ECONOMIC POLICY CO-ORDINATION
(20953)
13123/1/99 Rev 1
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Report by the ECOFIN Council to the European Council in Helsinki on Economic Policy Co-ordination: review of instruments and experience in Stage 3 of EMU.
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| Legal base: |
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| Document originated:
| 29 November 1999 |
| Deposited in Parliament:
| 15 February 2000 |
| Department: |
HM Treasury |
| Basis of consideration:
| EM of 21 February 2000
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| Previous Committee Report:
| None |
| Discussed in Council:
| Already discussed — see below
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| Committee's assessment:
| Politically important |
| Committee's decision:
| Cleared, but further information requested
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Background
10.1 The Vienna European Council in December
1998 requested that ECOFIN should prepare a report for the Helsinki
European Council in December 1999 on economic policy co-ordination
in the third stage of Economic and Monetary Union (EMU).
The document
10.2 ECOFIN completed its remit and its
report was endorsed by the Helsinki Council. The report focusses
on four issues:
- principles for conducting economic policy in
EMU;
- an assessment of experience gained so far;
- steps to improve the effectiveness of the existing
framework; and
- possible ways to enhance the transparency and
legitimacy of the process of economic policy co-ordination.
— The principles for conducting economic
policy in EMU
10.3 The report identifies four principles:
- subsidiarity —
whereby Member States' commitment to determine their budgetary
policies in consistency with the Treaty and the Stability and
Growth Pact still leaves room for domestic policy choices, reflecting
the fact that responsibility for most economic policies remains
at national level;
- independence —
implying that the European Central Bank and non-eurozone central
banks might engage in dialogues but do not engage in ex-ante co-ordination
of their monetary policies with other policies, as well as a respect
for the competencies of the social partners in wage bargaining;
- an open market economy with free competition;
and
- close co-ordination
— between Member States on economic policies, in line with
the Treaty. This is seen as particularly important because of
increasing integration as a result of the creation of the Single
Market and the euro, the latter having led to the establishment
of the Euro-11 group. The report says that close co-ordination
should also make it easier for national policy makers, and the
Community as a whole, to achieve their respective objectives,
whilst fully respecting national responsibilities. The existing
policy framework provides for various forms of co-ordination including
information exchange, discussion of best practices through peer
review (the Cardiff process established under the UK Presidency),
dialogue, and commonly agreed policy rules, objectives and assessments.
— Assessment of experience gained so far
10.4 The report refers to progress made
in developing the annual Broad Economic Policy Guidelines (BEPGs),
the annual Stability and Convergence Programmes submitted by Member
States in response to the requirements of the Stability and Growth
Pact; co-ordination of employment policies in accordance with
the Employment Guidelines; and to budgetary surveillance by the
euro-eleven. It also points to the annual peer review of the functioning
of product services and capital markets, established by the Cardiff
European Council in June 1999; the macro-economic dialogue with
social partners and other EC institutions, established by the
Cologne European Council in June 1999; and actions to improve
the quality and comparability of euro-area statistics.
— Steps to improve effectiveness of the
existing framework
10.5 The report identifies four steps:
- improved understanding of economic developments
and reaching common views;
- making co-ordination procedures more effective
and mutually coherent;
- ensuring full policy implementation (for example
of the BEPGs) through adequate surveillance and firm commitment
by the relevant authorities; and
- enhancing the work of ECOFIN and the Euro-11
group, and achieving better coherence with the activities of other
Councils.
10.6 The report argues that the BEPGs should
be at the centre of the co-ordination process and that all other
economic co-ordination procedures should provide effective input
into their formulation. It notes that the budgetary objectives
of the country-specific section of the BEPGs should be consistent
with the Council's assessment of the annually updated Stability
and Convergence Programmes. It says that, in order to promote
structural reforms, priority topics will be identified each year
to allow more in-depth analysis. This year ECOFIN will focus on
the economic policy challenges resulting from ageing populations,
and on policies to promote research and development. It notes
the importance placed on achieving greater synergy between the
Employment Guidelines and the BEPGs, and that Employment Guidelines
will be made more specific.
— Possible ways to enhance the transparency
and legitimacy of the process
10.7 The report argues that involving national
parliaments enhances public acceptance and fosters political support
for economic policies. It asks national governments to consider
how they might improve national parliaments' support for the BEPGs
and for their stability and convergence programmes by improving
information and dialogue, whilst taking account of national rules
and traditions.
The Government's view
10.8 In her EM of 21 February 2000, the
Economic Secretary to the Treasury (Miss Melanie Johnson) says
that:
"There is much in the report we can point to
as examples of measures to strengthen the Government's agenda
to promote economic reform throughout Europe. For example:
"— there will be a new annual implementation
report to monitor Member States' progress against the country-specific
recommendations in the Broad Economic Policy Guidelines, the main
tool for co-ordinating economic policy at Community level; and
"— the process established at the
Cardiff European Council for peer review of economic reforms in
the Member States will be better focussed, with more emphasis
on the identification of good practices across the Community and
special topics singled out each year. ECOFIN Council has agreed
to focus in 2000 on the economic policy challenges stemming from
ageing populations and on policies to promote research and development.
The latter links well with the knowledge-driven economy theme
for the March Lisbon Special European Council on employment, economic
reform and social cohesion.
" ... the arrangements for economic policy co-ordination
fully respect subsidiarity. Furthermore, all references to Euro-11
are all consistent with the conclusions of the Luxembourg European
Council. These established that Euro-11 is an informal body, and
that ECOFIN (at fifteen) retains its decision-making powers. It
also established that all matters of common concern should continue
to be discussed at ECOFIN."
Conclusion
10.9 Economic policy co-ordination within
the Community is a binding requirement on Member States as a result
of the Stability and Growth Pact. The step-by-step completion
of the Single Market and the introduction of the euro are accelerating
economic integration and increasing the common interest among
Member States in promoting conditions for stable growth and employment.
There is clearly a potential for tension between the requirement
on Member States to follow national economic policies consistent
with their Treaty obligations and the Stability and Growth Pact,
and the need for Member States to adopt policies best designed
to meet the needs of their domestic economies. Effective co-ordination
of economic policies should minimise such tension. This ECOFIN
report addresses how best to achieve that. In that context, its
proposals seem unexceptional and, in any event, we note that they
were endorsed by the Helsinki Council last December.
10.10 The report places much emphasis
on the central role of the BEPGs and on how other procedures and
processes should feed into the annual cycle leading to finalisation
of the BEPGs by June and the formulation of the Employment Guidelines
in the second half of the year; and on follow through to assess
how Member States actually give effect to both sets of Guidelines.
We note in particular the proposal that Member States should do
more to involve their parliaments in the BEPG process. We invite
the Minister to say how the Government thinks Parliament might
be more involved. For our part, we would, in principle, be willing
to recommend a debate at the appropriate time on the BEPGs for
2000.
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