11 September 1995

Doc. 7378

CONTRIBUTION

by the Committee on Economic Affairs and Development

to the debate of the Assembly on

the European Union's 1996 Intergovernmental Conference:

an economic viewpoint

by Mrs DEGN,

Denmark, Socialist Group

Contents

Page

I.       Introduction       2

II.       Europe - In a global market and economy        2

III.       Europe - Under transformation        3

IV.       Europe - The Agenda        4

V.       Europe - Conclusions - For our common future        5

I.       INTRODUCTION

1.       The European Union's 1996 Intergovernmental Conference, provided for in the Treaty on European Union (the "Maastricht Treaty"), is meant to enable the Union to adapt its institutional structure and policies to the requirements of a still larger membership in the future, to increase its efficiency, and to enhance its transparency vis-à-vis EU citizens.

2.       The Council of Europe, including its Parliamentary Assembly, will contribute to the 1996 Intergovernmental Conference in its capacity as the largest, exclusively European, organisation in terms of number of member states (at present 36, with six special guest delegations from parliaments of central and eastern Europe participating in the Assembly's work).

3.       On the Assembly side, the Political Affairs Committee will make a contribution focusing on the institutional aspects of the new "European architecture". Although this will to some extent also be the case in the present report, it is natural, however, that our committee should view the subject from a predominantly economic viewpoint, taking into account not only the 15 of the EU but all of Europe, including its links with the rest of the world. For, as we shall see, some of the most fundamental issues facing Europe at present are in the economic field, and relate to such things as domestic structural reform and Europe's trade and investment relations with third countries.

II.       EUROPE - IN A GLOBAL MARKET AND ECONOMY

4.       The perhaps most fundamental change to have affected Europe over the last few years is that it is no longer the focal point of the world economy. A major shift has taken place in the direction of the Americas and Asia. The World Bank estimates that by the turn of the century, half the growth in the global economy will come from east and south-east Asia alone. Latin America has shown the world's highest rate of input growth overall for the last two years.

5.       This of course does not mean that Europe has become insignificant. Especially with the rise of central and eastern Europe as well as Russia and other parts of the former Soviet Union, our continent remains an important hub in the world economy. Europe and the United States so far remain the world's largest trading partners as well as the largest investors in each other's economies. Trade between the two amounts to more than a third of the world's total.

6.       What is new is, however, that Europe's fate is irrevocably tied up with, not only North America, but with that of all the other continents, and especially Asia and the "Pacific Rim". There is no possibility for Europe to opt out from the world outside, or to distance itself from the forces that are busy shaping it. All of Europe's hopes for its future development rely on its reacting constructively to the currents of global change under way. No European country, not even the most powerful, can meet these challenges alone.

7.       The fundamental causes behind this development is the immensely rapid integration of the world economy going on at present. This integration stems from the free flow of capital, technological change, innovations in business organisation, and the more open and secure trading environment made possible by successive multilateral trade negotiations and especially the latest, the Uruguay Round, and the creation of the World Trade Organisation. Perhaps the most tangible demonstration of growing economic integration is the fact that the volume of world trade has expanded more rapidly than the volume of world output nearly every year since the end of the Second World war.

8.       Foreign direct investment, trade's twin phenomenon, has overall increased even faster than world trade itself. The result has been an ever-growing involvement on the part of developing countries in the world economy. Since 1982 developing countries have nearly doubled their share of world exports manufactures, from 11% to over 20% in 1994. One-third of the largest trading countries in goods and services are now developing countries.

9.       In brief, with instantaneous communication around the globe and ever cheaper means of transport, Europe's traditional role as a haven of wealth matters less and less. Europe will have to compete on equal terms with all the other continents. Wrong policies in the economic, social and related fields, such as labour market policies and education, will have immediate consequences for its position in world markets. In a world where any amount of capital can be moved anywhere within seconds, errors will no longer be tolerated. On the other hand, the discipline imposed by the global market will also force down inflation, and could lay the foundation for a long period of world-wide sustainable growth.

10.       Europe must be able to play a constructive role in harnessing the enormous forces unleashed in financial markets through new technology . Either we create some basic rules and order in financial markets, so as to have the world benefit from the increased supply of capital made available to every corner of the earth; or we shall have the "law of the jungle"prevail, with great instability worldwide, and with the weaker nations and regions falling by the wayside.

