STRUCTURAL REFORMS
(a)
(21021)
6631/1/00
REV1
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(b)
(21058)
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Contribution of ECOFIN to the Lisbon Special Summit on
Employment, Economic Reform, and Social Cohesion, 23-24 March
2000.
Second Annual Report on Structural Reforms from the Economic
Policy Committee to ECOFIN.
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| Legal base: |
— |
| |
| Document originated:
| (a) 13 March 2000 |
| Deposited in Parliament:
| (a) 16 March 2000
(b) 17 March 2000
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| Department: |
HM Treasury |
| Basis of consideration:
| (a) EM of 14 March 2000
(b) Minister's letter of 15 March 2000
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| Previous Committee Report:
| None |
| Discussed in Council:
| 36597 |
| Committee's assessment:
| (both) Politically important
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| Committee's decision:
| (both) Cleared |
Background
29.1 In June 1999, the Cologne European
Council called for a "special meeting of the European Council
on employment, economic reform and social cohesion (towards a
Europe of innovation and knowledge) under the Portuguese Presidency
in the spring of 2000 in order to review the progress made after
the Cologne, Cardiff and Luxembourg processes". The summit
was held in Lisbon on 23-24 March, 2000.
29.2 On 13 March 2000, the ECOFIN Council
agreed a report to the Lisbon European Council emphasising the
importance of sustainable growth, macroeconomic stability and
economic reform in promoting a dynamic, innovative and socially
inclusive European economy.
29.3 At the same meeting, ECOFIN also agreed
the second Annual Report on structural reforms from the Economic
Policy Committee which covers much of the same ground. It recommended
that this report should be available to the Lisbon Council as
a basis for discussion of structural reform generally. For convenience,
we report on both documents together.
29.4 In her Explanatory Memorandum of 15
March 2000, the Economic Secretary to the Treasury (Miss Melanie
Johnson) says that the ECOFIN report, document (a):
"... highlights the
need to give fresh impetus to the Financial Services Action
Plan[60] to promote
integration of the Community's financial markets. It calls for
priority action to provide wider access to capital, especially
for small manufacturing enterprises (SMEs); on clarifying the
distinction between sophisticated and retail investors, and applying
appropriate investor protection rules; on promoting further integration
and better functioning of government bond markets; on promoting
cross-border transactions by ensuring efficient securities clearing
and settlement systems; on developing common international accounting
standards; and for more co-operation between national regulators.
It proposes that the Lisbon Council might request a progress report
from ECOFIN to the June European Council, including a timetable
with firm commitments for further action.
"On risk capital, the report calls for faster
implementation of the Risk Capital Action Plan[61],
with monitoring and benchmarking and, where appropriate, specific
recommendations in the Broad Economic Policy Guidelines. It mentions
specifically the review of existing financial instruments for
promoting risk capital (part of the eEurope initiative) and the
European Investment Bank's proposals to expand its risk capital
framework.
"The report notes that the fiscal policy framework
established by the Stability and Growth Pact has been working
well, but argues that Member States must also take into account
other objectives, notably that of improving the quality and
sustainability of public finances. It proposes that the Lisbon
Council might request that ECOFIN review the quality of public
finances, in particular whether Member States are taking adequate
steps to alleviate tax pressure on labour, to refocus their tax
and benefit systems to promote employment and to reorient public
spending to increase the relative importance of capital accumulation
and to support R&D, innovation and information and communication
technologies (ICT). It also suggests that ECOFIN be requested
to report to the December European Council on progress on addressing
the challenges stemming from ageing populations in terms of the
long-term sustainability of public finances. This is likely to
draw on work being carried out in the framework of the Economic
Policy Committee." [Document (b)].
