budget will run a surplus of 0.5 % in 2001 and 1.5 % in 2002. The government’s budgetary stance for 2001/2002 is oriented towards price stability and towards pursuing the reform of the public sector in order to reduce its size in the medium term and to accelerate the reform of the social security sector in order to ensure the viability of the system.
Greece should press ahead with its labour market reforms by loosening restrictive employment protection legislation in particular and should improve incentives to work in the formal sector of the economy. Wages should take better account of productivity and local labour market conditions. Investment in education and training should also be stepped up.
The government is called on to reduce the administrative burden on business and to encourage investment in R&D and the wider diffusion of ICT. Moreover, the liberalisation of the gas and sea transport sectors should be speeded up. The risk capital market should be developed further by easing constraints on institutional investors.

Spain: Economic growth in Spain is forecast to decelerate in 2001 compared with previous years and to recover slightly in 2002. According to the stability programme, the budget is expected to be in balance in 2001 and to show a surplus of 0.3 % by 2004. The government should hold back current expenditure in order to achieve a budget balance in 2001 and should monitor inflationary pressures. The tax reform planned for 2002 must not jeopardise the budgetary objectives. The public pension fund reserve must be increased.
As regards the labour market, Spain is called on to reform the wage formation process in order to take better account of productivity differentials, to invest in education and training (in particular, to tailor active employment policies more closely to labour market requirements) and to take steps to ensure a balance between flexibility and security. The basic ICT skills of the population and the supply of highly qualified personnel should also be increased. The regulatory framework for SMEs should be simplified. The government is also called on to develop the risk capital market further, especially by easing constraints on institutional investors.

France: In 2001 and 2002 economic growth of just under 3 % is expected. The public deficit in 2000 was below target. According to the stability programme, further reductions in the deficit are to be pursued in order to run a budget surplus in 2004. To this end, the government should monitor public spending in 2001 and beyond and use any available margin to strengthen the budgetary position as preparation for meeting long-term challenges. It is therefore called on to make further progress in reforming the pension system.
On the labour market, France should consolidate recent reforms of the tax and benefit systems and should pay particular attention to early retirement schemes and income guarantee schemes. It should monitor closely the effects of the implementation of the 35-hour working week and should reform employment protection. Network industries, especially the gas and electricity sectors, should be liberalised. France is called on to continue the reduction of ad hoc state aid, to reduce the administrative burden on businesses and to develop the risk capital market, notably by easing constraints on institutional investors.

Ireland: The buoyant economic growth recorded in Ireland is expected to slow down somewhat in 2001 and 2002. The stability programme projects budget surpluses of around 4.2 % of GDP for the period 2001-03. Public finances are sound. However, in February the Council issued a recommendation to Ireland on account of the expansionary budget for 2001. The government has therefore been called on to use countervailing measures to align the budget plans for 2001 more closely with the 2000 BEPGs and to prepare a budget for 2002 that contributes to an easing of the pace of demand and to improved expenditure control. While budgetary stability should be observed, investment in infrastructure, human capital and R&D should be increased.
The government should take care to ensure that wage developments remain consistent with price stability and that the participation of women in the labour market is increased. Measures are needed to introduce more competition into specific markets, notably transport, electricity and gas, to increase R&D expenditure and to develop the risk capital market further.

Italy: Economic activity in Italy is expected to slow down in 2001 but to pick up again in 2002. According to the stability programme, the government deficit is projected to improve in 2001 and 2002 and to reach a balance in 2003. The government should ensure that these objectives are met and, in particular, should match any losses of revenue stemming from tax reductions with offsetting expenditure cuts and rationalisation measures. Every opportunity should be taken to accelerate the reduction in the still excessive level of government debt. The domestic stability pact must be strengthened in order to control expenditure at all levels of government. To ensure the sustainability of long-term government finances, the pension system needs to be reviewed.
As regards the labour market, Italy is called upon to ensure that wage developments take better account of productivity, to increase labour market flexibility and to reform the taxation of labour and social security contributions, notably for those at the lowest end of the wage scale. The government should aim to promote business sector involvement in R&D, foster the diffusion of ICT, press ahead with the liberalisation of the energy sector, further reduce the administrative burden on businesses, increase competition and further develop the risk capital market, in particular by easing constraints on institutional investors.

Luxembourg: Economic growth will be around 5 % of GDP in 2001 and 2002 on the back of strong domestic demand. The budget surplus in 2001 and 2002 should decline to between 3 % and 4 % of GDP in the wake of a tax reform. The government should pursue a more restrictive budgetary policy in order to counter inflationary pressures and to monitor government expenditures closely.
On the labour market, Luxembourg should increase its national employment rate, especially for women and older workers. The reform of competition legislation should be implemented while fixed and monitored prices should be abolished.

Netherlands: The recent macroeconomic performance in the Netherlands has been noteworthy. Economic growth is expected to increase by some 3 % in 2001 and 2002. According to the stability programme, the government surplus is projected to fall to 0.7 % in 2001 following tax reforms. The government should maintain control of public expenditure in order to contain inflationary pressures and improve the budgetary outcome in 2002 as against 2001. Budgetary margins should be used to speed up the reduction in government debt.
As regards the labour market, the government is called upon to continue reforms of the tax and benefit system to make work pay. The Netherlands should promote the use of ICT, create a climate more conducive to innovation, facilitate market entry in electricity, gas, cable networks and public transport, and further develop the risk capital market.

Austria: Economic activity is expected to grow by some 2.5 % in 2001 and growth will remain buoyant in 2002. A budgetary consolidation programme has been launched and, according to the stability programme, the government deficit is projected to fall to 0.75 % in 2001 and zero in 2002. The government is called on to ensure tight budgetary execution at all levels of government in order to meet the targets of the stability programme, to reduce the tax burden in subsequent years without jeopardising budgetary consolidation and to reform the pension and healthcare systems so as to counter rising expenditure and to cope with population ageing.
As regards the labour market, Austria should take steps to ensure that there are greater incentives for older workers to remain active. In addition, the Community’s public procurement directives should be transposed and public procurement should be further opened up to competition, while development of the knowledge-based economy should be promoted, the supply of ICT-skilled personnel increased and the risk capital market further developed, notably by easing constraints on institutional investors.

Portugal: Economic activity is likely to slow down and growth is estimated at just over 2.5 % in 2001 and 2002. According to the stability programme, the deficit should fall to 1.1 % in 2001 and 0.7 % in 2002. The government is expected to meet its budgetary target in 2001 and, to this end, should adhere strictly to current expenditure plans, prepare a budget for 2002 which aims at a faster decline in the deficit than planned in the stability programme, preferably by reducing expenditure, and reform the social security and healthcare systems.
As regards the labour market, Portugal is called on to increase investment in the education and training systems, enhance the quality of work and modernise labour market institutions. It should also raise the level of R&D investment, promote the diffusion of ICT, reduce state aid, liberalise the energy sector and develop the risk capital market, notably by easing constraints on institutional investors.

Finland: Economic growth is forecast to be around 4 % in 2001 and 2002. The budget is in healthy surplus and, according to the stability programme, a surplus equivalent to some 4 % of GDP seems possible in the medium term. The government should adhere to the expenditure target and maintain government surpluses in 2001 and beyond in order to contend with population ageing, to which Finland is particularly exposed. The policy of debt reduction should be pursued and the effective retirement age should be raised.
On the labour market, the government is called on to reduce tax rates, especially for low-wage earners, adapt social security benefits in order to improve incentives to take up job offers and to stay in the labour force, and to increase the efficiency of active labour market programmes. In addition, compliance with public procurement rules should be enhanced, competition in distribution, construction and the media sector increased and the risk capital market further developed.

Sweden: Economic activity has slowed down somewhat and growth is forecast at 2.7 % in 2001 and 3 % in 2002. According to the convergence programme, the budget surplus should be 3.5 % and 3.3 % respectively. The government is called on to maintain high government surpluses in 2001 and subsequent years, to continue with its strategy of lowering taxes while attaining the medium-term surplus target of 2 % and to reduce public debt.
As regards the labour market, Sweden is called upon to ensure the efficiency of active labour market programmes and pursue reforms of the tax and benefit systems. In addition, compliance with public procurement rules should be enhanced and competition increased in air transport and pharmaceuticals. Sweden is also called on to develop the risk capital market further by adapting the fiscal framework.

United Kingdom: Economic growth should reach 2.7 % in 2001 and 3 % in 2002. The recent budgetary projections show a surplus of 1.7 % of GDP (excluding UMTS receipts) in the financial year 2000/01, with a reduction to 0.5 % predicted for the following year and a slight deficit thereafter. The government should ensure that the targets are achieved and, as announced, could double public investment while ensuring that the rules of the stability and growth pact are met.
As regards the labour market, the United Kingdom is called on to reinforce the measures targeted at those individuals most prone to the risk of unemployment and reform benefit schemes so as to provide the necessary incentives. It should also address the low level of productivity, increase competition in banking and postal services, step up investment in public transport and encourage pension funds to play a greater role in developing the risk capital market.

4) Implementing Measures

5) Follow-Up Work

Commission report on the implementation of the 2001 Broad Economic Policy Guidelines [COM(2002) 93 final, not published in the Official Journal].

Overview of key policy areas

Implementation of macroeconomic policies. The macroeconomic environment deteriorated much more sharply than expected in 2001 because of a number of adverse economic shocks and the terrorist attacks of 11 September, which brought economic growth to a standstill towards the end of the year. Employment growth decelerated but remained positive and inflation fell during the year.
Given the lower risks to price stability the monetary authorities cut interest rates on several occasions. The budget position deteriorated on account of the economic slowdown as the automatic stabilisers took effect and following the tax reforms in a number of countries. The EU-wide budget deficit increased from 0.1 % of GDP in 2000 to 0.5 % in 2001, while the euro-area budget deficit rose from 0.8 % to 1.1 % (net of UMTS receipts). It was only in Greece, Spain, Italy and Austria that outcomes were better than in 2000.
While the trend in nominal wages remained moderate in 2001, the euro area witnessed an acceleration in real wages slightly in excess of labour productivity growth.

Quality and sustainability of public finances. The share of government expenditure in GDP decreased while public investment remained stable in many Member States, fostering growth and employment. An increasing number of Member States introduced reforms aimed at containing expenditure through multiannual programmes and agreements between different levels of government. The long-term sustainability of public finances made mixed progress depending on the Member State concerned. Several Member States achieved budget surpluses, while others (Germany, France, Italy and Portugal) still have some way to go. Several Member States successfully pursued reforms of pension systems that are becoming urgent in view of population ageing.

