European Standing Committee B
Wednesday 11 June 2003
[David Taylor in the Chair]
Broad Economic Policy Guidelines
[Relevant Documents: European Union Documents Nos. 8475/03, 5317/03, 5318/03, 5319/03, 5320/03, 5322/03, 5324/03, 6437/03, 6438/03, 6439/03, 6440/03, 6441/03, 7100/03 and 7099/03, Council Opinions on updated Stability and Convergence Programmes: Nos. 5518/03, 5519/03 and 5524/03, Decision and Recommendations on Excessive Deficits.]
2.3 pm
The Chief Secretary to the Treasury (Mr. Paul Boateng): It is a pleasure to serve under your chairmanship this afternoon, Mr. Taylor, in a timely and significant debate in the run-up to the Thessaloniki European Council on 20 June, when these central elements of the European process of economic policy co-ordination will be considered by the Council, before formal and subsequent adoption of the broad economic policy guidelines by ECOFIN. The guidelines form the central part of the process of multilateral surveillance and economic policy coordination in the European Union and build on other EU processes including the stability and growth pact, of which the stability and convergence programmes form a central component. The Cardiff process on structural reform and the Luxembourg process on employment also play an important part in the process.
As we made clear in our explanatory memorandum, the Government have been keen to devolve the role of the broad economic policy guidelines. Indeed, as my right hon. Friend the Chancellor said in his recent speech to the Confederation of British Industry:
''Britain can be a leader in Europe as Europe equips itself for the challenges of globalisation and competitiveness.''
Moreover, as my right hon. Friend said only the day before yesterday in his statement on economic and monetary union,
''an enlarged Europe pursuing, like Britain, economic reform, and, like Britain, modernising monetary and fiscal policies, will be conducive to British stability, growth and employment.''—[Official Report, 9 June 2003; Vol. 406, c. 407.]
That is why it is essential that the guidelines fully reflect the importance of structural reform, matching flexibility with fairness and promoting employment and social inclusion to create a flexible, outward-looking Europe.
As our assessment of the five economic tests recognised, all European countries have embarked on an ambitious programme to reform labour, product and capital markets, and the Government support policies to strengthen competition in the EU and the single market. However, it is important to make more progress at European level, in particular on employment, flexibility and the single market in financial services. The Government's recent update to the White Paper on economic reform in Europe set
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out the progress that has been achieved, and identified the priorities for action in the near and medium terms, in line with the Lisbon agenda to which the Government are strongly committed. It is through meeting the Lisbon objectives that we will build a more successful, outward-looking and socially inclusive Europe, with higher employment, confidence and growth, which will help us to boost our own productivity and raise our economic performance, not least through the further reforms that my right hon. Friend the Chancellor set out to the House on Monday. The prominent and positive messages on economic reform in these guidelines are important in driving forward progress on the Lisbon agenda and delivering those benefits.
The Commission's 2003–05 guidelines focus on a number of key areas: macro-economic policies; the medium and long-term implications of structural policies; reforms aimed at promoting economic growth potential, employment and social cohesion; the transition towards a knowledge-based economy; and policies for sustainable development. Against that, the Commission highlights three key challenges for European policy: macro-economic policies oriented to achieving growth and stability; economic reforms to raise Europe's growth potential; and strengthening sustainability.
As my right hon. Friend underlined in his statement on EMU on 3 June, all EU Finance Ministers made a joint declaration in a covering note to the broad guidelines, placing labour market flexibility and structural economic reform at their heart for the first time. The Government share the emphasis on those policy areas. The Government's policies for achieving them are consistent with the Commission's recommendation for the 2003–05 guidelines and include: sound macro-economic policies based on well-managed public finances and low inflation; economic reform, including to promote productivity growth through a more enterprising and highly skilled economy; modernisation of the labour market; better regulation; and promotion of entrepreneurship. Strengthening flexibility and fairness in the labour market to ensure that it can adapt to changing circumstances and deliver high and sustainable employment also plays a part in delivering efficient and responsive public services through sustained increases in investment and the reforms necessary to meet public expectations throughout the country.
In the 2003–05 recommendations, the Commission has drawn on the findings of its implementation report, which it produced in January as a follow-up to the 2002 guidelines. The Government feel that that method of monitoring and reviewing is a very important step in consolidating the progress made to date, and it should help to embed the notion of European economic reform in the minds of all concerned.
