11 ANNUAL REVIEW OF THE EU ECONOMY FOR
2004
(26111)
14191/04
COM(04) 723
+ ADD1
| Commission Communication: The EU Economy: 2004 Review —
Summary and main conclusions
Commission Staff working Paper: The EU Economy: 2004 Review
|
| Legal base | —
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| Document originated | 26 October 2004
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| Deposited in Parliament |
10 November 2004 |
| Department | HM Treasury
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| Basis of consideration |
EM of 25 November 2004 |
| Previous Committee Report |
None |
| To be discussed in Council
| Not known |
| Committee's assessment | Politically important
|
| Committee's decision | Cleared
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Background
11.1 The Commission has in recent years formally presented its
annual review of the EU economy to the Council.
The document
11.2 The Commission's review provides an overview of 2004 and
identifies and discusses topics relevant to current economic challenges.
The working paper on which the Commission's Communication is based
is in seven sections. The first deals with macro-economic developments
in the euro area and says that in 2004 the EU's economic prospects
brightened against the background of favourable international
economic environment. In the context that this belated recovery
raises questions for resilience, it notes:
- while recovery was mainly driven by a strong exports, the
contribution from domestic demand — private consumption
and investment — remained unsteady;
- structural rigidities have been a significant
factor in the late and sluggish cyclical adjustment in the euro
area;
- relative prices do not adjust quickly in the
euro area, resulting in costlier quantity adjustments in the form
of scaling down production and employment; and
- consumer confidence may have been adversely affected
by a lack of resolve in implementing structural reforms and budgetary
consolidation.
11.3 Secondly, the review examines economic catching
up, growth and convergence in the new Member States. It notes:
- the process of catching up
in the new Member States started well before accession;
- this was predominantly driven by investment and
productivity;
- the challenge now is to draw on an under-utilized
labour force and to raise employment rates; and
- trade liberalization has been effective, but
now a key priority is also to entrench macro-economic stability
alongside institutional reforms.
11.4 In the next two sections the review has an economic
analysis of the recent performance and prospects of the labour
market and discusses the Lisbon Strategy and the European Union's
structural productivity problem. It comments:
- the Lisbon Strategy targets
for employment look challenging, particularly because progress
on structural reforms has been slow and insufficient;
- the strategy is clear but much remains to be
done;
- detailed reform strategies must be country-specific;
and
- while higher employment may temporarily dampen
productivity growth in the short run, this effect is estimated
to be small.
11.5 Fifthly, the review looks at the impact of new
technologies and product market reforms in enhancing productivity
growth. Noting that this is a key aim of the Lisbon Strategy,
the review says:
- a large part of the Union's
relative productivity slowdown can be attributed to low productivity
growth in mid-tech industries, the relatively small size of the
ICT (information and communication technology) production industry,
and problems of total factor productivity growth in sectors using
ICT;
- globalization and increased capital mobility
may also have a part to play in the fall in labour productivity
by exerting upward pressure on capital productivity and resulting
in a shift from capital to labour inputs;
- the Union's knowledge-based economy is not yet
fully entrenched;
- investment in education and training are fundamental
to ensure the Union's competitiveness; and
- product market reforms could also facilitate
productivity growth by improving the framework and conditions
in which businesses operate.
11.6 Then the review considers whether there is a
trade-off between protecting the environment and economic growth
or whether environmental protection is a growth-enhancing structural
adjustment. It notes that a reduction in the pollution effects
of growth in the Union has been achieved over recent decades without
crowding out industries. The review says the demand for environmental
protection has risen along with economic growth. It suggests that
environmental policies must be cost-effective, gradual and predictable
if they are to stimulate welfare-enhancing structural adjustments.
11.7 Finally, the review notes certain issues, including
education and economic statistics, which it suggests will be important
in the future in the context of economic surveillance and governance
for the Union.
The Government's view
11.8 The Financial Secretary to the Treasury (Mr
Stephen Timms) tells us that the document has no policy or financial
implications.
Conclusion
11.9 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.
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