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Member of the European Commission Responsible for Economic and Monetary Affairs Avrupa Komisyonu Ekonomi ve Mali İşlerden Sorumlu Komiseri Economic Policy Coordination : The Way Forward I n the three years of its existence, the Forum has quickly developed into one of the most important European meeting places for leading academics and policy makers in the economic field. This is confirmed by the list of participants. I really think the Forum should be the place for open public debate on EU economic policies and I am sure it is increasingly becoming so. This two days exchange of views contributes to improving economic and financial policy making in the EU. This year's special topics are on enlargement and financial markets. Enlargement represents currently, without doubt, the key political and economic challenge for the EU. The economic and financial structure of most of the candidate countries still differs strongly from the EU's average. A smooth convergence path is a major challenge. Financial markets play an important role to this respect, as an efficient channelling of savings and investment improves resource allocation and raises potential growth, both in current and future Member States. I will present my ideas on the EU's policy coordination framework and its functioning. Ensuring a smoothly functioning framework is key for EMU and even more in view of the upcoming enlargement of the EU. The way forward for EU economic governance will also strongly be affected by the outcome of the European Convention. The Convention contemplates on the future of the whole European Union project. It looks at the balance of powers and responsibilities between Member States and the Community, and on the shaping of its Institutions accordingly. I would like to share some of my thoughts regarding the working of the current key economic policy coordination instruments and how to improve the effectiveness of coordination. In this context, I would also like to share some of my ideas on how to move further, ideas that would need probably to be taken up in the context of the Convention. Recent experiences with the coordination instruments This year's Guidelines represent already the 10th vintage. In the beginning the BEPGs were essentially confined to macroeconomic policies with the achievement of the convergence criteria being a primary preoccupation. However, the policy scope has widened over time and structural reform issues have become a central part of it. The BEPGs are not backed up by strong enforcement mechanisms. Instead, they rely on persuasion and peer pressure. Moreover, to step up pressure, the Commission can submit to the Council a recommendation to non-compliant Member States. The Council would then decide to issue such a recommendation and, if deemed necessary, make it public. This option was used for the first time in February 2001, when the Ecofin issued a formal recommendation to Ireland. The expansive fiscal policy foreseen for 2001 was deemed incompatible with the 2000 BEPGs. Since 2000, the Commission provides an additional instrument to improve the effectiveness of the BEPGs, as it introduced an annual Implementation Report. The goal was to follow up on the annual BEPGs and assess the degree of compliance of the Member States with the recommendations. This 'praising and shaming' exercise should have further stepped up pressure among Member States to push ahead with reforms. However, there is a tendency to avoid confronting the facts. For instance, the importance given by all the involved institutions to discussing the Implementation Report is still a fraction of that devoted to the new Recommendations. To improve the effectiveness of coordination, increased attention to the implementation of the recommendations in the context of the BEPGs is key. The BEPGs' general policy orientations are complemented by more specialised procedures. In the context of budgetary policy, the Stability and Growth Pact requires budgetary discipline in the eurozone. To this end it urges Member States to reach medium term budget positions close to balance or in surplus and confirms the 3% of GDP reference value set out by the Treaty. So far, the Pact has worked well. Most countries achieved a close-to-balance or surplus position in 2000, which allowed the automatic stabilisers to work in the recent downturn. However, we still have important challenges are in front of us. First, some countries have still in excess of the SGP medium-term target. This is the case for Germany, France, Italy and Portugal. The efforts that have been delayed in recent years must now be made to fully benefit from EMU's budgetary framework. Second, two of these countries, Germany and Portugal, raised particular concerns regarding their current budget position, as their deficits got close to 3%. Against this background, you all know that the Commission recommended to the Council to issue an early warning to these two countries. Although the Council did not endorse this proposal, I do think that the compromise reached in February has contributed to strengthening the credibility of the SGP. First, the medium-term orientation of fiscal policy towards prudence and discipline was confirmed. This is because the German and Portuguese governments gave firm political commitments that the 3% of GDP reference value for deficits would be respected. Moreover, both governments committed themselves to reach a budget position close to balance by 2004, and accepted that this may require additional discretionary measures once