Labour market. The labour market suffered from the economic environment and employment growth fell to 1.1 %, the unemployment rate having decreased slightly to 7.8 % by the end of the year. The situation differs between Member States. Many countries reformed their benefit systems and, in so doing, reduced the tax burden on labour, notably for low-wage earners. The reforms of benefit systems are not sufficiently targeted towards enhancing work incentives. In only a few cases were measures taken to boost geographical mobility, whether between Member States or within them. Spain, Greece and Portugal are reforming their educational system in general. Most countries are having difficulty in better targeting active labour market policies. The organisation of working time has become more flexible in recent years in some Member States (part-time work, fixed-term contracts, temporary agency work and teleworking).

Product market (goods and services). Progress has been mixed. Goods markets are becoming increasingly integrated. The transposal of internal market directives improved. However, barriers to cross-border trade still exist for a number of specific products. By contrast, little progress was made in creating an internal market in services. The opening-up of public procurement markets continued. The reinforcement of competition resulted in lower prices in the telecommunications and electricity sectors. However, differences persist between Member States and between sectors, while the liberalisation process is less advanced as regards railways and postal services. Overall state aid, the data on which are available only with some time lag, continued to decrease in the vast majority of Member States and transparency improved. The EU average declined to 1.2 % of GDP in 1997-99.

Efficiency and integration of EU financial markets. Regulation of European securities markets made good progress following the agreement of the European Parliament on the approach proposed by the Committee of Wise Men. Implementation of the Financial Services Action Plan (FSAP) progressed significantly, as did implementation of the Risk Capital Action Plan (RCAP). Several Member States took measures aimed at developing the risk capital market.

Entrepreneurship. A great variety of measures were taken to reduce the regulatory burden on business, to stimulate business creation and to ease access to finance for SMEs. Differences do though remain between Member States, notably in the area of taxation. Most Member States took measures to promote business start-ups and SMEs. Initiatives were launched to reduce the business tax burden.

Knowledge-based economy. The Member States took various measures to increase business investment in R&D. However, the deadline for agreeing on how to deliver the Community patent was missed. The ICT take-up was only moderate in comparison with previous years. Progress in unbundling the local loop was slow. In spite of the fall in Internet access prices and the increase in Internet access at home, the EU did not close the gap with the United States. The share of schools in which pupils have access to the Internet is above 70 % in most Member States. A number of governments took measures to increase the number of ICT experts and to promote basic ICT skills among the population.

Sustainable development. Various initiatives were launched, including the Directive on emissions trading and the White Paper on the European Transport Policy. Progress in Member States included the following: the United Kingdom and Denmark introduced a system of tradable emission permits, while several other countries are examining the possibility of so doing. Although a large number of different measures were taken by Member States to promote sustainable development, the discussions on energy taxation made little or no progress.

Assessment by Member State

Belgium. Belgium made some progress in implementing the budgetary recommendations and the labour market recommendations, but no major measures were taken to promote more wage flexibility. Some progress was made with regard to product markets while there was good progress in developing the risk capital market.

Denmark. The government made good progress in implementing the budgetary recommendations of the 2001 BEPGs, while limited progress was made in implementing the 2001 labour market recommendation. Some progress was made in implementing the product market and capital market recommendations.

Germany. Progress was made in implementing the budgetary recommendations even though budget deficits increased markedly in the wake of the economic downturn and tax reforms. Some progress was made on the labour market and the “Job Aktiv” law is a first step in the right direction although more needs to be done. The government made good progress in implementing the product market recommendations and there was also progress in implementing the capital market recommendations.

Greece. Some progress was made on the budgetary front, leading to a significant improvement in the government finance situation. The reform of the social security sector has not yet been initiated. On product markets too, some progress was made, although in some areas such as R&D and competition progress was slow. The government made some progress with the capital market recommendations.

Spain. Spain made good progress in implementing the budgetary recommendations; It is likely to have met the target of a balanced budget in 2001. Some progress was made on the labour market while substantial progress was made with regard to the product and capital markets.

France. France made some progress in implementing the budgetary recommendations although budgetary adjustment slowed down markedly. Some progress was made regarding the labour market but no legislation was introduced to increase employment protection. Some progress was made as regards the product and capital markets

Ireland. The government made satisfactory progress in implementing the budgetary recommendations. Some progress was made with labour market reforms and on capital markets, while good progress was made as regards the product market recommendations.

Italy. Italy made some progress on the budgetary front and consolidation continued. Some progress was made in implementing the labour market recommendations. The government also took measures to implement the product and capital market recommendations of the BEPGs.

Luxembourg. The government correctly implemented the budgetary recommendations. Some progress was made in implementing the labour market recommendation but implementation of the product market recommendations does leave something to be desired.

Netherlands. Altogether, the Netherlands made good progress in implementing the budgetary recommendations. Some progress was made on the budgetary front but there has still not yet been any reform of the disability scheme. Good progress was made in implementing the product market recommendations while there was some progress in implementing the capital market recommendations.

Austria. The government made good progress in implementing the budgetary recommendations. Some progress was made as regards labour and capital markets while more significant progress was made regarding the capital market.

Portugal. Altogether, Portugal made some progress in implementing the budgetary recommendations although the deficit increased in the wake of the economic slowdown. Some progress was made in implementing the labour market recommendations but employment protection legislation was not eased. Progress on product markets was satisfactory and some progress was made on capital markets.

Finland. Altogether, Finland made some progress in implementing the budgetary recommendations and the budgetary position remained sound. Good progress was made on the labour market, where efforts were aimed at reducing structural unemployment. Some progress was made in implementing the product and capital market recommendations.

Sweden. The budgetary recommendations of the BEPGs were implemented satisfactorily. Good progress was also made in implementing the labour market recommendations. However, limited progress was made in implementing the product market recommendations and no measures were taken to increase competition in specific sectors. Some progress was made in implementing the capital market recommendations.

United Kingdom. The government made some progress in implementing the budgetary recommendations. Good progress was made in implementing the labour market recommendations and some progress was made as regards product and capital markets.


Another Normative about Broad economic policy guidelines

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic

Economic and monetary affairs > Stability and growth pact and economic policy coordination

Broad economic policy guidelines (2002)

1) Objective

To improve conditions for economic growth and job creation by way of an economic policy strategy based both on growth- and stability- oriented macroeconomic policies and on structural reforms to promote sustainable, job-creating and non-inflationary growth, while taking account of sustainable development.

2) Document or Iniciative

Council Recommendation of 21 June 2002 on the broad guidelines of the economic policies of the Member States and the Community [Official Journal L 182 of 11.07.2002].

3) Summary

MAIN PRIORITIES AND POLICY REQUIREMENTS

After a sharp and unexpected slowdown in economic activity and a deceleration in job creation in 2001, economic growth seems to be picking up. An improvement in confidence and in external demand point to a growth rate close to the potential estimated for the European Union (EU) in the second half of 2002. However, it is unlikely that unemployment will drop noticeably before 2003. Inflationary pressures are expected to remain contained.

The EU’s goal is to achieve a balanced and sustainable expansion of economic activity. To meet the Lisbon European Council’s objective of making Europe the most competitive and dynamic knowledge-based economy by the year 2010, the rate of potential growth must be increased and the pace of economic reform stepped up. Action must concentrate on four main areas:

  • Safeguarding and strengthening the macroeconomic framework
    The EU’s macroeconomic framework is based on two pillars: price stability and a sound budgetary policy. To allow automatic stabilisers to operate freely over the economic cycle, while respecting the 3% of GDP government deficit limit, Member States need to redouble their efforts to complete the transition to budgetary positions close to balance or in surplus by 2004. Beyond providing leeway for automatic stabilisers, this will allow for a steady decline in government debt, enabling budgetary challenges, including the ageing of the population, to be dealt with.
  • Promoting more and better jobs

    Although the labour market reforms undertaken in the 1990s have produced good results, unemployment, and especially long-term unemployment, is still high in a number of Member States. Obstacles to the geographical and occupational mobility of the unemployed persist. Labour force participation rates for women and older workers remain unsatisfactory. Member States therefore need to take steps to raise participation rates and reduce unemployment. This will require the reform of tax and benefit systems and the labour market. The Barcelona European Council has called for the effective average retirement age to be increased by five years by 2010.
  • Strengthening conditions for high productivity growth

    To meet future challenges linked to the ageing of the population and to achieve a sustainable GDP growth rate of 3%, the productivity of the European economy must be increased. To boost competitiveness, entrepreneurship and investment, European energy, communication, services and labour markets need to be integrated further.
  • Promoting sustainable development

    The external effects of economic activities on the environment must be priced in. Investments in resource and energy efficiency can promote innovation and job creation. Economic policies can also contribute to economic and social cohesion, since job creation is the best protection against poverty and social exclusion.

