16. We consider that the following raises questions of political importance.
We make no recommendation for its further consideration, but suggest that it would be relevant to
any debate on the Commission's proposals for the broad guidelines of the economic policies of the
Member States and of the Community:--
H M Treasury
(17915)
5994/97
COM(97)27 |
The Commission's 1997 Annual Economic Report. |
| Legal base: |
Article 103(3). |
Introduction
16.1 Article 103(3) requires the Council to monitor, on the basis of reports
submitted by the Commission, economic developments in each of the Member States and in the Community
as well as the consistency of economic policies with the broad guidelines of economic policy agreed
by the European Council in accordance with Article 103(2).
16.2 It is not expected that this report will be adopted by the Council, but it is
intended to provide a background for debate in the Institutions of the Community on which the
Commission can draw in formulating its recommendations for the next set of broad economic
guidelines.
The 1997 report
16.3 In its Annual Economic Report last year, the Commission noted that "the
Community enters 1996 in a less confident mood", with continuing high unemployment and
increasing levels of uncertainty. This year, the report is considerably more optimistic, claiming
that:
" . . . progress towards EMU is helping Member States to overcome some of the most
important obstacles to sustained growth and job creation in recent years, namely high real interest
rates and monetary turbulence. Against the background of a widespread easing of monetary conditions
and the increased credibility of budgetary consolidation in many Member States, the prospects for
a sustained pick-up in economic activity and employment in the Community have improved
considerably."
16.4 The Commission identifies a number of factors which it sees as contributing to
this improvement. It believes that the institutional progress in preparations for EMU has
increased confidence, that inflation trends are generally encouraging, and that investment is
picking up. The report notes that most Member States have taken measures to reduce their budget
deficits, and welcomes their resolve to place their public finances on a sound footing.
16.5 The report attributes the poor performance over the first half of the 1990s to
macro-economic obstacles such as the shortage of productive capacity, a distorted mix of policies,
and monetary turbulence. It suggests a need for high growth in fixed investment, for balanced
budgetary policies, and for monetary stability (where it claims that the existing obstacles will
be eradicated by the achievement of EMU in 1999). And it emphasises the importance of improved
competition, involving not only completion of the single market but also increased liberalisation
in all spheres, with effective competition policies.
16.6 The Commission perceives a need for the substitution of capital for labour, in
order to increase productivity. But it recognises that this creates problems in the current
situation of persistently high unemployment. For social and economic reasons, it rejects the option
of reducing wage costs, and argues instead for strong, investment-supported macroeconomic growth.
It believes that there is a basis for such growth, which would ease the "unavoidable structural
adjustments".
The Government's view
16.7 In an Explanatory Memorandum dated 12 March, the Economic Secretary to the
Treasury (Mrs Knight) notes that the report has no implications for the conduct of economic policy
in the UK. She points out that the chapter on the UK says that the UK recovery is of longer
duration than that in the rest of the EU, and continues:
"The report notes that the Government's stated aim for underlying inflation of
2½% or less by the end of the current Parliament should be achievable."
Conclusions
16.8 This report raises matters of political importance because it provides the
basis on which the Commission will, in due course, produce its recommendations for a draft of the
broad guidelines of the economic policies of the Member States and of the Community under Article
103(2) of the Treaty. We do not consider that the report requires a dedicated debate, but suggest
that it will be relevant to any debate on the broad economic guidelines themselves.
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