09/02/2012 The European Parliaments contribution to looking at 2012 growth
In November 2011 the European Commission presented its annual examination of growth (EAC) for the year 2012, the start of the second European semester on economic governance. This list of suggestions to the European executive looks to stimulate growth and competitivity in the European Union. Jean-Paul Gauzès (EPP-France) is the European Union’s rapporteur on this issue. He welcomes the resolutions in the suggestions, and what they propose for the European Union.
The ‘European semester’, a new coordination tool for economic and budgetary policy
Calls for the reinforcement of economic governance have gradually multiplied as the consequences of the economic crisis are becoming apparent. In this context the Commission suggested, in May and June of 2010, the implementation of a ‘European semester’. The process, which consists of coordinating economic and budgetary policies before they come into force in the Euro zone, in line with the growth and stability pact and then Europe 202 strategy, which was launched on 12 January 2011 with Commission’s presentation of its ‘annual examination of growth’ (EAC). The 2012 budget was the first to be adopted under the European semester.
When the EAC is published in January, and after the European Parliament and the council of ministers have debated it, the Spring European Council is an opportunity for the Member states to formulate the main strategies on the policies to come. In April, the countries must communicate their mid-term budgetary strategies and their national programs for reform, indicating measure that they will take to strengthen their policies in areas such as employment, research, energy, innovation or social inclusion.
Based on this information the Council will formulate specific strategies for each member state in June.
EAC 2012 and new economic governance of the EU.
In EAC 2012, the beginning of the second European semester on economic governance, the European Commission announced a series of priority policies that should help member countries to stimulate growth during 2012. EAC 2012 was presented on 23 November 2011 instead of January 2012 so as to allow member states and institutions time to examine it.
The Commission hopes to intensify its activity and deal with the three main challenges that the EU and the Euro zone faces:
- general weak performance (with some exceptions) of growth and employment
- lack of coordination and discipline in budgetary policies
- instability of sovereign debt markets due to a lack of liquidity
One of the criticisms of the Commission of member states is that they have not worked enough to transpose measures to ensure their commitments to the EU.
In addition to the EAC 2012, the president José Manuel Barroso and the vice president Olli Rehn have presented a bundle of rapports and measures in the context of the crisis:
- The regulations strengthening the monitoring of countries experiencing serious financial instability, or threatened with same.
In its autumn forecast, the European Commission has states that the EU and particularly the Euro zone, will go through a period of stagnation in terms of growth (growth in the UE will not be more than 0,6% in 2012) and so there will be high unemployment as well as a sovereign debt crisis.
The Commission encourages member states to focus on the following five priorities:
- follow the budget stabilizing strategy that will encourage growth
- pursue normal activities in financing the economy
- promote growth and competitivity
- fight against unemployment and the social consequences of the crisis
- modernise public administration.
The need for the swift implementations of measures to create growth
In this proposed resolution on the contribution to the EAC 2012, the rapporteur Jean-Paul Gauzès (EPP-France) approves in the general spirit of the EAC 2012 as it is presented by the European Commission.
However, he condemns the disparities in the implementation in the member states that damage the measure’s potential effectiveness. He highlights the fact that the EAC 2012 contains measures to re-establish confidence, strengthen competitivity and ensure growth.
But despite the urgency of the situation, the progress in terms of the implementation of EAC 2011 by member states has been less than expected. According to the Commission, there does not yet seem to be, at a national level, full commitment to the radical changes that were decided on with regard to economic governance. This is why, in addition to measures to stimulate growth, the EAC 2012 highlights the need for the implementation of appropriate measures in the EU.
The rapporteur thinks that, in addition to short term measures to deal with the financial crisis, the European Union needs mid and long term policies to re-examine the general economic situation and ways to improve growth.
Jean-Paul Gauzès also reiterates the need for EU member states to refer to the EAC when establishing key actions. This common basis should also be reflected in the EU’s recommendations to each country.