economic recovery is established. By doing so, the German and Portuguese authorities have adequately responded to the substantive concerns raised by the Commission when issuing its Recommendation for an early warning. The Commission will closely monitor the implementation of the German and Portuguese commitments. Together with the increased peer pressure exerted by other euro-area Member States, this will help Germany and Portugal to fulfil their budgetary objectives. Second, the Council has explicitly recognised that the Commission had acted in accordance with its responsibilities and with the provisions of the SGP, and re-affirmed that the early warning system remains an important element in the preventive part of the Pact. We can therefore be confident that this procedure will be applied again when and if necessary. The way forward: progress underway or foreseen The co-ordination framework, as laid down in the Treaty and secondary legislation, has functioned successfully during the early years of EMU. Still, it has always been recognised that the tools for economic policy coordination would need to be developed on the basis of experiences. The process of learning-by-doing reveals unfinished business and possible improvements of the coordination framework. Moreover, the continuing deepening economic integration needs to be accompanied by strengthening coordination. In February of last year, the Commission issued a Communication on strengthening economic policy coordination. Since then, a significant number of small and more important changes have been implemented, or are being developed. Two that have already been introduced, namely: enhancing the effectiveness of the stability and convergence programmes assessing on a regular basis the policy mix of the euro area and two others that are currently being dealt with: improving transparency and predictability of economic policies streamlining of the coordination procedures and instruments The surveillance process of the Pact has been improved with the adoption last July of a new 'Code of Conduct on the content and format of stability and convergence programmes'. It harmonises the content, data and time of submission of the programmes. In addition, it extends their coverage to longer-term issues such as the budgetary consequences of ageing. Finally, it clarifies the methodology for the assessment of the budgetary positions with increasing focus given to the analysis of cyclically-adjusted budgets. Member States applied to a large extent the Code for the recently updated programmes. This has allowed to improve the Commissions assessment and enhance the comparability of the programmes. Concerning the policy mix, since last year, the Eurogroup regularly assesses the policy mix of the euro area as a whole. The Barcelona Council has reiterated the need to make further progress in order to assess the consistency of monetary and fiscal policy with respect to economic developments. In March of this year, the Commission has started to publish quarterly reviews of the economic situation in the euro area. Moreover, currently, the Commission is working on a set of common standards that define general principles that guide economic policy decisions. The standards will improve the credibility and the transparency of the economic policies in the Member States and the euro area. The set of common standards will to use the language of economists make explicit the reaction function of the various actors in the EMU game. Indeed, for the framework to function effectively, it is essential, that each player (be it national governments or the ECB) can anticipate the behaviour of all the other players under the various circumstances. The standards are designed to clarify the respective role of economic policies in: preserving macroeconomic stability and sustainability; raising the growth potential; and coping with shocks affecting either the euro area as a whole or individual Member States. They should not be seen to pursue a centralised economic governance with a uniform policy response to economic challenges. National policy should continue to have sufficient latitude to formulate and implement policies tailored to their needs, whilst taking account of the euro area dimension and their EU obligations. As I already said, they should be seen as principles that guide economic policy in the euro area. There is a growing awareness that the policy coordination cycle has become very complex and heavy. Strengthening policy coordination, therefore, also means streamlining the current framework and increasing its effectiveness. Reducing the overlap and increasing consistency between the many different procedures could be instrumental in focusing energy on improving the content of coordination. In this light, the Barcelona Council, has requested the streamlining of procedures around the BEPGs. How the system could be better organised needs still to be thought trough and we are working on it within the Commission. But I would like here to give some of my ideas: it may be considered to abandon the hitherto annual frequency of the BEPGs, while increasing the importance of the annual Implementation Report. The mostly medium term policy recommendations in the BEPGs would come out stronger. Policy consistency and continuity could be enhanced. Moreover the increased focus on implementation could further increase the effectiveness of the BEPGs. Concerning the Pact, a better integration with the national budgetary procedures, as well as incentives to ensure discipline in good times, should be envisaged. The