Local view for "http://purl.org/linkedpolitics/eu/plenary/2002-05-14-Speech-2-211"
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".
Mr President, it is a great pleasure to present this third report on Public finances in EMU 2002
to Parliament. It consists of an analytical report prepared by the Directorate-General for Economic and Financial Affairs, as well as a Commission Communication that sets down the main policy conclusions.
The focus of attention in recent months on the number one issue – the early-warning mechanism – has meant that several important measures that strengthen the quality and coverage of EU budgetary surveillance have been somewhat overlooked. Three particular issues are worth stressing. First, a revised Code of Conduct on the content and presentation of stability and convergence programmes was agreed in 2001 and implemented in the current round of programmes. This has helped improve the assessment of programmes and has also enabled us to consider the aggregate impact of budgetary targets for the euro area as a whole.
Secondly, the Commission and Council have developed a common method to calculate cyclically-adjusted budget balances. The recent economic downturn and the experience with the early-warning mechanism have underlined the importance of looking at underlying budgetary positions when assessing the budgetary positions of the Member States.
Thirdly, an assessment has been made on the sustainability of public finances in light of ageing populations based on information provided in stability and convergence programmes. As requested by the Barcelona European Council, long-term sustainability will become a regular feature of budgetary surveillance at EU level.
Let me make a few comments on recent experiences of the early warning mechanism as applied in accordance with the provisions of the Pact. I have repeatedly spelt out the reasons why the Commission was compelled to initiate the procedure, and so I will not dwell on this point today. Instead, I will focus on more recent developments. As you know, the Council decided to close the early-warning procedure as both countries reiterated their willingness to implement their stability programmes in full so as to avoid a breach of the 3% of GDP reference value and to resume the process of budgetary consolidation in order to reach their medium-term targets by 2004.
There is clear evidence that the authorities are taking these commitments seriously. I am encouraged by the progress in Germany on an agreement between the Länder and the central government on the control of public finances. This agreement underlines the fact that sound public finances are the responsibility of all levels of government and not only of central government.
With regard to this first experience with the early-warning mechanism, in my view it is necessary to distinguish between the process, which was difficult, and the outcome which to date has been broadly successful. The Commission, the Council and indeed the European Parliament must take note of this first experience with the early-warning mechanism and must learn certain important lessons from it:
First of all, now that economic recovery is gathering pace, the budgetary consolidation process must start again in order to meet the 'close-to-balance' or surplus rule so that we can deal with any situations similar to those we have experienced in the past.
Secondly, we should recognise that the budgetary constraint affecting mainly the large euro area countries in 2001 and 2002 has its roots in the missed opportunities of the high-growth period 1998-2000.
Thirdly and as discussed in this report, automatic stabilisers should be the normal means for stabilising the economy, whereas discretionary policies should remain the exception. Nonetheless a clear agreement between the EMU policy actors on the criteria to assess when discretionary fiscal policies are justified would increase the transparency and predictability of budgetary behaviour.
Finally, Member States need to improve the compatibility between their national fiscal arrangements and EU budgetary commitments.
One aim of the report on Public finance in EMU
is to help ensure that the Commission continues to play a leading role in the evolving debate on budgetary policy in the Union.
I would now like to say a few words about the quality and sustainability of public finances and how we are responding to the Lisbon strategy. As regards the sustainability of public finances, good progress has been made. The Commission and the Council have assessed the sustainability of public finances based on the medium-term budgetary targets set down in stability and convergence programmes. The analysis clearly shows that on the basis of current policies, there is a risk of budgetary imbalances emerging in many Member States, and these risks multiply if countries fail to reach the medium-term targets set down in their stability and convergence programmes.
This year’s report also examines the quality of public spending. An in-depth debate at EU level on this issue has been hampered by the lack of an agreed definition on the quality of public spending. The absence of timely and comparable data specifying the purposes on which public resources are spent is also a constraint.
The report attempts to take a first step in developing the debate on the quality of public spending by focussing upon the composition of public spending, and whether it is geared towards expenditure items that contribute to meeting the objectives of the Lisbon strategy, namely raising growth and employment. This analysis suggests that most countries have been able to improve the composition of public expenditure while at the same time containing the size of the public sector during the 1990s. However, before drawing firm policy conclusions on the quality of public spending, there is a need for complementary analysis that takes into account the specific aims of spending programmes, their design and linkages with other economic policy instruments. This is what we will be setting out to do for the coming years.
The final issue addressed in this year’s report concerns the budgetary challenges facing candidate countries. Once they join the EU, the full acquis communautaire on budgetary policies will apply and they will be expected to submit convergence programmes.
It is essential when interpreting the budgetary positions of the candidate countries that adequate account is taken of their specific needs and circumstances. Budgetary surveillance will also need to take into account that the candidate countries are undergoing tremendous structural and institutional changes. Due consideration must be given to the constraints imposed by the fact that, on average, these countries are characterised by a higher degree of volatility in output levels compared with EU Member States. They are also small open economies, which rely heavily on foreign capital to finance the process of catching up.
In the run up to accession, candidate countries are not required to fulfil the Maastricht nominal convergence criteria, but rather to comply with the Copenhagen criteria. The primary concern in the pre-accession period is medium-term macroeconomic stability, rather than achieving any particular target for the budget balance. Medium-term budgetary policy should also pursue a structure of expenditure and revenues that effectively supports economic growth. Finally, the emphasis on structural and institutional reform should not hide the importance of sound fiscal policies. The candidate countries’ vulnerability to economic shocks and the external constraints they face underline their need to implement prudent policies.
It provides a detailed description of budgetary developments and prospects at Member State level and for the euro area as a whole. In addition, it provides important clarifications on the scope and methodologies used in the budgetary surveillance process at EU level: this enhances the transparency of our evaluation of Member States’ budget positions. Finally, it takes a forward looking approach by presenting an analysis of some key budgetary challenges which must be tackled at EU level in coming years.
Let me turn to the main conclusions of the report and start by making some comments on recent budgetary developments and prospects. 2001 proved to be the most challenging period for fiscal policy in the three-year history of EMU. While the budget deficit for the euro area reached 1.3% of GDP, the first increase since 1993, the framework for budgetary policy has performed reasonably well during the current slowdown.
First, Member States had scope to let the automatic stabilisers operate so as to cushion the negative shock, especially those countries which had already achieved a budget balance or surplus.
Secondly and in contrast with previous economic downturns, no country still in deficit embarked on unwarranted expansionary policies.
Thirdly, Member States have been able to continue with planned tax reforms designed to remove supply side rigidities, despite claims from different quarters that the SGP was tying the hands of the authorities through arbitrary and inflexible rules.
In brief, fiscal policies have remained broadly neutral providing a balanced policy mix which was supportive to growth while guaranteeing price stability. This broadly positive assessment needs to be balanced with the recognition that four Member States (Germany, France, Italy and Portugal) still have large deficits that do not meet the requirements of the Stability and Growth Pact.
In particular, deficits in Portugal and Germany have risen to levels approaching the 3% of GDP reference value which prompted the Commission to activate the early-warning mechanism. It is important to recognise, however, that the recent economic downturn was neither particularly severe nor long lasting. Unless all Member States reach the medium-term targets set down in their programmes, future downturns could provide a much sterner test for the EU's framework for budgetary surveillance."@en1
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