Europe has an economy and a social and environmental model which stand comparison with any in the world. But we need to do better. Europe still lags in economic growth, employment levels and some key indicators of economic dynamism, such as rates of innovation and presence in cutting-edge sectors such as IT, biotechnology and nanotechnology. And new challenges, such as the ageing of the population, the growing pressures on the natural environment and the growing competitive strength of Japan, China, India and others, mean that Europe faces a more intense pressure than ever to raise its game.

 

In the last decade, the EU economy has grown well below its potential, with the result that millions of potentials job have failed to be created. Both public and private investments have been inadequate to generate growth. From 4% of GDP in the early 1970s, gross public investment has fallen to 2.4% in the euro area, while private investment has also fallen. Investment in physical and human capital is the essential transition mechanism from stabilisation policy to long-term economic growth.

 

Macroeconomic reform is therefore an essential component of any European-wide efforts towards sustainable growth and full employment.

 

Economic and Monetary Union (EMU), completed in 1999, displays a novel and sui generis economic policy framework, but the proper functioning of EMU requires still a well-developed economic co-ordination framework in Europe. Since 1993, the Council has adopted annually the Broad Economic Policy Guidelines (BEPGs), on the basis of a Commission Recommendation. The BEPGs are at the heart of the economic co-ordination process. The BEPGs are politically but not legally binding; no sanction mechanisms are foreseen. Compliance is voluntary and based on peer pressure.

It must be stressed at the outset that in the EU and EMU "economic policy co-ordination" is used as an umbrella term. It encompasses an entire spectrum of interactions among policy actors, including monetary and fiscal actors. The range of methods used includes information exchange, discussion of best practices, policy dialogue, peer review as well as commonly agreed policy rules and objectives and jointly determined actions. With the exception of binding rules on deficits, macroeconomic co-ordination within the euro area is still generally based on dialogue and consensus. Co-ordination is needed to take account of direct cross-border spill-over of national policies on neighbouring countries and on the world-wide economic. (PES Group position paper "Europe of Excellence")

 

In addition, euro-area participants can also be affected indirectly by national policy actions, because the average inflation rate and the exchange rate have become common goods.

 

The euro-area Member States share a single monetary policy and a single exchange rate, while the other aspects of economic policy remain national issues. To the extent that national economic developments influence monetary conditions in the euro-area, closer Community surveillance and coordination of economic policies among euro-area Member States will be necessary.

The European Council of March 2005 called upon the Commission, the Council and the Member States to re-launch the Lisbon strategy by refocusing on growth and employment in Europe. As a follow-up, the European Council recently adopted the first integrated guidelines for growth and jobs for the period 2005-2008 (IGP)

 

This new "IGP-cycle of economic governance" is based on a three-year cycle starting in 2005 and which will have to be renewed in 2008. The IGP combine the former European Economic Policy Guidelines (BEPG) and the European Employment Guidelines (EEG) and includes following policy areas:

 

 

Based on those guidelines, which should encompass the economic, social and environmental dimensions, Member States will draw up their national reform programmes, which should be conceived as forward-looking political documents setting out their three year strategy to deliver growth and jobs. These programmes will also allow the Commission to assess the policies and progress identified by Member States. On the basis of the assessment of the national reform programmes, the Commission will adopt in January its Annual Progress Report and may propose updates to the integrated guidelines and possibly country-specific recommendations as the basis for the continuation of the cycle.

 

The PES Group welcomes in this context the procedural changes introduced by the Commission to economic and employment policy co-ordination, by making it mid-term oriented and mutually supportive, but believes that this should be further enhanced by more concrete country and sector-specific recommendations and by aggregating fiscal policies and supply policies, together with pensions reform in a way consistent with monetary policy.

 

More than 80% of exchanges of European goods and services take place within the EU. A big and buoyant internal market is the indispensable basis for the business confidence that generates investment, growth and jobs. It is also a powerful advantage in international competition, enjoyed by some of our biggest trading competitors, such as the USA, Japan, China and India. In current circumstances, with the dollar falling dramatically in value, the role of domestic demand is becoming even more crucial. There is a need to stimulate this demand, by boosting investment. This relies on buoyant consumption, which depends in turn on the defence of the purchasing power of employees.

 

For Europeans, the battle to achieve greater productivity is inseparable from the battle to ensure fairer distribution of the fruits of growth, greater social cohesion and effective protection of the natural environment. It is no coincidence that the Nordic countries provide the highest level of social protection and environmental protection. The high public spending this involves has not prevented their economies from "continuing to improve their world ranking in terms of performance and innovation" (Zaki Laïdi).

 

Consideration should also be given to the problem of transparency and broader participation in the decision-making process for economic coordination and employment policy (policy mix) at national and European level. In it necessary that - both through more systematic involvement of national parliaments and social partners as well as closer coordination between European Parliament and Council formation concerned. The European and national parliaments have to be fully involved in the further development of the IGP and national Lisbon programmes. To that end, the positions of Council and European Parliament should carry equal weight in the annual adoption of the guidelines and Parliament should also be properly involved in assessing their implementation by the Member States.

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