GENERAL RECOMMENDATIONS

The broad economic policy guidelines encourage the Member States to take action in the following areas:

Macroeconomic policies

  • achieve or maintain budgetary positions of close to balance or in surplus over the economic cycle, and if this is not yet the case, take the necessary action to ensure that these objectives are met (by 2004 at the latest)
  • avoid pro-cyclical fiscal policies and allow automatic stabilisers to operate in full as the recovery gets under way
  • ensure that wage increases are consistent with price stability and productivity growth

Quality and sustainability of public finances

  • promote the quality of public expenditure by redirecting funds towards physical and human capital accumulation and research
  • improve the long-term sustainability of public finances by pursing the three-pronged strategy of raising employment rates, reducing public debt and adapting pension systems
  • strengthen tax coordination between the Member States

Labour markets

  • make employment more attractive by reforming tax and benefit systems
  • strengthen active labour market policies by improving their efficiency
  • reduce obstacles to mobility and remove barriers to female labour force participation

Structural reform in product markets

  • Internal market: increase the transposal rate of Internal Market directives, remove technical barriers to free movement, especially in the services sector and further open up public procurement markets.
  • Competition: ensure effective and independent competition authorities to secure effective competition, reduce state aid and ensure its effectiveness.
  • Network industries: encourage market entry in general and in the gas and electricity markets in particular. Member States should provide incentives to build new infrastructure

Efficiency and integration of the EU financial services market

  • speed up the integration of financial markets to reduce the costs of accessing capital by implementing the Financial Services Action Plan (FSAP) by 2005 and the Risk Capital Action Plan (RCAP) by 2003
  • improve cooperation and coordination arrangements at all levels for prudential purposes

Entrepreneurship

  • create a business-friendly environment, in particular by simplifying the corporate tax system, increasing the efficiency of public services and reducing barriers to cross-border activity associated with differences between Member States (in accounting standards, corporate governance, taxation and VAT)
  • translate into action the commitments made under the European Charter for Small Enterprises
  • improve access to finance, especially for small and medium-sized enterprises (SMEs)

Knowledge-based economy

  • stimulate research and development (R&D) and innovation by raising overall spending, improving ties between universities and business, enhancing cooperation between Member States, and adopting the sixth Research Framework Programme
  • promote information and communication technologies (ICT) by ensuring effective competition and stimulating wider Internet use (definition of a new e-Europe 2005 Action Plan)
  • strengthen education and training efforts in order to increase the number of highly qualified personnel and improve the basic skills of citizens

Sustainable development

  • conduct social and environmental impact analyses of planned policy measures
  • strengthen policies based on economic instruments like taxation, user and polluter charges or voluntary commitments
  • introduce an emissions trading system at EU level to meet the requirements of the Kyoto protocol
  • encourage the disclosure of environmental information in the annual accounts of companies
  • reduce sectoral subsidies and tax exemptions which have a negative environmental impact
  • reach a European agreement on energy taxation

COUNTRY-SPECIFIC ECONOMIC POLICY GUIDELINES

Belgium: Economic growth is not expected to exceed 1% in 2002 but should reach some 3% in 2003. Belgium should seek in 2002 to avoid any deterioration in public finances compared with 2001. The goal for 2003 is a budget surplus of 0.5%. Belgium should consolidate reform of the tax systems, increase labour mobility, promote a proper balance between the flexibility and security of employment and increase the employment rate for women. There needs to be an increase in competition in electricity and gas and a reduction in the administrative burden for businesses.

Denmark: Economic growth of 1.75% in 2002 and 2.5% in 2003 is forecast, driven mainly by domestic demand. The Danish budget is in surplus, but Denmark should ensure that the Government’s target of restraining growth in government consumption is met. Danish labour market performance is the best in the EU, with an employment rate of 76%, the unemployment rate having been reduced to 4.3% in 2001. Denmark should continue its efforts to open up markets to competition, especially in gas and electricity.

Germany: Economic activity should recover in the second half of 2002, but growth will nevertheless remain below 1%. Germany recorded a budget deficit of 2.7% in 2001, which exceeded the target set in its most recent stability programme. The German Government has therefore undertaken to comply with the 3% of GDP reference value and reach a close-to-balance budgetary position in 2004. Budgetary policy should aim to ensure that the deficit does not exceed 3% of GDP and that it is reduced in 2003 in order to meet the target for 2004. Any budgetary room for manoeuvre should be used to reduce the deficit, and the health care system should be reformed. Germany should reform its tax and benefit systems to make work pay, improve the efficiency of active labour market policies and make work organisation more flexible. It should also ensure effective competition on electricity and gas markets.

Greece: The Government continued its policy of deficit reduction and forecasts a budget surplus of 0.8% of GDP for 2002. Economic growth is expected to accelerate in 2003. Greek budgetary policy should aim not to contribute to inflationary pressures, to apply clearly defined norms for current expenditure and to speed up the reform of the social security systems. Greece should also reform pension entitlements, improve education and training systems, continue to eliminate distortions to work incentives and reform the wage formation system. Business involvement in R&D and information technology diffusion should be encouraged. The public administration needs to be streamlined, and effective competition promoted in liberalised network industries.

Spain: After a slowdown, economic activity should grow in line with potential in 2003. In 2001, the Spanish budget was in balance for the first time in 25 years. The Government should continue its policy of expenditure restraint and ensure that the tax reform in 2003 does not undermine the medium-term stability of public finances. A comprehensive review of the pension system is also needed. On the Spanish labour market, wage formation should be reformed, labour mobility promoted, and participation rates, especially among women, increased. Spain should also reduce the administrative burden for businesses and increase competition, including in the liberalised telecommunications and energy sectors.

France: Economic activity will rebound in the course of 2002. According to the stability programme, the budget deficit should reach 1.9% of GDP before decreasing in 2003; the new Government has launched a public finance audit. The French Government should ensure that the budget deficit does not exceed the 3% of GDP reference value in 2002 and that any tax cuts are deficit-neutral so as to reach a close-to-balance budgetary position in 2004. Structural reforms, especially of the pension system, are needed. France should consolidate recent reforms of the tax and benefit system and monitor the effects of implementing the 35-hour week. It is encouraged to reduce the administrative burden on businesses and to speed up the liberalisation of gas and electricity.

Ireland: With an economic recovery in 2002, Ireland should reach a growth rate of about 5% to 6% in 2003. The stability programme targets a small budget surplus in 2002 and a small deficit for 2003. The Irish Government should ensure that the budgetary stance for 2002 is broadly neutral and should then continue to comply with the close-to-balance or surplus requirement. On the labour market, conditions approaching full employment are expected to continue and Ireland should promote the setting of wages in line with productivity developments. It is encouraged to increase effective competition in the local telecommunications, electricity, gas and transport sectors.

Italy: Economic growth is expected to pick up in the course of 2002, but will remain below 2%, reaching 2.75% in 2003. The stability programme targets a budget deficit of 0.5% for 2002 and a balanced budget in 2003. The Government should ensure that deficit-reduction commitments are kept to and that the tax reform does not undermine the objective of a balanced budget. It should also address the pension system as part of social security reform. Italy is encouraged to continue reforms to increase labour market flexibility, encourage the social partners to allow wages to take more account of productivity disparities, increase labour force participation, especially among women, and reduce the tax burden on labour, especially on low-paid earners. It should promote competition in the services sector and on the energy market. The administrative burden on businesses should be reduced.

Luxembourg: The budgetary surplus is expected to decline again in 2002 but increase moderately in 2003 as the economy picks up. The Government should aim to contain current government expenditure. As regards the labour market, Luxembourg should take steps to increase the national employment rate, especially for older workers and women. The announced reform of competition legislation should be implemented and the administrative burden on businesses should be reduced.

Netherlands: Economic growth of 1.5% is expected for 2002 and 2.75% for 2003. The budget will be in balance in 2002 and moderately in deficit in 2003. The Netherlands should ensure that the budgetary stance does not contribute to inflationary pressures in 2002 and should avoid deterioration in public finances in 2003. The labour market continues to perform very well. The Government should make work pay by reforming the benefit system and the disability scheme. The Netherlands should encourage investment in R&D and remove obstacles to competition in services.

Austria: In 2003, thanks to the economic upturn, output expansion should approach its potential of 2.5%. The stability programme forecasts a balanced budget in 2002 and 2003. To meet this objective, the Government should make structural expenditure savings, especially at decentralised levels of government. The planned reduction in the tax burden should not conflict with the target of budgetary balance. The pension system needs reviewing. The labour market continues to perform very satisfactorily. The Government should promote the diffusion of information and communication technologies and investment in R&D, as well as reducing the administrative burden on businesses.

Portugal: Economic growth should reach 1.5% in 2002 and 2.25% in 2003. Portugal’s budget deficit deteriorated in 2001 to well over the target of 1.1%. The Portuguese Government therefore undertook to comply with the 3%-of-GDP reference value and reach a balanced position in 2004. The new Government adopted a rectifying budget in May 2002. Budgetary policy should ensure that the deficit does not exceed 3% of GDP in 2002 and should achieve a close-to-balance budgetary position by 2004. To meet this goal, additional measures beyond those included in the 2001 updated stability programme will be needed. Pension reform should be continued, and health care expenditure curbed. To maintain the favourable labour market situation, Portugal should improve its education and training system, monitor wage developments and modernise the labour market institutions. The Government should also promote investment in R&D and enhance competition, especially in energy.

Finland: Finland should see economic activity pick up in 2002-2003. According to estimates, the budgetary surplus has dropped. Budgetary policy should avoid a significant deviation from the medium-term spending forecasts, improve budgetary discipline at local-government level and continue with pension reform to cope with the ageing of the population. To reduce the unemployment rate, and especially the level of structural unemployment, Finland should take action to make work pay, increase the efficiency of active labour market programmes and refocus them onto long-term unemployment. The Finnish Government should facilitate business creation, enhance competition in the public service sector and reform the application of the Community competition rules.

Sweden: Economic growth of 1.7% in 2002 and 2.8% in 2003 is expected. The Government forecasts surpluses of 1.8% of GDP in both these years. To achieve its target of an average budget surplus of 2% over the cycle, Sweden should continue with the strategy of lowering taxes in 2002, while at the same time adhering to the expenditure ceiling set and maintaining tight expenditure control in 2003. In order to improve the labour market situation even further, Sweden should pursue the reforms of the tax and benefit systems and make active labour market programmes more efficient. The Swedish Government should also enhance competition in public service provision.

United Kingdom: Growth in 2002 is expected to reach 2%. According to the convergence programme, the budget surpluses of previous years will give way to a deficit of some 1% of GDP in the financial year 2002-2003 and following years. Government debt should fall to 36.3% in 2006-2007. The UK should allow public investment to rise, while avoiding any deterioration in public finances. To ensure a dynamic labour market, the UK should reinforce active measures targeted at those most prone to unemployment and should reform sickness and disability benefit schemes. The Government should continue to improve competition in specific sectors and deliver the announced infrastructure investment in the railways.

4) Implementing Measures

5) Follow-Up Work

Commission communication on the implementation of the 2002 broad economic policy guidelines [COM(2003) 4 final – Not published in the Official Journal].

The Commission presented an assessment of the implementation of the 2002 economic policy guidelines at EU level and for each of the Member States.

OVERVIEW OF MACROECONOMIC POLICIES

Economic growth and inflation. There was no pick-up in economic growth in 2002. Although growth remained slack (put at below 1%), there was still progress in creating jobs. However, inflation was slow to come down and there remained differentials between Member States. According to Eurostat, the changeover to the euro accounted for no more than 0%-0.2% of inflation in the first half of 2002.

Interest rates. The monetary policy of the ECB was kept on hold during most of 2002. In December, as a result of lower inflationary risks, the ECB cut its interest rates by 0.5%.

