Is Europe making progress on the road to “economic governance”? For the first time in many years, the answer may be a positive one: a halting, tentative “yes”, but a “yes” all the same. The imbalance within the economic and monetary union (EMU), which Jacques Delors has spoken out against from the word go, between the monetary leg, represented by the European Central Bank (ECB) with its clearly-defined powers, and the atrophied, limping economic leg, has started to right itself. The three priority objectives of Jean-Claude Juncker, discussed at length in this column last week, have still to be attained by June: changes to be made to the management of the Stability Pact, revision of the Lisbon Strategy, political agreement on the financial perspectives 2007-2013.
How Mr Juncker sees dialogue between the Eurogroup and the ECB. Things started to change when the Eurogroup president was appointed for two years, and due to the choice of that president. It is no coincidence that Mr Juncker managed to sidestep the title “Monsieur Euro” which superficial observers tried to label him with, because his job essentially involves the economic plank of the EMU, its lame leg. But at the same time, Mr Juncker called for regular dialogue to begin with the European Central Bank (ECB), clearly stating his right to have a say about the management of the euro, but without challenging the ECB's autonomy. This is what he had to say: “The president of the Eurogroup should not have a very visible role in various aspects of monetary policy (…). We must arrange dialogue between the EMU's economic and monetary poles. I do not dispute the ECB's right to express its views on the economic policy of the euro zone, and I would not like the possibility for the Eurogroup to enter into meaningful dialogue with the ECB on various aspects of monetary policy to be disputed, as long as this debate does not take place in a context of daily public controversy. The president of the Eurogroup should be able to speak directly and informally to the president of the ECB to discuss change policy, but I do not think it would be wise to descend into commentaries on the external rate of the euro; this would quickly lead to chaos”.
These sentences (our translation of an interview with “Le Monde” of 4 January) were clearly weighed word for word. They must be put alongside what ECB president Jean-Claude Trichet told MEPs in September: on the subject of the Stability Pact, the ECB “does not decide, but states its opinion” (see our bulletin of 23 September, p.14). This reciprocal freedom of speech allowed Mr Juncker to tell the European Parliament's committee on economic and monetary affairs, at the end of the Ecofin Council session last Tuesday, that the ECB “was wrong to predict that even minor changes to the Pact would sap confidence in the euro”. This shows us that dialogue has well and truly started, and that we must trust Mr Juncker and Mr Trichet to do what they have to do, because they share the same goals: stability of the euro and better economic management.
Two aspects of governance. Summing up progress in the reform of the Pact before MEPs, Mr Juncker: 1) confirmed that the two extreme positions (change nothing, or completely re-do it) had no support from the Council; 2) repeated that the idea of excluding various categories of expenditure from the calculation of the deficit “is without foundation” and added that it was wrong to interpret Chancellor Schröder's stance as an appeal to move in this direction. Mr Juncker had read this in the German and English versions without finding anything hinting at this; the same could be said for the French and Italian texts published the next day. The Chancellor called for the quality of expenditure and reasons for a deficit to be taken into account, which is in fact one of the changes to the text being looked into (see this column of 18 January); 3) defended the role of the Commission, which had been somewhat called into question by the Chancellor. The excessive deficit procedure will be triggered on the Commission's say-so, said Mr Juncker, and cannot be the result of an “arbitrary political decision by the Council” (see our bulletin of 20 January, p.7).
These indications on the reinforcement of governance at European level should be accompanied by the reinforcement of coordination between national policies (especially between euro zone countries). The Commission had highlighted this second aspect of the Union's economic governance from the start. The communication by Joaquin Almunia, “Reinforcing economic governance and clarifying the implementation of the Stability and Growth Pact” (approved on 3 September by the Prodi Commission and then taken up by the Barroso Commission) in fact consisted of two planks. The first was the re-ordering of the Pact, the second was entitled: “Coordinating the budgetary policies” of the Member States.