III.       EUROPE - UNDER TRANSFORMATION

11.       In the years immediately following the fall of communism, many West Europeans observed a certain self-congratulatory snugness. Economic reform, it was felt, was something just for central and eastern Europe, not the rest, and it would anyhow be a quick process. Now, some five years down the road, we realise that the reform process is far more complicated and time-consuming than we ever imagined.

12.       Furthermore, it is increasingly being realised that, as the transition economies go about economic reform with determination, the established market economies of western Europe are also in need of overall reform. Budget deficits and accumulated public debts, as well as obsolete approaches to taxation and subsidies, will have to come down, and rigidities in our economic systems overcome. Unemployment, which in "OECD Europe" remains stubbornly close to 12%, needs to be tackled urgently. European markets need to be liberalised, in spite of the progress made under the EU's Internal Market programme and the European Economic Area.

13.       Unless Europe tackles the above, it will be politically very difficult for it to resist protectionist pressures from within. And yet, if protectionism were to take over, its wealth and its ability to shape the world's economic and political agenda will be greatly reduced. Europe's place in the world, as well as its economic wellbeing, depend on its maintaining liberal economic principles on which it was founded - not just internally as with the Internal Market, but also externally vis-à-vis other countries and, especially, other continents.

14.       For all these reasons, Europe owes it to its own heritage and to the world fully to comply with the Uruguay Round, and to serve as an inspired partner within the World Trade Organisation. The European Union must not turn into a "Fortress Europe" - either in regard to the countries of central and eastern Europe which it must do its utmost to trade openly with and integrate as soon as possible, or in its relations with the rest of the world. At the same time it must ensure that the globalisation and ease of capital movements can give rise to more and quicker development, not chaos.

15.       Europe must examine how it can contribute to the world's economic well-being, with its technological and organisational know-how, its innovations, and the conditions it offers for workers and entrepreneurs. It must draw maximum advantage from open trade, not draw away from it. Without economic growth there can be no economic stability and no lasting social peace. If western Europe fails to integrate central and eastern Europe economically, immigration pressures will rise, and the same holds for the world if our continent, through trade isolation, were to hinder poorer countries in their development. In today's and tomorrow's world, the emphasis of security policies must be on the economic rather than the military dimension.

IV.       EUROPE - THE AGENDA

16.       Since the earliest days of the European Community there has never been a time when the generation of new ideas on the future course of the European integration process has been more urgently required. To the crisis of belief in the European idea as such should be added another caused by the stark divisions among EU member states on where the Union should be heading and how it should reach there. The challenges - from the disaster in the former Yugoslavia to the running sore of unemployment - cannot be dealt with by temporising or lofty rhetoric.

17.       We need to create, or recreate, a confident and outward-looking Europe, in touch with the principles of openness, democracy and social justice on which it was founded and made credible to its citizens.

18.       In the political arena there are immediate tasks of the highest importance. Consolidating democracy in Russia is one. A stable, democratic Russia will be of enormous benefit to economic and political stability in all of Europe. The proximity of such a major market once it matures, with such a well-educated population, will bring a new élan to the whole European continent, and the same needless to say also holds for the other countries in central and eastern Europe.

19.       Another task is to integrate Germany more and more fully and irrevocably into the rest of Europe, a process in which the country itself has taken a leading role. If Germany were ever tempted to "go it alone", the whole European fabric would come apart.

20.       Furthermore, there is the Union's project of establishing a single currency, at least among a number of its members, by the end of the century at the latest in accordance with the provisions of the Treaty on European Union. The Parliamentary Assembly, acting upon a report of its Committee on Economic Affairs and Development, in Recommendation 1195 (1992) (Doc. 6652) on European economic and monetary union, pointed both to the likely benefits and to the likely risks associated with the single currency project.

21.       The Rapporteur for her part welcomes efforts to enhance monetary co-operation within the European Union or elsewhere, including a joint currency for countries wishing to take this step. She does, however, believe that the time required to reach any supranational management of a common currency will be considerable. She in particular believes that any supranational European central bank which is not accompanied by a matching unification at political level - that is to say an EU government and legislative parliament -runs a high risk of failure. And such a degree of political unification seems to her neither possible nor desirable at the present time.