Quality and sustainability of public finances. Budgets deteriorated markedly under the impact of the automatic stabilisers. In some Member States, this was also due to discretionary loosening of budget policies. Some Member States facing still high structural deficits failed to make any further progress towards achieving budgetary positions of close to balance or in surplus and some even moved into reverse. The Commission then took action under the Stability and Growth Pact and the Treaty. The long-term sustainability of public finances was far from guaranteed in most Member States, and in particular Belgium, Germany, Greece, Spain, France, Italy, Austria and Portugal need to make further progress.

Labour markets. Despite weak economic growth, labour markets performed rather well in 2002, this being reflected in continuous employment growth. The unemployment rate in the EU increased only slightly, by 0.2%, to 7.6% of the labour force. However, labour-market reforms made only slow progress. While most Member States adapted their tax and benefit systems to make work pay, the measures taken were generally piecemeal.

Product markets. Progress in completing the internal market was disappointing since only five Member States met the target of reducing the deficit in the transposal of internal market legislation to 1.5% or less. In addition, the number of infringement proceedings remained excessively high. However, progress was made in reinforcing the regulatory and competition authorities, while state aid continued to decline in most Member States. The liberalisation of telecommunications and energy markets was beginning to produce gains for consumers. Generally, however, competition remained inadequate in the network industries.

Capital markets. The process of financial integration progressed markedly and the objectives set by the Barcelona Council were largely achieved. Cross-border coordination of financial supervision could be further improved.

Entrepreneurship. The regulatory environment improved in all Member States. Some of them took measures to alleviate administrative burdens on firms, to reduce the time and cost required for setting up a new company, to stimulate competition and to increase the efficiency of the public sector and general government. Implementation of the European Charter for Small Enterprises was progressing in all Member States.

Knowledge-based economy. The European Union was slowly catching up on the United States in ICT usage but large gaps remained in terms of business R&D and patenting. Use of the Internet continued to grow.

Sustainable development. Various measures were taken including an increase in energy taxes, while other steps were taken to protect the environment. Progress was made in the negotiations on establishing a Community emissions trading scheme.

ASSESSMENT BY MEMBER STATE

Belgium. Belgium maintained its balanced budgetary position. Some progress was also made on the labour market (apart from the promotion of geographical mobility) and product markets in fostering entrepreneurship and the knowledge-based economy.

Denmark. Denmark was among the Member States considered to have given the best follow-up to the 2002 broad economic policy guidelines. Progress was made, notably as regards public finances and product markets, in promoting entrepreneurship and the knowledge-based economy.

Germany. Germany made limited progress in implementing the recommendations, notably as regards public finance (the 3% government deficit threshold laid down in the Treaty was overstepped). Limited progress was also made in implementing the labour-market recommendations. By contrast, some progress was made as regards product markets and in promoting entrepreneurship and the knowledge-based economy.

Greece. Greece made progress in the field of public finance, including a modest reform of the pension system, and on the labour market. As regards product markets, some progress was also made in promoting entrepreneurship and the knowledge-based economy.

Spain. Progress was made on the public finance front: the Spanish budget was still in balance. Some progress was made on labour product markets, and promoting entrepreneurship and the knowledge-based economy, e.g. with a view to supporting the adoption of new technologies in enterprises.

France. Limited progress was made in following up the public finance recommendations. However, some progress was discernible in implementing the labour-market recommendations. Measures were taken to reduce the administrative burden on business and to facilitate the use of the Internet.

Ireland. Some progress was made on public finances, even though the fiscal stance was more expansionary than expected. On the labour market, some measures were taken to increase the participation of women. The recommendations on product markets, entrepreneurship and the knowledge-based economy had positive effects, including keener competition in the network industries.

Italy. Progress in following up the labour-market recommendations was limited, whereas some progress was made in respect of the labour market. Measures were taken in other fields to alleviate the administrative burden, to enhance competition and to encourage the use of new technologies.

Luxembourg. Some progress was made in following up the public-finance and labour-market recommendations. There was no decisive progress as regards product markets, entrepreneurship and the knowledge-based economy, but measures were taken to alleviate the administrative burden on enterprises.

Netherlands. Some progress was made as regards public finances and the labour market, notably as a result of measures to make work pay. Steps were also taken to improve competition in the services sector and to promote the use of IT.

Austria. Progress with public finances was limited, and a balanced budget was not achieved in 2002. Progress was also limited on the labour market. By contrast, some progress was made on product markets, entrepreneurship and the knowledge-based economy, while additional financial resources were allocated to research, and the administrative burden was reduced.

Portugal. Some progress was made in following up the public-finance recommendations, and the public deficit fell sharply in 2002. On the labour market, some progress was discernible in implementing the national Lifelong Learning strategy. Portugal also made progress on education, R&D, the use of new technologies and competition in the network industries.

Finland. Some progress was made on public finances. However, central government expenditure exceeded the original target. Progress was also made with the labour-market recommendations, including a reduction in taxation for low- and medium-wage earners. Not much progress was made on product markets, entrepreneurship and the knowledge-based economy.

Sweden. Good progress was discernible in implementing the public-finance recommendations. As regards the labour market, measures were taken that reflected the recommendations. Some progress was made in the other fields, notably thanks to measures to enhance competition.

United Kingdom. Some progress has been made in implementing the public-finance recommendations and investment rose in line with the recommendations. Measures on the labour market improved employability. As regards product markets, entrepreneurship and the knowledge-based economy, progress was satisfactory, notably in the competition field.

 


Another Normative about Broad economic policy guidelines

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic

Economic and monetary affairs > Stability and growth pact and economic policy coordination

Broad economic policy guidelines (2005- 2008)

The European Union must focus its policies on economic growth and employment. The current broad economic policy guidelines (BEPGs) reflect the new start for the Lisbon strategy. They focus on macroeconomic policies * and on the measures and policies that the Member States should adopt to make Europe a more attractive place in which to invest and work (macroeconomic policies) *.

Document or Iniciative

Council Recommendation 2005/601/EC of 12 July 2005 on the broad economic policy guidelines of the Member States and the Community (2005-2008) [Official Journal L 205, 6.8.2005].

Summary

The recommendation falls within the general framework of the Lisbon strategy: the European Union must mobilise all the resources available in order to achieve the objectives of this strategy, which is designed to make the EU economy the most competitive in the world by 2010. The recommendation is in two parts. The first one addresses the way in which macroeconomic policies can contribute to relaunching the Lisbon strategy while the second deals with the measures and policies that the Member States should adopt in order to boost knowledge and innovation for growth (macroeconomic policies *). The BEPGs apply to all the Member States and will be complemented by the Lisbon Community Programme 2005 to 2008.

The state of the EU economy

First of all, the recommendation takes stock of the current state of the EU economy, which, after gathering momentum from mid-2003 onwards, decelerated in the second half of 2004 as a result of external factors such as high, volatile oil prices and the slowdown in world trade expansion. The Council considers that the lack of resilience in some European economies is attributable partly to structural weaknesses. GDP is expected to continue to grow at a moderate pace in 2005.

As the world growth cycle reaches maturity, offsetting the dampening effect of high world oil prices, the emphasis will fall increasingly on domestic demand in the EU to provide greater impetus to the upswing.

Structural and macroeconomic policies need to be thought of against the background of an increase in the prices of raw materials, in particular oil, and a downward pressure on industrial prices. Potential growth rates in the EU therefore depend to a large extent on increasing confidence among businesses and consumers, as well as on favourable global economic developments, including oil prices and exchange rates.

The sluggishness of the EU’s economic recovery is a continuing source of concern, even if the forecasts are for a fall in the unemployment rate.

Macroeconomic policies for growth and jobs

The Council wishes to see macroeconomic policies that will create the conditions for more growth and jobs and will secure economic stability. Monetary policies can contribute to this by pursuing price stability.

The recommendation lists the following six economy policy guidelines to be implemented by the Member States:

  • to secure economic stability for sustainable growth. In line with the stability and growth pact, Member States should respect their medium-term budgetary objectives. They should avoid pro-cyclical fiscal policies, i.e. they should not spend more at times of excessive deficit if the converse proves to be necessary, i.e. reducing public spending. Member States with excessive deficits should adopt effective measures in order to correct them promptly, and if necessary introduce structural reforms;
  • to safeguard economic and fiscal sustainability. In view of the projected costs of ageing populations, the Member States should reduce their public debt in order to strengthen public finances and reinforce their pension, social security and health care systems so as to ensure that they are financially viable, socially adequate and accessible. They should also take measures to increase labour market participation among women, young people and older workers;
  • to promote a growth- and employment-orientated and efficient allocation of resources. Member States should redirect public expenditure towards growth-enhancing categories. They should also adapt their tax structures in order to strengthen growth potential. Mechanisms should be put in place in order to assess the relationship between public spending and the achievement of policy objectives aimed at ensuring the coherence of the reforms;
  • to ensure that wage developments contribute to economic stability. Member States should put in place the right framework conditions for wage-bargaining systems, while respecting the role of the social partners. This should promote nominal wages and labour cost developments consistent with price stability and the trend in productivity over the medium term;
  • to promote greater coherence between macroeconomic, structural and employment policies. Member States should pursue labour and product market reforms that increase growth potential. They should reinforce the macroeconomic framework by increasing flexibility, factor mobility and adjustment capacity in labour and product markets in response to globalisation, technological advances, demand shift and cyclical changes. In addition, tax and benefit systems should be reformed in order to improve incentives and to make work pay. The ability of labour markets to adapt to economic requirements needs to be increased, while at the same time ensuring employment flexibility and security and investing in human capital;
  • to contribute to a dynamic and well-functioning EMU. Member States in the euro area need to ensure better coordination of their economic and budgetary policies, in particular:

– pay particular attention to the fiscal sustainability of their public finances;
– contribute to a policy mix that supports long-term economic recovery and ensures price stability, thereby enhancing consumer and investor confidence;
– press forward with structural reforms;
– ensure that the euro area’s influence in the global economic system is commensurate with its economic weight.