The interdependence of member state’s economic policies
Being aware of this state of affairs, Jean-Paul Gauzès encourages all member states to quickly implement measures to correct excessive public deficit. The situation in member countries differs drastically, and he states that it may be best to carry out different strategies, depending of the budgetary situation of each country.
The Commission sees three categories of member state and so three kinds of approach:
- States that are receiving financial assistance. They must ensure that they attain budgetary objectives on which they have based agreements, even if macroeconomic situations change;
- States that have an excessive or high deficit must redouble their efforts to consolidate and avoid delays:
- States that do not have excessive deficit and are nearly achieving their mid term goals can use their budgets as they wish provided that they do not damage their financial sustainability.
To find out more: Comparison of VAT rates in the EU – Touteleurope.eu
According to the rapporteur, investments must be carried out mainly in sectors that are favourable to growth, and especially in the areas of education, research, innovation, infrastructure of energy. He also encourages the modernisation of the pension systems, following up on the idea of creating a balance between the age of retirement and life expectancy. Better fiscal coordination must occur in the UE in order to avoid fiscal distortions, especially with regard to VAT (exemptions, reduced rates).
Re-establish investor confidence
In his draft resolution, Jean-Paul Gauzès says that a health banking system would be able to support growth in the EU, but as the excesses of the banking system has upset investor confidence it must be restored. This would involve a reinforcing of bank’s capital, as well as measures to facilitate access to finance.
In more general terms, he feels it necessary to revise regulation to better monitor the financial sector. According to the rapporteur, the banks should not be restricting loans to the real economy.
The role of structural reform in boosting productivity
The cohesion fund for 2007-2013 has gone up to 347 billion Euros, 82 of which has yet to be allocated. The Commission has recommended that it is invested in sectors that have a potential for creating growth, like services, industry, transport, energy and the public sector.
In his proposition, Jean-Paul Gauzès explains that eh structural reforms could initially compensate for delays in terms of the competitivity of certain member states, due to pressure from the markets. The rapporteur is concerned that in the coming years 90% of global growth will come from outside of the EU.
With regard to the jobs market, the structural reforms will look to reduce imbalances between the supply and demand of manpower, an obstacle in creating long term growth. The crisis is the cause if a lot of job losses in the EU, which currently has 23 million unemployed. Working conditions are worsening, especially due to changes and restructuring. 40% of young people work on a contract basis and 14,4% leave school without training.
To find out more: Comparison on youth unemployment rates in Europe - Touteleurope.eu
The rapporteur highlighted the need to include the social partners in the negotiations, and to look at the mechanism for fixing salaries so as to ensure that they reflect the real jobs market. This condition would facilitate people getting back to work and mobility of manpower, would prolong the duration of jobs, promote the creation of mini-companies and self employment, develop the green economy, health and also the digital economy.
The issue of youth employment is also brought up in EAC2012, which recommends more training and cooperation with the private sector, which needs to get involved so as to train apprentices.
Improve the quality of public administration
An improvement must occur on a European and a national, regional and local level. Jean-Paul Gauzès has stated that greater efficiency in public services and greater transparency and in the quality of public administration would contribute to greater competitivity in the EU. Also, there must be a reduction in cost and in paperwork.
The Commission recommends facilitating the creation of new companies by reducing the time it takes to create one to 3 days, or to ensure digital communication between administration agencies, as with citizens, to ensure that they are more transparent, efficient and favourable to SMEs.
The legitimacy of the Parliaments contribution to EAC
Jean-Paul Gauzès reiterated that the European Parliament must subscribe to the European semester, so as to ensure transparency and responsibility for decisions, especially through economic dialogue. He denounces the way in which the Parliament’s role in creating economic policies is not formally outlined in treaties.
According to Pervenche Berès (S&D - France) the EAC is in fact an economic policy document and should be reclassified as such. The euro-deputy thinks that the commission, is classifying the document as ‘a founding document’ on economic policy, has shown the need for the European parliament to be involved in its creation. This would be legitimate if the European parliament cooperated with national parliaments.