Convention To ensure the success of EMU in the future, the way forward is to build upon and further strengthen this framework. Although the current Treaty framework provides room for important improvements, some issues, however, may require Treaty changes. The Convention provides a unique opportunity to contemplate on the future of the European Union project. Such a rethinking would be needed anyhow, but the imminence of enlargement makes this all the more urgent and compelling. The discussion on EU economic governance is an important spin-off of the larger discussion on Europe's future. The main issue to be dealt with is the shaping of the economic framework (institutions, rules, policy instruments, etc.) to durably raise living standards, improve economic and social cohesion while preserving economic stability. The Commission will soon present its first contribution to the Convention, in which economic policy coordination will also be addressed. It can be contemplated whether the Commission's role in coordination procedures and measures are adequate to guard policy consistency and coherence in coordination procedures and measures. Currently, the Council can - for instance - amend the Commission's recommendation for the BEPGs by qualified majority, in case the Commission does not agree the change. This may undermine the consistency in the policy measures, that the Commission guards. One could envisage to replace the 'recommendation right' by a 'proposal right', as it is the case in other policies of Community nature. Another issue is the role of the euro group within the EU decision making process. The experience showed the need for a body where euro area members could discuss among themselves economic policy issues relevant for the euro area. The Eurogroup was established to fulfil this role. Its informal and confidential nature has contributed to an improvement of the coordination through frank and open discussions. However, the question whether the current institutional set up remains appropriate for an EMU where a significant number of countries will not be members of the euro area for a period of time remains open. We should think about possibilities of different Council formats to respond to two objectives: to preserve the Community nature of the economic policy coordination and to respond to the different requirements of euro area/non euro area members. The need to have informal very restricted policy discussions should also be considered. Thirdly, the democratic legitimacy of the policy coordination process could be strengthened. In this light, although the European Parliament contributes to this process, the fact that it has no formal role in the coordination of economic policies, should be reconsidered. The last topic I want to address is the external representation of EMU. With regard to monetary policy, external representation is the ECB's sole responsibility. For the other economic policies, however, there is a clear need for the euro area and the Union to speak with one voice in international fora on economic and financial matters. Increased Community competence in external representation would strengthen the EU's visibility and its role as a major global player and provide continuity. These are just some of the issues that are being discussed and worked out to enhance the policy coordination framework. The Commission plays an essential role in this framework, with its objective and neutral assessment of the economic developments and policy mix in the euro area and in individual Member States, and with its often ambitious but realistic policy recommendations. I would like to conclude therefore by reassuring that the Commission is firmly determined to tackle the needs and challenges in front of us. This will be done both within the current Treaty framework and in the context of the Convention, in order to achieve better economic and social situation through a more effective economic policy coordination. PEDRO SOLBES: "EKONOMİK POLİTİKALARIN EŞGÜDÜMÜ: GELECEĞE YÖNELİK ADIMLAR" Avrupa Komisyonu Ekonomi ve Mali İşlerden Sorumlu Komiseri Pedro Solbes 2 Mayıs'ta Brüksel Ekonomi Forumu'nda bir konuşma yaptı. Bu forum, AB içindeki ekonomik gelişmelerle ilgili görüş alışverişi için çok önemli ve faydalı bir platform oluşturmaktadır. Kuruluşundan bu yana geçen üç yılda Forum, ekonomi alanında önde gelen akademisyenler ve politika oluşturucular için Avrupa çapında en önemli buluşma noktalarından biri haline gelmiştir. Bu yılın özel konuları, genişleme ve mali piyasalar olarak belirlenmiştir. Genişleme, hiç şüphesiz, AB'nin önündeki en önemli siyasi ve ekonomik hedeftir. Birçok aday ülkenin ekonomik ve mali yapısı hali hazırda AB ortalamasından uzaktır. Uyumun sorunsuz bir şekilde sağlanması en zorlu hedeftir. Bu açıdan finansal piyasaların rolü çok önemlidir; tasarruf ve yatırımların verimli bir şekilde yönlendirilmesiyle kaynak tahsisi iyileştirilir ve hem üye hem de aday devletlerde büyüme sağlanır. Avrupa Para Birliği için, iyi işleyen bir politika eşgüdüm çerçevesi esastır. AB'nin ekonomik yönetişiminin geleceği Avrupa Konvansiyonu'nun sonucuna göre şekillendirilecektir. Konvansiyon, bütün Avrupa Birliği projesinin geleceği üzerine yoğunlaşmaktadır. Burada ele alınan, üye devletler ve toplum arasındaki güç ve sorumluluklar dengesi ve kurumların bu dengeye göre geliştirilmesidir. Komisyon ise Avrupa alanındaki ve üye devletlerdeki ekonomik gelişmeleri ve politikaları tarafsız olarak değerlendirecek, mevcut Antlaşma çerçevesinde ve Konvansiyon bağlamında iddialı ancak gerçekçi politika önerilerinde bulunacaktır. |