Microeconomic reforms to raise Europe’s growth potential

The Council considers that, in order to enhance the EU’s growth potential, it is necessary to create jobs and increase productivity. An essential growth factor is investment in R&D, innovation and education. Their international dimension should be strengthened in terms of joint financing and reducing barriers to researcher and student mobility. The Council sets out ten guidelines for microeconomic reforms aimed at increasing growth potential. These are:

  • to increase and improve investment in R&D. Businesses will need to play a key role in increasing and improving investment in this area. The Council confirms an overall objective for investment of 3 % of GDP by 2010. This level of investment must be achieved by an adequate split between private and public investment. Member States must further develop measures to foster R&D, in particular by:

– improving framework conditions to ensure that companies operate in a sufficiently competitive and attractive environment;
– allocating more effective and efficient public expenditure to this area;
– developing public-private partnerships;
– developing and strengthening centres of excellence of educational and research institutions;
– improving the transfer of technologies between research institutes;
– developing and making better use of incentives to leverage private R&D;
– modernising the management of research institutes and universities;
– ensuring a sufficient supply of qualified researchers;

  • to facilitate all forms of innovation. Member States should focus on improvements in innovation support services, in particular for the dissemination and transfer of technology, the creation of innovation poles bringing together research institutes, universities, etc. They should also take measures to encourage cross-border knowledge transfer and public procurement of innovative products and services. Access to domestic and international finance should be improved. Effective and affordable means of enforcing intellectual property rights should be put in place;
  • to facilitate the spread and effective use of information and communication technologies (ICT) and build a fully inclusive information society. Member States should encourage the widespread use of ICT in public services, small and medium-sized enterprises (SMEs) and households. They should provide the necessary framework for the related changes in the organisation of work in the economy and promote a European presence in the ICT sector. They must ensure the stability and security of networks and information;
  • to strengthen the competitive edge of Europe’s industrial base. Europe needs to pursue a modern and active industrial policy, which entails bolstering the competitive advantages of its industrial base. This means establishing attractive framework conditions for manufacturing, enhancing competitiveness factors in response to the challenges of globalisation, developing new technologies and creating new markets by promoting new technological initiatives based on public-private partnerships and creating business clusters within the EU;
  • to encourage the sustainable use of resources and step up environmental protection. Member States should give priority to energy efficiency and the development of sustainable energies, in particular renewable energies, and promote the rapid spread of environmentally friendly technologies both in Europe and worldwide. Member States should pay particular attention to SMEs by withdrawing subsidies with a negative effect on the environment and sustainable development. Environmental protection should be pursued in areas such as halting the loss of biological diversity between now and 2010, combating climate change and implementing Kyoto targets (EN), etc.;
  • to extend and deepen the internal market. Member States should speed up the transposition of internal market directives, give priority to stricter and better enforcement of internal market legislation, apply Community rules effectively, promote an internal market in services, speed up the integration of financial markets, etc.;
  • to ensure open and competitive markets in response to globalisation. In order to reap the benefits of globalisation, Member States should give priority to removing the regulatory and trade barriers that hinder competition. Competition policy must be enforced more effectively and state aid reduced. Open and competitive markets also require the kind of investment in R&D described above. Member States should promote external openness, particularly in a multilateral context;
  • to create a more competitive business environment. The Council recommends that Member States increase competition between businesses and encourage private initiative through better regulation. It calls on Member States to reduce the administrative burden on enterprises, particularly SMEs and start-ups, to improve the quality of regulations and to encourage businesses to develop their corporate social responsibility;
  • to promote entrepreneurship and create a supportive environment for SMEs. Member States should improve access to finance in order to favour the creation and growth of SMEs. A favourable environment is also created by simplifying tax systems and reducing non-wage labour costs. In addition, the innovative potential of SMEs should be strengthened, e.g. by providing relevant support services. National legislation on bankruptcy, transfer of ownership, etc. should be revised in order to remove any remaining barriers;
  • to improve European infrastructure. Efficient, modern infrastructures are important in facilitating the mobility of persons, goods and services within the EU. The presence of infrastructure is often a decisive factor for businesses seeking new locations. Member States should put in place conditions conducive to the development of such infrastructure and consider the possibility of developing public-private partnerships. Lastly, they should examine the question of appropriate infrastructure pricing systems.
Key terms used in the act
Macroeconomic policies: this term covers policies aimed at influencing economic aggregates such as prices, unemployment, growth potential, GDP, etc.
Microeconomic policies: this term refers to policies designed to influence economic decisions taken, for example, by natural or legal persons.

Related Acts

Council Recommendation 2007/209/EC of 27 March 2007 on the 2007 update of the broad guidelines for the economic policies of the Member States and the Community and on the implementation of Member States’ employment policies [Official Journal L 92 of 3.4.2007].
The Council calls upon Member States to take action along the lines set out in the recommendation with a view to updating the broad economic policy guidelines for 2007. The guidelines set out in the Annex to the Recommendation contain specific recommendations for each Member State.

Member States must report on the follow up in their next annual progress reports on the implementation of their national reform programmes in the framework of the Lisbon Strategy.

Broad guidelines for economic policies

Broad guidelines for economic policies

Outline of the Community (European Union) legislation about Broad guidelines for economic policies

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Stability and growth pact and economic policy coordination

Broad guidelines for economic policies

Document or Iniciative

Council Recommendation 2010/410/EU of 13 July 2010 on broad guidelines for the economic policies of the Member States and of the Union [Official Journal L 191 of 23.7.2010].

Summary

Council recommendations on overall economic policy guidance take the form of guidelines addressed to Member States. These guidelines enable the economic policies of the Member States to be coordinated in order to achieve joint objectives.

The current Council guidelines support the Europe 2020 Strategy. This strategy should enable the EU to achieve smart, sustainable and inclusive growth in the next ten years. In this Recommendation, the Council also notes the importance of the sustainability of Member States’ public finances and their macroeconomic stability.

These guidelines should be taken into account by Member States in the implementation of their economic policies and the development of national reform programmes.

Sustainability of public finances and macroeconomic stability

In the implementation of their economic policies, Member States must comply with the Stability and Growth Pact. Through this pact, Member States have committed to controlling their public deficit in order to avoid budget imbalances. Member States must therefore consolidate their budgets by ensuring that the level of their public debts, in particular, is reduced.

The Council encourages Member States to take measures to address macroeconomic imbalances, by paying specific attention to asset markets and household and corporate balance sheets.

In addition, it encourages Member States who have adopted the euro as a single currency to reduce macroeconomic imbalances within the euro area. They should also consider the large and persistent divergences in current account positions and other macroeconomic imbalances as a matter of common concern and take urgent action to reduce the imbalances where necessary.

Smart growth

The objective is to create an economy based on knowledge and creativity. The Council therefore recommends that Member States stimulate economic growth by investing in the fields of research and technology, and by fostering innovation. Reforms should, for example, develop effective research infrastructures and encourage cooperation between universities.

Sustainable growth

Sustainable growth is based on efficient use of energy and resources. Member States must therefore take environmental challenges into account in the implementation of their economic policies. For example, they are encouraged to promote renewable energies, low-carbon technologies and more environmentally-friendly modes of transport.

Inclusive growth

Member States should guarantee all citizens equal access to the economy. Inclusive growth should therefore contribute to creating a society in which all citizens participate in the labour market and profit from economic benefits.

To this end, Member States must particularly ensure compliance with the single market and competition rules. Better regulation of financial markets is also a priority objective: Member States should ensure predictable framework conditions and well-functioning, open and competitive goods and capital markets.

Context

The Council adopts broad guidelines for economic policies on the basis of Article 121 of the Treaty on the Functioning of the EU. This Article states that the economic policies of Member States are of common interest and that they should be coordinated within the Council. The Council therefore develops broad guidelines for economic policies in collaboration with the European Council and the Commission.

References

Act Entry into force Deadline for transposition in the Member States Official Journal

Recommendation 2010/410/EU

OJ L 191 of 23.7.2010

A European Economic Recovery Plan

A European Economic Recovery Plan

Outline of the Community (European Union) legislation about A European Economic Recovery Plan

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Stability and growth pact and economic policy coordination

A European Economic Recovery Plan

Document or Iniciative

Communication from the Commission to the European Council of 26 November 2008 – ‘A European Economic Recovery Plan’ [COM(2008) 800 final – Not published in the Official Journal].

Summary

The European Economic Recovery Plan is a response to the global economic crisis which affected the real economy in 2008. It sets out the broad lines of a coordinated European approach which involves:

  • swiftly stimulating demand;
  • helping the most vulnerable people affected by the economic downturn;
  • preparing Europe to be competitive with a view to future growth;
  • taking advantage of this period of upheaval in order to accelerate the establishment of a cleaner economy with more concern for the environment.

The European Commission proposes that Member States and the European Union agree on an immediate budgetary impetus amounting to EUR 200 billion.

The plan is intended to operate at both European and global level.

Solutions at European level

At financial market and macro-economic level

The instability in the financial markets triggered the crisis in the real economy. It is important that the banks should re-focus on their primary activities of providing liquidity and supporting investment in the real economy.

The European Investment Bank (EIB)will increase its yearly interventions in the European Union by some EUR 15 billion in the form of loans, equity, guarantees and risk-sharing financing, as well as investment from private sources.

Budgetary policy will have a role to play in stabilising economies and sustaining demand. This recovery will take place within the framework of the Stability and Growth Pact and the priorities of the Lisbon Strategy.

At the level of individuals

The Plan aims to help individuals who have lost their jobs and are suffering the social consequences of the crisis. In this perspective, it will reinforce the activation schemes, in particular for the low-skilled and vulnerable, in order to get them into training or even help them to re-train with a view to matching the supply and demand of jobs.

To this end, the Commission will use the European Social Fund and the European Globalisation Adjustment Fund in order to finance the costs of training and job placement for those who are made redundant.

In addition, Member States are advised to reduce their employers’ social charges on lower incomes to promote the employability of lower-skilled workers. Similarly, solutions such as service cheques for household and child care, or temporary hiring subsidies for vulnerable groups, are encouraged.

A reduction in the VAT on labour-intensive services is also envisaged.

At the level of businesses

Businesses must have access to financing on the same basis as the banks. Small and medium-sized enterprises and micro-enterprises are the most exposed and must therefore be the focus of urgent steps. It is envisaged that the European Small Business Act will be implemented to this end.

The Commission will put in place a simplification package to speed up its State aid decision-making.

At the level of the environment

It is becoming vital to develop a clean economy. In this perspective, the European Union must equip itself with new businesses and industries, as well as environmentally-friendly infrastructures.

The Commission plans in particular to invest in trans-European transport projects, while the EIB will increase the financing of investment to tackle climate change and to improve energy security and infrastructure.

The Plan also provides for action at the level of research and innovation in order to develop “green products”, particularly in the construction and automobile sectors.

Solutions at global level

The Plan aims to reinforce closer collaboration between the European Union and its international partners in economic and climate matters.

The European Union must also maintain its commitments to developing countries in the context of the Millennium Development Goals (MDGs) and Overseas Development Assistance (ODA), in particular by developing new instruments to help those countries deal with the direct consequences of the crisis whilst maintaining sustainable development.