Mr Almunia several times stressed the close link uniting them, the second being just as important as the first (the text of the communication is reproduced in No. 2378 of our EUROPE/Documents series, which came with our bulletin of 16 September 2004). What is the point of approving the BEPGs (broad economic policy guidelines) every year in Brussels if the national parliaments, who establish the budgets in concrete, are not even aware of their existence? These parliaments must be involved in drawing up the BEPGs, take them into account when discussing and approving national budgets and then monitor their application (see this column of 10 September last year). This would ensure the coherence and effectiveness of the BEPGs and other European procedures would become entirely different. In fact, this second plank of the Almunia document remained in obscurity, and even Mr Juncker seemed to approach it with caution. Speaking to the MEPs, he stressed the importance of preserving, at the very least, the current level of economic coordination between the Member States and of stepping it up within the Eurogroup. Nothing more. Was this to reassure the Member States? Or was it down to the situation in the UK, which has been resistant to any increase in the competencies of a Eurogroup it does not belong to? But Mr Juncker made up ground on the “Lisbon Strategy”, where the British are very much present, as stated a bit further on.
The Chancellor's position. It was Chancellor Schröder who talked the most about economic coordination in the context of the Stability Pact, but in a more restrictive way. His central argument is that the 3% ceiling for the budgetary deficit cannot be the only criterion to assess the economic and financial policy of a country. The “decisive” criterion is, in his view, whether a country's growth and employment policy is credible; if this is the case, the county must be able to exceed the 3% ceiling if this is temporarily necessary, whilst its policy reaps rewards on a budgetary level. The assessment criteria should include: a) reforms (of taxation, social protection etc), incentives to research, innovation, education; so many elements with positive repercussions on growth, employment and the budget are not necessarily immediate, but more medium-term); b) macro-economic policy, taking account also of possible economic stagnation or the fight to keep inflation down; c) specific constraints facing particular countries, such as transferring funds to the new Länder for Germany, or its contribution to the EU budget. It was in this context that the Chancellor called for autonomy for each Member State to set up its own programme to bring its deficit below 3% (without any European-level “excessive deficit” procedure kicking in automatically), and for respect for the budgetary sovereignty of national parliaments. According to the Chancellor, as part of the “much-needed revision of the excessive deficit procedure”, the qualitative evaluation of expenditure should also play an important role in the definition of the necessary time-table to return to the 3% rule.
The role of the Commission within this vision is not entirely clear. Should it apply conditional criteria limiting the automatic nature of the excessive deficit procedure? Explicitly citing Mr Juncker as the only person able to succeed in reforming the Pact, the Chancellor appears to be in favour of a greater role for the Eurogroup and its president. However, the Commission is demanding its own prerogatives (see our bulletin of 20 January, p.8), and Mr Juncker has often spoken in favour of institutional balance.
Role of the States in the Lisbon Strategy. For his part, Mr Juncker has stressed the central role of the Member States in the implementation of the Lisbon Strategy. Addressing the European Parliament on the revision of this Strategy (see this column of 19 January), he said “We propose that the Member States set up national action programmes, which should be concluded in concert with the social partners and then presented to the national parliaments, which will monitor their implementation together with Community bodies. National programmes will take account of national and regional specificities and help to differentiate the pace and intensity of respective national reforms, thus taking better account of the level of performance already attained”.
Political effects. Progress towards Europe's better economic governance also covers other aspects. For example, further to a bit of well-known statistical side-slipping, the Commission has defined a strategy which should guarantee that national budgetary statistics are more reliable, and it has announced proposals allowing Eurostat to check national accounts directly. But I don't intend to bring all the details together. The main thing is for something to budge. The much-awaited rebalance between the two planks of the EMU would have major significance not just in terms of growth, employment and confidence in European integration, but also politically, for the EU's ability to make its voice heard and to play a more active role in the world.
(F.R.)