15 Annual review of the EU economy for
2003
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15477/03
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COM(03) 729
| The EU Economy: 2003 Review — Summary and main conclusions.
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| Legal base | — |
| Document originated | 26 November 2003
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| Deposited in Parliament | 3 December 2003
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| Department | HM Treasury |
| Basis of consideration | EM of 16 December 2003
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| Previous Committee Report | None; but see (24158) 15681/02: HC 63-x (2002-03), paragraph 12 (29 January 2003)
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| To be discussed in Council | Not known
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
15.1 The Commissions annual review of the EU economy was formally
communicated to the Council for the first time only last year
(and thus had not been deposited previously either).[51]
The document
15.2 The Commission's review provides an overview of 2003 and
assesses topics relevant to discussion of current economic challenges.
It is in five sections. The first deals with macro-economic developments
in the euro area and notes that the euro area will have had economic
growth significantly below potential for the third year in a row.
Amongst issues discussed are:
- sluggish economic activity in the euro area;
- slow-moving market adjustment, suggesting a lack
of resilience to shocks;
- a monetary policy stance linked to expectation
of continuously low and stable inflation;
- a deterioration of public finances since 2000
casting doubt on the commitment of several euro-area countries
to sound public finances over the coming years;
- sound public finances and encouragement of labour
market participation and economic growth as the key to alleviating
the problem of ageing populations.
15.3 The second section of the review deals with
drivers of productivity growth. The Commission notes that over
the 1996-2002 period, the EU overall, unlike the USA, has proved
incapable of reversing the long-run decline in its productivity
growth. It says:
- the deterioration in EU productivity
growth is due to inadequate investment and innovation;
- the productivity growth of some Member States
has been well above average and even above that of the USA;
- the USA's superior performance has been most
noticeable in relation to ICT production and use;
- the Lisbon strategy needs to be backed up by
commitment and the timely and thorough implementation of reform
measures;
- a comprehensive reform strategy should aim at
reducing the regulatory burden, further integrating markets, promoting
investment in human capital and enhancing the innovation potential
of the economy.
15.4 The Commission deals with education, training
and growth in the next section of its review. Noting that rising
educational attainment has been a major influence on economic
growth, it says educational attainment is set to continue increasing
in the medium term at a similar pace to recent decades. Thus a
similar contribution to growth might be expected, though this
will vary from Member State to Member State. The Commission emphasises
that greater efficiency in the use of resources, along with reforms
in other areas, would increase the rate of return on investment
in education.
15.5 The fourth section of the review discusses wage
flexibility and wage interdependence in relation to EMU (economic
and monetary union). The section claims that a near consensus
view has emerged on the roots of high and persistent unemployment
in many Member States. This view regards the poor labour market
performance of the countries concerned as the result of the interaction
of adverse macro-economic shocks with unfavourable labour market
institutions and product market regulations as significantly limiting
the capacity to adjust to changes in economic conditions. The
Commission adds that the formation of EMU is often regarded as
putting further demands on the flexibility of wages to compensate
for lack of national instruments to deal with economic shocks.
This section also discusses emerging challenges to the conventional
view of these issues.
15.6 The final section of the review deals with determinants
of international capital flows, noting their relevance as a source
both of growth and of macro-economic shocks. The Commission says
that:
- the strong increase of international
capital flows (portfolio flows and direct investments) over the
past ten years is the combined result of legal and economic forces;
- the rapid expansion of domestic financial markets
and surging international trade have been two of the main economic
forces driving this;
- the adoption of the euro and the resulting elimination
of foreign exchange risk within the euro area have accelerated
financial integration within the EU;
- good governance is attractive to international
capital and work is under way to strengthen accountancy standards,
auditor independence and shareholder rights, which will make the
EU more attractive for growth-enhancing capital flows.
The Government's view
15.7 The Financial Secretary to the Treasury (Ruth
Kelly) tells us that the document has no policy or financial implications.
Conclusion
15.8 Although the Minister tells us this document
has no policy or financial implications and we are content to
clear it, we report it to the House to draw Members attention
to the Commission's view of the EU economy and of some current
policy issues.
51 See headnote. Back
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