Background

In the face of the crisis, the European Economic Recovery Plan is designed to create a basis for agreement between Member States to get Europe’s economy moving again. Although the Plan contains short-term action, it also falls within the Lisbon Strategy.

The Africa-EU partnership at work

The Africa-EU partnership at work

Outline of the Community (European Union) legislation about The Africa-EU partnership at work

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Development > African Caribbean and Pacific states (ACP)

The Africa-EU partnership at work

Document or Iniciative

Communication from the Commission to the Council and the European Parliament of 17 October 2008 entitled “One year after Lisbon: the Africa-EU partnership at work” [COM(2008) 617 final – Not published in the Official Journal].

Summary

The Commission notes progress accomplished in the first year of implementation of the strategic partnership between the European Union (EU) and Africa. This evaluation should allow the partners’ action to be targeted and to produce early and concrete deliverables.

THE AFRICA-EU PARTNERSHIP ACTION PLAN

The Africa-EU Action Plan consists of 8 sectorial partnerships (pdf ). It will be revised in 2010 at the next summit of Heads of State and Government from the EU and African states.

Partnership on Peace and Security

Cooperation supports the role of the African Union (AU) in the area of peace and security. First deliverables will focus on planning, control, management and funding of peacekeeping operations. The African Standby Force should be rendered completely operational by the AU, and its capacity for early warning and to combat terrorism and the trafficking of firearms should be consolidated.

The second Peace Facility for Africa, with a budget of EUR 300 million for the period 2008-2010, funds peacekeeping, preventative and post-crisis operations. Its impact will be reinforced by a rapid response scheme for emergency operations.

Africa-EU Partnership on Democratic Governance and Human Rights

Projects within this framework should enhance the existing pan-African set-up, support local governance, electoral and post-electoral processes, the pluralism of the media and cultural cooperation.

A platform for dialogue on democratic governance and human rights should be established in 2009 to promote the involvement of civil society and all stakeholders.

Partnership on Trade and Regional Integration

Within the framework of the Economic Partnership Agreements (EPAs), the partnership encourages the development of trade and services offered at regional level. It supports the harmonisation of laws, regulations, norms and standards in order to remove customs barriers in Africa.

The partners should increase the funding which is allocated to the Africa-EU partnership for infrastructures (FR) with the aim of developing regional interconnections.

Partnership on the Millennium Development Goals (MDGs)

The partners have identified the areas of food security, health and education as being priorities for the achievement of the MDGs. This is in line with the recommendations of the United Nations Secretary General (UNSG), and to ensure the coherence of national, regional and multilateral action.


EU Member States have committed to increase official development assistance (ODA) for 2010 and 2015.

Partnership on Energy

In 2008, the partners adopted a Joint Statement on the Implementation of the Africa-EU Energy Partnership. This sectorial agreement aims in particular at modernising regional infrastructures and interconnections, supporting public and private investment, and improving access to energy services and energy efficiency.

Projects within this framework are funded under the EDF and through other financial instruments particularly in the areas of energy, infrastructures and the sustainable management of resources.

Partnership on Climate Change

Political dialogue on climate change is on a multilateral level, mainly within the Global Climate Change Alliance (GCCA) (FR). The use of climate forecasts for development is one of the priorities of the GCCA through the ClimDev Africa programme.

The partners have strengthened their cooperation and this will come to fruition in an international post-Kyoto agreement at the Copenhagen summit in late 2009.


Partnership on Migration, Mobility and Employment

The Partnership will provide holistic responses with the objective of creating more and better jobs in Africa, advancing the Decent Work agenda and better managing migration flows. This Partnership builds upon the Tripoli Declaration, the Africa-EU Plan of Action on the trafficking of human beings and the Ouagadougou Declaration and Action Plan on Employment and Poverty Alleviation.

Amongst these priorities, the Commission supports the creation of an African Remittances Institute and a network of observatories in Sub-Saharan Africa to collect more reliable data on migration. It intends to establish a structured dialogue with representatives of the African Diaspora in Europe.

Partnership on Science, Information Society and Space

Science, Information and Communication Technologies (ICTs) and Space applications are factors for growth and socio-economic development. Africa-EU cooperation takes place in particular within the framework of the Global Monitoring for Environment and Security initiative (GMES). Satellite surveillance must be developed as an instrument for disaster prevention and the sustainable management of natural and food resources.

RECOMMENDATIONS FOR THE AFRICA-EU STRATEGY

Following discussions between the AU and the Commission, this Communication states priorities for the implementation of the Africa-EU strategy and its Action Plan. It invites partners to:

  • renew their political and financial commitment;
  • to adopt a roadmap, and to complete mappings of cooperation initiatives and available resources;
  • consult civil society;
  • encourage continent-wide projects, policies and legal frameworks;
  • identify existing synergies between strategy and financial and technical programmes;
  • enhance coordination of partners within international organisations and in multilateral negotiations;
  • have regular and structured dialogue between the European Parliament and the Pan-African Parliament.

Related Acts

Commission Working Document of 17 October 2008 annexed to this Communication from the Commission to the Council and the European Parliament of 17 October 2008 entitled “One year after Lisbon: the Africa-EU partnership at work” [SEC(2008) 2603 final – Not published in the Official Journal].

Cohesion Policy in support of growth and jobs – Community Strategic Guidelines, 2007-13

Cohesion Policy in support of growth and jobs – Community Strategic Guidelines, 2007-13

Outline of the Community (European Union) legislation about Cohesion Policy in support of growth and jobs – Community Strategic Guidelines, 2007-13

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Regional policy > Review and the future of regional policy

Cohesion Policy in support of growth and jobs – Community Strategic Guidelines, 2007-13

Document or Iniciative

Council Decision 2006/702/EC of 6 October 2006 on Community strategic guidelines on cohesion [Official Journal L 291 of 21.10.06].

Summary

The strategic guidelines for cohesion policy after 2007 have two objectives:

  • to strengthen the strategic dimension of cohesion policy with a view to ensuring that Community priorities are better integrated into the national and regional development programmes; and
  • to ensure greater ownership of cohesion policy on the ground, as reflected in a reinforced dialogue in the partnerships between the Commission, the Member States and the regions and the creation of a clearer division of responsibilities between the Commission, Member States and the Parliament.

The re-launch of the Lisbon strategy

At the March 2005 European Council, the Lisbon Strategy was renewed with the adoption of the partnership for growth and jobs. In line with this strategy, cohesion policy must be focused on promoting sustainable growth, competitiveness and jobs.

The strategic guidelines identify those areas in which cohesion policy can contribute to the achievement of other Community priorities, including those deriving from the Lisbon strategy. They are also in line with the integrated guidelines for growth and jobs.

Priorities under the strategic guidelines

The strategic guidelines are focused on three priorities:

  • improving the attractiveness of regions and cities in the Member States;
  • encouraging innovation, entrepreneurship and growth in the knowledge economy; and
  • creating more and better jobs.

Strategic Guidelines for 2007-2013

On the basis of these priorities, the guidelines aim to:

  • make Europe and its regions more attractive places to invest and work;
  • improve knowledge and innovation;
  • create more and better jobs; and
  • take account of the territorial dimension of cohesion policy.

Investment and jobs

The Communication lists three groups of measures for making Europe and its regions a more attractive place to invest and work.

First, transport infrastructures must be expanded and improved. With this in mind, the Member States must give priority to the 30 projects of European interest by investing in secondary connections. In addition, better access to rail infrastructure and improved connectivity of landlocked territories to the Trans-European network (TEN-T) must be encouraged. The same applies to the environmental dimension of transport networks and the development of short-sea shipping.

Secondly, the synergies between environmental protection and growth must be strengthened so as to guarantee the sustainability of economic growth, innovation and job creation. With this in mind, the Commission recommends investing in infrastructures, creating attractive conditions for businesses and their staff and putting in place risk prevention measures. In addition, the EU’s Kyoto commitments must be taken into account.

Thirdly, traditional energy dependency must be reduced through improvements in energy efficiency and use of renewable energies.

Knowledge and innovation

The aims of growth and job creation will require a structural shift in the economy towards knowledge-based activities. To achieve this, it will be necessary to:

  • increase and improve investment in research and technological development (RTD), especially in the private sector (including through public-private partnerships (PPPs), small and medium-sized enterprises (SMEs) and cooperation among companies);
  • facilitate innovation and encourage the creation of companies with the objective of promoting a climate which promotes the production, dissemination and use of new knowledge (entrepreneurship);
  • promote the information society and the dissemination of information and communication technology (ICT) equipment to companies and households; and
  • improve access to finance by creating financial engineering mechanisms, while supporting financial instruments other than subsidies.

Jobs

To create more and better jobs, cohesion policy must aim to address the challenges highlighted in the European employment strategy. In particular, more people must be attracted into and retained in employment through the modernisation of social protection systems.

In addition, worker adaptability and labour market flexibility must be increased by investing in human capital through improvements in education and skills. In line with these priorities, the administrative capacity of public administrations and services must be increased and a healthy labour force maintained.

Territorial cohesion and cooperation

Cohesion policy must be adapted to the particular needs and characteristics of individual regions in terms of the problems and opportunities which derive from their geographical situation. The territorial dimension includes the following themes:

  • the contribution of cities (urban areas) to growth and jobs (in order to promote entrepreneurship, local employment and community development, for example);
  • supporting the economic diversification of rural areas (e.g. the synergy between structural, employment and rural development policies); and
  • cross-border, transnational and interregional cooperation focused on the aims of growth and job creation.

Related Acts

Communication from the Commission of 5 July 2005 – Cohesion Policy in Support of Growth and Jobs – Community Strategic Guidelines, 2007-2013. [COM(2005) 299 final – Not published in the Official Journal].

LISBON STRATEGY

Communication from the Commision of 12 December 2006 to the spring European Council implementing the renewed Lisbon Strategy for growth and jobs – A year of delivery. [COM(2006) 816 final – Not published in the Official Journal (only available in EN).

Communication from the Commission – Economic reforms and competitiveness: key messages from the European Competitiveness Report 2006 [COM(2006) 697 final – Not published in the Official Journal].

Communication from the Commission to the European Council (Informal meeting in Lahti – Finland, 20 October 2006) an innovation-friendly, modern Europe [COM(2006) 589 final – Not published in the Official Journal].