The Commission's recommendations for the
2003–05 guidelines also include, as in recent years, country-specific recommendations for each member state. It is important to acknowledge that member states face different and sometimes quite unique challenges, and the Government welcome the
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inclusion of country-specific elements in the guidelines. For the first time, the Commission has also made specific recommendations for the euro area.
I shall touch briefly on the UK-specific recommendations. In particular, the Commission emphasises in those recommendations—which are in line with the Government's stated policy objectives and the measures that we have taken since coming into office—the importance of improving the relatively low productivity. The recommendations also address the high numbers of working-age people claiming sickness and disability benefits, sustained labour supply in the long term, and improving the quality and efficiency of public services.
The Commission has recommended a budgetary policy objective for all EU member states. It is:
''to maintain budgetary positions of close to balance or in surplus throughout the economic cycle, and as long as this has not been achieved, take all the necessary measures to ensure an annual improvement in the cyclically-adjusted budget position of at least 0.5 per cent. of GDP''.
As we said in our explanatory memorandum, the Government stand by the 7 March ECOFIN report on strengthening co-ordination of budgetary policies, which was subsequently endorsed by the spring European Council on 21 March. That report makes clear that it was the Eurogroup that on 7 October 2001 committed euro-area countries not yet close to balance or surplus to pursuing continuous adjustment of the underlying balance by at least 0.5 per cent. of gross domestic product a year. The UK Government did not participate in that agreement, which therefore does not apply to us as a non-participating member state. The Government will argue for changes in discussions at official level and at the ECOFIN council.
We believe in the need for a credible framework for EU fiscal policy that is based on an overall set of economic principles to guide the interpretation of fiscal policies. The framework should recognise the combination of member states' country-specific circumstances, thereby allowing the discretion necessary to respond flexibly to economic shocks. In our view, setting single targets for all member states does not recognise, for example, individual debt levels, public investment requirements, and targeted tax reforms to promote productivity and work incentives.
The Committee has rightly highlighted the Council opinions on the 2002 stability and convergence programmes as relevant to today's debate. We have those opinions before us, except for the opinions on Austria and the Netherlands, where domestic political reasons led to delays in submitting stability programmes. The Committee has also seen the Council decisions and recommendations on the excessive deficit procedure for Germany, and on the early warning for France.
The Council opinions on the 2002 stability and convergence programmes outline the Council's views of member states' budgetary priorities and projections. They are responses to the programmes submitted annually by each member state, setting out their medium-term budgetary plans: EMU members submit stability programmes; non-EMU members submit convergence programmes. That process of budgetary
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surveillance provides operational content to the stability and growth pact. The pact's aim, of course, is to promote the co-ordination of fiscal policies and to assure the avoidance of excessive Government deficits, based on articles 99 and 104 of the treaty. The Council's opinions are one of the items that inform the broad economic policy guidelines, feeding into those budgetary policy recommendations.
We believe that fiscal sustainability is a precondition for macro-economic stability, and we agree with the principle of a strong pact, founded on sensible fiscal policy co-ordination, as set out in the treaty. As the Chancellor set out again on Monday, the Government have consistently supported a prudent interpretation of the stability and growth pact that takes into account the economic cycle, sustainability, and the importance of public investment. We think that a prudent interpretation will enhance the pact's credibility and strengthen its function. The Committee will be aware that the UK's programme was deposited before the 2003 Budget, and so does not take into account the measures and updated figures outlined in it. Instead, it is based on the figures set down in the pre-Budget report.
The programmes for 2002, as well as the material on excessive deficits, were examined at ECOFIN meetings in January, February and March, following preparation by the Economic and Financial Committee to the Council, with the UK programme assessed in February. The UK played a role throughout the Council's discussions. Indeed, the UK is keen to contribute throughout the process of economic policy co-ordination to promote sound and sustainable public finances across the EU and encourage economic reform, building on the results of the Lisbon special European Council. We have done so in this round of economic policy co-ordination, which will culminate in the adoption of the 2003–05 broad economic policy guidelines by ECOFIN in the margins of the European Council in Thessaloniki on 20 June.
As the Chancellor set out in his address to the CBI, a more self-confident Britain and a more self-confident Europe can become an engine for economic and social progress on the global stage. That is why the Government are also committed to participating fully in this important process of economic policy co-ordination. Approving the motion today will allow the UK to achieve those goals. I hope that the Committee will support the motion, and I look forward to hearing Members' views during the debate.
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