29.5 As regards the Economic Policy Committee's
report on structural reforms, in her letter of 15 March 2000,
the Minister says that it:
"... analyses Member
States' overall structural reform strategies, provides for benchmarking,
suggests examples of good practice and highlights areas where
more needs to be done. It reflects the progress reports on reforms
to product and capital markets prepared by Member States at the
end of last year as well as Member States' national action plans
for employment. In line with the report submitted by ECOFIN to
the Helsinki European Council, the EPC report places particular
emphasis this year on policies for promoting R&D and on the
long-term sustainability of public finances, including the challenges
stemming from ageing populations."
The Government's view
29.6 The Minister says that:
"The Government set
up the Cardiff process, which reviews Member State economic reforms,
during the UK Presidency. Comprehensive structural reform of labour,
product and capital markets is important to raise sustainable
growth and employment levels.
"The Government supports measures which promote
better integration of financial markets, which should provide
greater choice and lower costs for consumers, including better
pensions, and easier access to capital for business, all of which
should translate into higher growth and employment. Similarly,
better access to risk capital will help innovative SMEs to expand
and enhance growth and employment. The Government will nevertheless
continue to scrutinise carefully any individual proposals.
"The Government recognises the importance of
high quality and sustainable public finances. It has adopted a
macroeconomic framework based on credible and transparent policies.
Under the fiscal framework, which is based on clear principles
of fiscal management and underpinned by legislation, two tough
fiscal rules promote generational equity and ensure sound public
finances over the economic cycle while also allowing public investment
to be increased in a sustainable way. Clearly any work taken forward
in this area at Community level will need to respect the principle
of subsidiarity most recently reaffirmed at Helsinki.
"The report envisages ECOFIN reporting to the
Feira (June) European Council on further action on financial markets
and to the December European Council on the sustainability of
public finances."
Conclusion
29.7 We are glad to note the impetus
recommended by ECOFIN for progressing the proposals to implement
the action plan for financial markets. As we said in our Report
of 23 June 1999, the UK has particular strengths in financial
services and stands to gain from completion of the single market
in that area. We have yet to see much legislative progress in
this area since the Action Plan was published in May 1999, calling,
amongst other things, for agreement by the end of this year on
eight draft directives then under discussion.
29.8 The ECOFIN report does not refer
to the draft "savings directive" ("withholding
tax"). However this is part of the financial services Action
Plan. In our Report of 23 June 1999, we noted the Commission's
view that it would be technically unbalanced and politically difficult
to progress further integration of financial markets while the
progress of tax co-ordination in financial markets is less developed.
The high level taxation group, set up after the Helsinki European
Council in December 1999, is to report to the June European Council
on progress towards resolution of the impasse over the
savings directives.
29.9 We note with interest the emphasis
on the ECOFIN report on improving the quality and sustainability
of public finances; and the refocusing of tax and benefit systems
towards more active measures to boost employment. We also note
the indication that governments should re-orientate public expenditure
towards capital accumulation and to support research and development,
and information/communication technologies. Overall, the report
is a further example of the willingness of Member States collectively
to endorse common strategic objectives and policy prescriptions
in areas, such as tax and benefits, where they have traditionally
asserted national sovereignty. As such, it reflects the working
through of the binding requirement for economic co-ordination
imposed by the Stability and Growth Pact.
29.10 We make no comment on the Economic
Policy Committee report, save noting that it provides evidence
of the results of the surveillance mechanisms for monitoring structural
economic reforms put in place by the 1998 Cardiff European Council.
We are glad to see its endorsement of the view that no new procedures
need to be introduced, and that new priorities which the Lisbon
Council might want to establish can be handled through existing
procedures rather than establishing yet another "process."
29.11 We report on both of these documents
because of the important subjects with which they deal and their
relevance to the Special Lisbon Council on 23-24 March 2000. However,
we have no questions and are content to clear them accordingly.
60 (20175) 8329/99; see HC34-xxiii (1998-99), paragraph
1 (23 June 1999). Back
61 (20645)
12261/99; see HC23-ii (1999-2000), paragraph 22 (1 December 1999). Back
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