Communication from the Commission to the Council and the European Parliament – Common Actions for Growth and Employment: The Community Lisbon Programme [COM(2006) 30 final – Not published in the Official Journal].

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions – European values in the globalised world – Contribution of the Commission to the October Meeting of Heads of State and Government [COM(2005) 525 – Not published in the Official Journal].

Communication from the Commission to the Council and the European Parliament – Common Actions for Growth and Employment: The Community Lisbon Programme [COM(2005) 330 final – Not published in the Official Journal].

Towards a single currency: a brief history of EMU

Towards a single currency: a brief history of EMU

Outline of the Community (European Union) legislation about Towards a single currency: a brief history of EMU

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Practical aspects of introducing the euro

Towards a single currency: a brief history of EMU

The first appeal for a European currency prior to the 1929 crash

On 9 September 1929 the German politician Gustav Stresemann asked the League of Nations the following question “Where are the European currency and the European stamp that we need?” Six weeks later, on 25 October, the New York Stock Exchange experienced its “Black Friday”: the international economic crisis began. It caused enormous economic upheaval internationally, business closures and an unprecedented level of unemployment.

The States responded to the crisis with a policy of “beggar-thy-neighbour”, taking deflationary measures to boost export competitiveness and introducing tariff barriers for products imported from abroad. This policy made the economic crisis worse. While in the short term it was beneficial to the State concerned, in the long term it had serious economic consequences: inflation, falling demand, rising unemployment and slower growth in world trade.

The end of the Second World War: a new start

In 1944, while the Second World War was still laying waste to Europe, a conference on the restructuring of international financial and monetary relations took place at Bretton Woods in the United States. Over forty countries participated: on 22 July 1944 they signed the Bretton Woods Agreements. These agreements lay down rules and procedures governing the world economy. They led to the establishment of the International Bank for Reconstruction and Development (“BIRD”, which has now become part of the World Bank) and the International Monetary Fund. Furthermore, the Bretton Woods Agreements put in place the gold standard monetary system. This system provides stable exchange rates based on gold which becomes the reference standard. Only the US dollar is convertible into gold and the other currencies are indexed to the dollar.

The world underwent profound changes after the Second World War. The experiences of war gave rise to an awareness that international cooperation was crucial to avert further suffering. The United Nations (UN) was thus set up in 1945. In Europe, the first foundations for what would later become the European Union were laid by three Treaties bringing together six signatory States (Germany, Belgium, France, Italy, Luxembourg and the Netherlands):

  • the Treaty establishing the European Coal and Steel Community (ECSC), signed on 18 April 1951;
  • the Rome Treaties, i.e. the Treaty establishing the European Economic Community (EEC) and the Treaty establishing the European Atomic Energy Community (EURATOM), signed in March 1957.

Creation of Economic and Monetary Union

At the summit in The Hague in December 1969, the Heads of State and Government defined a new objective of European integration: Economic and Monetary Union (EMU). A high-level group chaired by Pierre Werner, Prime Minister of Luxembourg, was thus given the task of drawing up a report on how this goal might be reached by 1980.

The Werner group submitted its final report in October 1970. It envisaged the achievement of full economic and monetary union within ten years according to a plan in several stages. The ultimate goal was to achieve full liberalisation of capital movements, the total convertibility of Member States’ currencies and the irrevocable fixing of exchange rates. The report therefore envisaged the adoption of a single European currency as a possible objective of the process, but did not yet regard it as a goal in itself. Furthermore, the report recommended that the coordination of economic policies be strengthened and guidelines for national budgetary policies drawn up.

In March 1971, although being unable to agree on some of the key recommendations of the report, the Six gave their approval in principle to the introduction of EMU in several stages. The first stage, involving the narrowing of currency fluctuation margins, was launched on an experimental basis and did not entail any commitment regarding the continuation of the process.

The collapse of the Bretton Woods system and the decision of the US Government to float the dollar in August 1971 produced a wave of instability on foreign exchanges which called into serious question the parities between the European currencies. The EMU project was brought to an abrupt halt.

In March 1972 the Six attempted to impart fresh momentum to monetary integration by creating the “snake in the tunnel“: a mechanism for the managed floating of currencies (the “snake”) within narrow margins of fluctuation against the dollar (the “tunnel”). Thrown off course by the oil crises, the weakness of the dollar and the differences in economic policy, the “snake” lost most of its members in less than two years and was finally reduced to a “mark” area comprising Germany, the Benelux countries and Denmark.

Creation of the European Monetary System (EMS)

Efforts to establish an area of monetary stability were renewed in March 1979, at the instigation of France and Germany, with the creation of the European Monetary System (EMS), based on the concept of fixed, but adjustable exchange rates. The currencies of all the Member States, except the United Kingdom, participated in the exchange-rate mechanism.

The principle was as follows: exchange rates were based on central rates against the ecu (“European Currency Unit”), the European unit of account, which was a weighted average of the participating currencies. A grid of bilateral rates was calculated on the basis of these central rates expressed in ecus, and currency fluctuations had to be contained within a margin of 2.25 % either side of the bilateral rates (with the exception of the Italian lira, which was allowed a margin of 6 %).

Over a ten-year period, the EMS did much to reduce exchange-rate variability: the flexibility of the system combined with the political resolve to bring about economic convergence, achieved sustainable currency stability.

With the adoption of the Single Market Programme in 1985, it became increasingly clear that the potential of the internal market could not be fully exploited as long as relatively high transaction costs linked to currency conversion and the uncertainties linked to exchange-rate fluctuations, however small, persisted. Moreover, many economists denounced what they called the “impossible triangle”: free movement of capital, exchange-rate stability and independent monetary policies were incompatible in the long term.

Introduction of the EMU

In June 1988 the Hanover European Council set up a committee to study economic and monetary union under the chairmanship of Jacques Delors, the then President of the European Commission. The other members of the committee were the governors of the national central banks, who were therefore closely involved in drawing up the proposals.

The committee’s report, submitted in April 1989, proposed to strengthen the introduction of the EMU in three stages. In particular, it stressed the need for better coordination of economic policies, rules covering national budget deficits, and a new, completely independent institution which would be responsible for the Union’s monetary policy: the European Central Bank (ECB).

On the basis of the Delors report, the Madrid European Council decided in June 1989 to launch the first stage of EMU: full liberalisation of capital movements by 1 July 1990.

In December 1989 the Strasbourg European Council called for an intergovernmental conference that would identify what amendments needed to be made to the Treaty in order to achieve the EMU. The work of this intergovernmental conference led to the Treaty on European Union, which was formally adopted by the Heads of State and Government at the Maastricht European Council in December 1991 and signed on 7 February 1992.

The Treaty provides for the EMU to be introduced in three stages:

  • stage No 1: (from 1 July 1990 to 31 December 1993): the free movement of capital between Member States;
  • stage No 2: (from 1 January 1994 to 31 December 1998): convergence of Member States’ economic policies and strengthening of cooperation between Member States’ national central banks. The coordination of monetary policies was institutionalised by the establishment of the European Monetary Institute (EMI), whose task was to strengthen cooperation between the national central banks and to carry out the necessary preparations for the introduction of the single currency. The national central banks were to become independent during this stage;
  • stage No 3: (underway since 1 January 1999): the gradual introduction of the euro as the single currency of the Member States and the implementation of a common monetary policy under the aegis of the ECB. Transition to the third stage was subject to the achievement of a high degree of durable convergence measured against a number of criteria laid down by the Treaties. The budgetary rules were to become binding and a Member State not complying with them was likely to face penalties. A single monetary policy was introduced and entrusted to the European System of Central Banks (ESCB), made up of the national central banks and the ECB.

The first two stages of EMU have been completed. The third stage is currently underway. In principle, all EU Member States must join this final stage and therefore adopt the euro (Article 119 of the Treaty on the Functioning of the EU). However, some Member States have not yet fulfilled the convergence criteria. These Member States therefore benefit from a provisional derogation until they are able to join the third stage of EMU.

Furthermore, the United Kingdom and Denmark gave notification of their intention not to participate in the 3rd stage of EMU and therefore not to adopt the euro. These two States therefore have an exemption with regard to their participation in EMU. The exemption arrangements are detailed in the protocols relating to these two countries annexed to the founding Treaties of the EU. However, the United Kingdom and Denmark reserve the option to end their exemption and submit applications to join the 3rd phase of EMU.

Currently, 17 of the 27 Member States have joined the third stage of EMU and therefore have the euro as a single currency.

2009 Annual Statement on the Euro Area

2009 Annual Statement on the Euro Area

Outline of the Community (European Union) legislation about 2009 Annual Statement on the Euro Area

Topics

These categories group together and put in context the legislative and non-legislative initiatives which deal with the same topic.

Economic and monetary affairs > Stability and growth pact and economic policy coordination

2009 Annual Statement on the Euro Area

Document or Iniciative

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee, the Committee of the Regions and the European Central Bank of 7 October 2009 – Annual Statement on the Euro Area 2009 [COM(2009) 527 final – Not published in the Official Journal].

Summary

Following the economic crisis which began in summer 2007 and peaked in 2008, signs of stability are beginning to emerge in the financial system. Throughout the crisis, the euro has effectively protected the euro area from turbulent exchange and interest rate movements that have previously been so detrimental for European Union (EU) countries in times of financial market stress. The ability of the euro area to act quickly and coordinate with central banks has helped to stabilise the whole international monetary system.

The financial crisis has demonstrated benefits of euro membership, increasing its attractiveness for non-euro area EU countries. Benefits include domestic institutions being granted access to euro central bank liquidity.

However the euro is not able to shield the euro area from all economic problems – in particular those related to imbalances. The crisis emphasised certain weaknesses within the euro area. Imbalances within the euro area meant that some economies were left more exposed to the crisis than others. Prior to the crisis many euro area countries ignored the risk of imbalances, but the financial crisis has demonstrated the need for change.

The euro area’s response to the crisis

There was a lack of satisfactory supervisory arrangements, which failed to act quickly and provide a coordinated response when the crisis began. Initial responses tended to be primarily defined by euro area countries’ individual domestic considerations. In October 2008, the first Eurogroup summit helped to generate an EU-level response, whereby the Commission provided a common strategy for the implementation of national banking rescue plans.

The Commission has since presented its formal legal proposals for a new framework of European financial supervision. The objective of these proposals is to heighten the prudential supervision of individual financial institutions as well as the financial system as a whole.

Alongside the internal policies, the EU is also at the head of the regulatory reform of financial markets, helping to form and develop the initiatives and commitments of the G20.

