Brussels, 02/03/2011 (Agence Europe) - Earlier in the week, President of the European Council Herman Van Rompuy and President of the European Commission José Manuel Durão Barroso submitted to the eurozone countries their own version of the competitiveness pact dated Friday 25 February (EUROPE/Documents No 2547). They explain in their version, which this newsletter has obtained, that the idea behind the pact is to extend the economic arm of monetary union and boost convergence between the eurozone economies, which requires a shift to a higher degree of political coordination, particularly in areas of national competence that are essential for boosting competitiveness and avoiding damaging macroeconomic imbalance.
What Barroso and Van Rompuy want is firm commitments each year from heads of state and government, and a timetable for introducing measures to stimulate competitiveness, reform the labour market, clean up public finances and boost financial stability. They say that the choice of specific measures required to meet these targets will remain in the hands of each member state and point out that the single market must be respected. Wanting to leave the door open to non-eurozone countries, Van Rompuy and Barroso give the European Commission an important role when it comes to monitoring the action undertaken and consider purely European initiatives in order to reassure the small member states and the European Parliament, which are concerned to keep the Community method intact. No action seems to be on the cards at this stage for member states that fail to meet their competitiveness-raising commitments.
The Van Rompuy-Barroso version of the competitiveness pact sets out a series of indicators to measure progress. Competitiveness will be assessed by measuring pay and productivity levels. The recommended indicator - changes in unit labour costs over a specific period of time - will be used to compare and contrast the member states and their main trading partners. Countries identified in this connection as facing great challenges would have to undertake to introduce special measures. The draft pact suggests a raft of suitable action. In order to bring pay in line with productivity, changes may be made in the way pay is set, along with a public sector pay freeze. To increase productivity, member states should consider privatising and liberalising some areas of the economy (scrapping quotas and geographical limits in the retail trade, for example), update the education system, promote research and development and get rid of red tape (halving the time taken to reach decisions in court cases on commercial matters, for example).
To measure changes in the job market, the recommended indicators are long-term unemployment and youth unemployment. Suggested changes include measures to boost flexibility and security on the job market and clamping down on undeclared work. Tax changes may be examined to shift the burden of taxation from work to consumption.
Van Rompuy and Barroso say it is crucial that public finances are cleaned up and to this end, they recommend measuring the public debt in the light of the pension system and welfare. The most vulnerable eurozone countries may decide over a certain period to harmonise the retirement age with life expectancy, restrict the number of people able to take early retirement and encourage older people to find or stay in work. The eurozone countries are all urged to introduce stricter budget surveillance measures than those set out in the EU's economic governance legislation which is currently under examination. The introduction of genuinely binding debt brakes and spending brakes is highly recommended, for example. The Commission would be responsible for assessing any debt brakes before they are introduced to ensure they are compatible with the revised stability and growth pact.
Several EU laws would accompany the draft competitiveness pact, like harmonisation of the common, consolidated, corporate tax base soon to be unveiled by the Commission (see EUROPE 10312). Van Rompuy and Barroso say this could be achieved through enhanced cooperation if necessary, expecting Ireland and the UK (and possibly other countries) to reject the idea. Noting the current changes to surveillance and rules governing the financial markets, the two politicians urge member states to restructure their banks. Heads of state would be regularly briefed by the European Systemic Risk Committee about dangers emerging in the financial system which need to be dealt with. (M.B./transl.fl)