Local view for "http://purl.org/linkedpolitics/eu/plenary/2001-02-15-Speech-4-227"
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"en.20010215.11.4-227"2
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"Madam President, I should like to thank Mr von Wogau for having raised a subject I believe deserves to be debated. His approach was correct when it comes to the way in which this matter is to be reflected upon, and I shall try to follow his line of reasoning.
There is another fact I think is interesting on the subject of the broad economic guidelines we were talking about. The message is to seek or maintain a balanced budgetary policy and, if necessary, to have a somewhat more restrictive budgetary policy designed to offset any difficulties Ireland might have as a result of a monetary policy which is defined for the eurozone and is, logically enough, too expansive for Irish conditions.
If, for example, we analyse the figures which we normally use to see how economies behave and which show the main impact on the cyclically adjusted surplus, we see that, whereas in 2000 the figure was a budgetary increase of 0.4% of GDP, in 2001 the figure was 0.9%. This matter is certainly being discussed by the Irish Government and the Commission. The former believes that the figures we have calculated show an additional 0.3% increase. On the basis of the figures provided to us by the government – and this is the topic under discussion in Eurostat – we are able to arrive at somewhat different figures. That is why, in the recommendation, we effectively acknowledge this situation and refer to 0.5%.
I would turn now to a third factor. An important topic when it comes to the behaviour of economies is the way in which supply operates in relation to demand and whether the growth in demand is more rapid than existing supply. In technical terms, we measure this using what is called the potential output gap, which shows the amount by which demand is growing in excess of supply. In 2000, the potential output gap was 4.5%. In other words, Ireland was demanding 4.5% more than what it was producing. In 2001, that figure has risen to 5.4%. We are therefore talking about a very expansionist budgetary policy, at a time when the Irish Government has committed itself, in terms of the broad economic guidelines, to a budgetary policy which, in principle, ought to be more restrictive with a view to offsetting the other problems.
Let us move on to the second point which you raised and which I think is especially interesting: the fact that the Irish economy is relatively small and its impact on the eurozone minimal. That argument makes sense and might lead us – like many economists – to conclude by asking why, if we did not have any other types of commitment, we should take action over Ireland if that country does not affect monetary policy.
I also believe that, in connection with this argument, we ought to be asking ourselves two related questions. Firstly, can we treat the Member States of the European Union unequally? And should some Member States be able to do what they themselves consider appropriate while others cannot, according to whether they are smaller or larger countries? The second important point is that we could discuss whether that is the model to be applied in the future. But in any case, that is not the model we are applying today in accordance with current legislation. It is therefore absolutely vital, at least from the Commission’s point of view, that, if we are to fulfil our role as guardian of the Treaties, we should apply the Treaties in the form in which they exist at present.
On this basis, the Commission did what it considered its duty, which was to send a recommendation to the Council of Ministers in accordance with the provisions of Article 99(4). I very much emphasised the fact that, when I speak of a recommendation, I am not referring to sanctions. I appreciate that, from the media’s point of view, it is much more appealing to talk in terms of sanctions. When we speak about recommendations, we are indicating to the Irish Government that the budgetary policy it has defined is inconsistent with what they agreed and will lead to additional problems concerned with the overheating of its economy.
In the explanatory statement, we put a figure on the recommendation, saying that we considered there to be 0.5% overheating. That is something we can discuss. The figure will vary depending upon the methodologies we use. On that basis, it is obviously for the Irish Government to do what it considers appropriate.
The Commission’s position was presented to the Council of Ministers, which approved it by consensus. That is the situation in which we find ourselves at the moment and, like yourselves, I believe it must be accorded due importance because, if it is indeed an important milestone in applying our model for coordinating economic policies, we ought not to attempt to draw conclusions of a kind which the Commission never of course intended.
I shall begin at the end, with the question of why our decisions do not in any way affect transfers of resources. Why are we talking about the coordination of economic policy? We are talking neither about problems of regional policy, nor of competition, nor of taxation, nor of any other such factor.
I want to make an initial remark so that we are all familiar with, or are clear about, the model we have agreed in the Treaty of Maastricht, according to which the coordination of economic policies is based on a tool, known as the broad economic guidelines, approved each June by European Councils at the proposal of the Ministers of Finance. This is the basic document for economic policy coordination, and one with which you are very familiar because you have had occasion to discuss it more than once in the Committee on Economic and Monetary Affairs. This document includes decisions of a general kind, together with decisions aimed specifically at Member States and containing practical recommendations which – I want to emphasise – are unanimously approved by the European Council. Obviously, the document also includes the points of view of each and every one of the Member States which sign the decisions.
In order to maintain a proper balance between fiscal and monetary policies, the Stability Pact is, of course, implemented alongside the broad economic guidelines. As a result, we may sometimes have the impression that, as in the case of Ireland, actions are taken which may be difficult to reconcile with observing the criteria of the Stability Pact.
I believe it is important to say first of all that Ireland has met the requirements of the Stability Pact and continues to do so, with more than enough room to spare, and that the Irish authorities deserve every kind praise for pushing ahead with their structural reforms and running the public finances well.
It is true that the Irish economy has continued to grow very strongly in the year 2000, but also true – and we are now coming on to the first point you raised – that it is overheating. Is overheating important in terms of a balanced overall picture? I have no intention whatsoever of getting into whether each specific measure is or is not correct. Such measures are the responsibility of the Member States, and I have no objections to make. We are talking about general, overall positions.
Overheating of the Irish economy is not a new problem. It dates back to 1998 and had already been revealed in the broad economic guidelines. It was also revealed in 1999 and again in 2000.
In the year 2000 – and I am referring here to a decision adopted by the European Council, proposed by the Ministers of Finance and applicable in every Member State – it was stated that, given the further overheating of the economy, budgetary policy had to be used to ensure economic stability and that the 2001 budget ought to be managed with that in mind.
What are, so to speak, the contents of the 2001 budget? I believe that knowing this may help us to clarify two issues: what is the reason for the concern of the Commission, firstly, and of the Member States, secondly. I shall quote two facts from the 2001 budget: the fact that the current expenditure approved in the budget assumes a 1.06% increase in Irish Gross Domestic Product, and the fact that tax is to be reduced by 0.57%. As a result of these two factors, total demand is therefore being stimulated to the tune of 1.6% of Irish Gross Domestic Product."@en1
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