Fiscal consolidation within the euro area, in accordance with the Stability and Growth Pact, meant that most countries were better able to deal with the crisis than before. However, fiscal consolidation was unfinished in some euro area member countries, where levels of public debt remained high and public finances become dependant on fiscal revenues. As a result, some euro area countries were unable to adequately contribute to the joint fiscal stimulus that the European Economic Recovery Plan set out.

As a result of their close economic and financial relationship with a common currency and single monetary policy, coordination is essential for countries in the euro area. The euro area’s response to the crisis could have been quicker and more effective if coordination between the member countries had been more efficient.

The way forward – a broader macroeconomic surveillance

The crisis has demonstrated the need for euro area member countries to progress on and apply the EMU@10 reform agenda. In this communication of 7 May 2008 the Commission proposed a reform policy agenda to improve the functioning of the Economic and Monetary Union (EMU) against the fast-changing global environment, ageing populations and increasing energy and climate change concerns. The external policy area of the reform agenda proposed that the euro area should play a prominent role in global economic governance.

Imbalances within the euro area were not dealt with prior to the financial crisis. A broader surveillance is therefore required to establish a coordinated policy response. This broader surveillance should include financial market developments. Too much debt in the private sector resulted in unsustainable economic trends. Such financial imbalances need to be discovered and treated earlier.

The surveillance must be broadened to ensure sustainable public finances. Low growth together with an increasing debt puts public finances in a precarious position at a time when the impact of ageing is beginning to emerge. A concrete strategic commitment is required to achieve a strengthened fiscal cooperation, which adequately balances concerns of stabilisation and sustainability in accordance with the Stability and Growth Pact.

Coordination across policies and euro area countries must be improved to allow judicious exit strategies. Such coordination must consist of common understandings on the appropriate timing, pace and sequencing of normalisation of policy settings.

The Community Lisbon Programme

The Community Lisbon Programme

Outline of the Community (European Union) legislation about The Community Lisbon Programme

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Regional policy > Review and the future of regional policy

The Community Lisbon Programme

In July 2005 the Commission proposed establishing a Community Lisbon Programme in response to the social, economic and environmental challenges facing the European Union. The programme contains three objectives and eight key actions.

Document or Iniciative

Communication from the Commission to the Council and the European Parliament of 20 July 2005 – Common Actions for Growth and Employment: The Community Lisbon Programme [COM(2005) 330 final – Not published in the Official Journal].

Summary

At present, Europe needs to turn the challenges it is facing (ageing populations, increasing global competition, technological change, environmental pressures) into new opportunities.

Europe’s economy needs to be modernised and lasting solutions proposed, against a background of sound macroeconomic policies to secure the European social model.

The European Council invited the Commission to present, as a counterpart to the national programmes, a “Community Lisbon Programme” covering all actions at Community level. The policy measures proposed under this programme fall under three main areas:

  • supporting knowledge and innovation;
  • making Europe a more attractive place to invest and work;
  • creating more and better jobs.

The Commission proposes that these objectives be included within the Structural Fund and Cohesion Fund programmes. The new Rural Development Fund is a good example, as it focuses on investment in people, innovation, know-how, take-up of information technologies in rural areas and rural diversification.

The European Investment Bank (EIB) and the European Investment Fund also contribute funding to Community Lisbon Programme initiatives.

Supporting knowledge and innovation

Investment needs to be higher (the target is 3% of gross domestic product) and more efficient (pooling of resources) in order to stimulate competitive European research. This is essentially the responsibility of the Member States.

The Commission also supports knowledge and innovation in Europe via financing instruments and effective regulation. For the period 2007-2013 there are two major financing instruments at Community level:

  • support for innovative initiatives for the European economy. The programme proposes in particular strategic public/private partnerships in fields of major interest for competitiveness. It also helps small and medium-sized enterprises (SMEs) to benefit from research;
  • the Competitiveness and Innovation Framework Programme will promote the use of ICTs and environmental technologies in businesses.

Other financial instruments are as follows:

  • the Trans-European Network budget lines support the practical application of RTD knowledge programmes. This knowledge may be applied to industrial projects designed to reduce congestion in transport;
  • the Environmental Technologies Action Plan is designed to promote the development and application of such technologies, which have significant economic and environmental potential. The Structural Funds and the EIB support the Action Plan.

The Agreement on the Community Patent remains a vital element in promoting a knowledge-driven, innovative economy. The Community will support efforts to maintain a strong industrial capacity where the Member States alone cannot successfully address research, regulatory and financing challenges at European level.

The Commission proposes simplifying the administrative framework for State aid and targeting this State aid towards knowledge and innovation, training, mobility and clustering. The new regulatory framework will facilitate the granting of State aid to SMEs and to young and innovative companies, not only through direct financial support, but also by facilitating access to risk capital funding. The new rules will ensure that State aid is granted only where spillovers for society are significant and competitive conditions are not distorted.

Making Europe a more attractive place to invest and work

To facilitate market access it is important to improve the regulatory environment and to complete the internal market.

Improving the quality of legislation can create the right incentives for business, cutting costs and removing obstacles to adaptation and innovation. Taking account of SMEs’ concerns, the Commission will continue its work on:

  • assessing the impact of all new policy initiatives;
  • thorough screening of proposals which have been pending for some time before the Council/Parliament;
  • simplification of existing legislation by means of sectoral action plans.

The internal market for services must be made fully operational, while preserving the European social model. Given the current importance of the services sector in terms of job creation and added value in the EU, adoption of the Services Directive could lead to an increase in the employment rate and in the EU’s gross domestic product.

The Commission also intends to:

  • publish guidelines in order to promote effective and high-quality Services of General Economic Interest (following up on its White Paper on this subject);
  • target the financial assistance available towards projects related to the development of the trans-European transport network;
  • coordinate 45 “quick-start” cross-border projects for transport, energy and broadband networks, R&D and innovation, provided that the Member States embark upon a planning and financing process;
  • try to achieve an agreement on a common corporate tax base for businesses operating in several Member States with different tax rules.

The full integration of financial markets may facilitate more efficient capital distribution. The rules are in place, but the barriers to market entry now need to be removed.

To ensure that markets are competitive both within and outside Europe, the Commission recently embarked upon its agenda for external competitiveness. This agenda comprises initiatives relating to market access, European policy towards China, public procurement, trade defence instruments, greater recognition of intellectual property rights and a new generation of bilateral trade relations. It highlights the European Union’s commitment to the World Trade Organisation.

Creating more and better jobs

The Commission supports Member States’ efforts in the areas of human capital, education and vocational training, for example by means of:

  • the European Youth Pact;
  • the ‘Education and Training 2010’ Programme;
  • the Lifelong Learning Programme;
  • the establishment of a European Institute of Technology;
  • assisting Member States in the development of active ageing strategies.

The Commission will also complement the efforts of the Member States to achieve the objectives at the core of the Social Agenda. To this end, it calls on the European social partners to play a leading role.

To create a truly pan-European labour market, it is necessary to eliminate obstacles to mobility. The Commission will propose a European Qualifications Framework, creating the conditions for transparency and mutual trust.

The Commission will work towards a common framework for managing economic migration, comprising accelerated admission procedures for long-term stays of third-country researchers and the facilitation of short-stay visas.

Restructuring is an inevitable consequence of economic progress and market integration. However, it may have a destabilising effect on the people concerned. The Commission wants to establish a new fund to help the people and regions most adversely affected by the restructuring to cope with the changes. It will also follow up on its Communication on restructuring and employment.

Background

The Community Lisbon Programme is the Community’s contribution to the partnership for growth and employment, which was established by the renewed Lisbon strategy. The idea of the partnership is to create synergies between Community and national decision-making levels with a view to increased, stable growth and more and better jobs.

Like the Member States’ reform programmes, the Community Programme is thus in line with the Integrated Guidelines for Growth and Jobs, set out by the Council in June 2005. However, it concerns mainly measures with clear added value, complementing national measures.

A report (EN) (pdf ) on progress in implementing the Community Lisbon Programme was presented on 23 October 2006.

Every year the Commission carries out a review of the Lisbon Strategy in an annual activity report, which covers the implementation of the partnership for growth and employment at Community and national levels.

Related Acts

Council Decision 2006/702/EC of 6 October 2006 on Community strategic guidelines on cohesion [Official Journal L 291 of 21.10.2006].

The draft Community strategic guidelines for cohesion, growth and employment were adopted by the Council on 6 October 2006. These strategic guidelines provide the indicative framework for implementation of the cohesion policy and assistance from the Funds during the period 2007-2013.

Council Decision 2006/144/EC of 20 February 2006 on Community strategic guidelines for rural development (programming period 2007 to 2013) [Official Journal L 55 of 25.2.2006].

Reports

Communication from the Commission to the European Council of 11 December 2007 ‘Strategic Report on the renewed Lisbon strategy for growth and jobs: launching the new cycle (2008-2010), Part I [COM(2007) 803 final – Not published in the Official Journal].

Based on the results of the first cycle of reforms under the renewed Lisbon strategy for growth and jobs, the Commission is presenting a series of actions with a view to launching the second cycle (2008-2010) and achieving the strategy’s objectives. To this end, various measures to be implemented in partnership between the Community and the Member States are envisaged in four priority areas: investing in knowledge and innovation; unlocking the business potential, especially of SMEs; investing in people and modernising labour markets; and transforming Europe into a low carbon and energy-efficient economy

Communication from the Commission of 12 December 2006 to the Spring European Council – “
A year of delivery
” – Part I: Implementing the renewed Lisbon strategy for growth and jobs [COM(2006) 816 final – Not published in the Official Journal].

In the run-up to the launch in 2008 of the second cycle of the strategy for growth and jobs, the Commission reviews the implementation of the strategy, giving an overview of the progress made at Community level and in each Member State. This Communication evaluates macroeconomic, microeconomic and employment policies. The Commission reviews the implementation of the NRPs and calls on all Member States to step up their efforts with regard to the four priorities: investment in knowledge and innovation; business potential (especially of SMEs); the modernisation of labour markets; energy and climate change. Overall, Member States’ progress has been promising. However, in the Commission’s view many Member States could take stronger action in areas such as long-term sustainability of public finances, labour market reform, R&D, climate and energy policies, innovation and competition.

Communication from the Commission of 25 January 2006 to the Spring European Council – “
Time to move up a gear
” – Part I: The new partnership for growth and jobs [COM(2006) 30 final – Not published in the Official Journal].