22.       However, the European Union is also bogged down by policies that tend to hinder development. The Common Agricultural Policy is already in urgent need of reform, and will be even more so as the Union grows in membership. Aid to developing countries through the Lomé Convention has the effect of "locking" them in a pattern of primary commodity production. Regional aid within the community, though sometimes helpful, has created a climate where the aim in negotiations becomes one of receiving from the EU more than you give to it, instead of jointly shaping new policies conducive to growth. Even the Internal Market is now under attack, as certain EU countries suggest punitive "compensation" (in the form of duties) from governments or companies in fellow EU countries said to engage in "competitive depreciation" of their currencies. It is to be hoped that the 1996 IGC Conference can take steps to remedy these shortcomings, too.

23.       There is a risk that the European Union's 1996 Intergovernmental Conference will concentrate on detailed changes in existing structures and policies, instead of the major changes suggested in this report. If the Union becomes more rather than less bureaucratic, less open economically to the rest of Europe rather than more, then prosperity will suffer and its own funds will eventually run out.

V.       EUROPE - CONCLUSIONS - FOR OUR COMMON FUTURE

24.       Europe's problems cannot be exclusively resolved within the framework of the 15 member states of the European Union. Those of the wider Europe also need a forum. The OECD is providing it in part, with a considerable non-European participation, and its intense collaboration with many countries in central and eastern Europe and the former Soviet Union area is to be welcomed. Much useful work at a more practical level is done by the United Nations Economic Commission for Europe, with the participation also of the United States and Canada. The OSCE has a particular role to play in establishing a security framework linking all European nations with North America.

25.       However, only the Council of Europe, with its thirty-six European member states and its special guest delegations from six additional parliaments, provides an exclusively European, and pan-European, framework, including at parliamentary level.

26.       Indeed, Article 1 in the Statute of the Council of Europe, drawn up in 1949, states that "the aim of the Council of Europe is to achieve a greater unity between its members for the purpose of safeguarding and realising the ideals and principles which are their common heritage and facilitating their economic and social progress" (emphasis added). The Article goes on to say that "this aim shall be pursued through the organs of the Council by discussion of questions of common concern and by agreements and common action in economic, social, cultural, scientific and administrative matters and in the maintenance and further realisation of human rights and fundamental freedoms". (emphasis added)

27.       However, the Council of Europe abandoned many of its intergovernmental activities in the economic field already in the 1950s, as they were taken up by such organisations as the OEEC (which later became the OECD), the European Coal and Steel Community, the European Economic Community (as from 1958), EFTA, the United Nations Economic Commission for Europe, the European Conference of Ministers of Transport and the European Civil Aviation Conference. This explains the close co-operation which the Parliamentary Assembly through its Economic committee has established with these institutions.

28.       The Council of Europe will grow in the near future, to comprise over forty member states, the majority of which will not belong, for some time at least, to the European Union. The need therefore arises to provide such countries with a forum where they can discuss matters relating also to their economic development among themselves - as well as with the European Union in preparation of closer co-operation, agreements or eventual membership. The advantage of such a forum at intergovernmental level within the Council of Europe would be that major questions could be addressed in a political and global way with a view to enhancing new forms of co-operation, whether they are ultimately undertaken within or outside the Council's own framework.

29.       The Parliamentary Assembly has in consequence suggested, in two resolutions (Resolution 995 (1993) on economic renaissance of the Baltic Sea region and Resolution 1036 (1994) on the progress of economic reform in central and eastern Europe: lessons and prospects) that the Council of Europe should become a political forum for pan-European co-operation on economic issues.

30.       An intergovernmental role for the Council of Europe in the economic and related fields would be very much facilitated by the well-established co-operation, at parliamentary level, within the Parliamentary Assembly's Committee on Economic Affairs and Development. In brief, the committee tries to ensure harmonious economic integration among all Council of Europe member states, with particular emphasis on central and eastern Europe and the Baltic countries.

31.       In fact, it is difficult to see how the Parliamentary Assembly, with its "universal vocation" to take up any matter of importance to Europe's citizens, could ever refrain from also debating economic matters. For example, through the monitoring role of international institutions mentioned, the Assembly via its Committee on Economic Affairs and Developpement is opening these institutions up to parliamentary, that is to say democratic, scrutiny. This role should be expanded.

32.       The Committee on Economic Affairs and Development, the Assembly and the Council of Europe as a whole can make a useful contribution through monitoring of this kind, and in tackling strategic issues which the European Union because of its specialisation and more restricted membership is not in a position to take up.

33.       A debate is under way whether the European Union should become a member of the Council of Europe. Those in favour of such a step argue that the Council of Europe could then become a forum, both intergovernmental and interparliamentary, where issues of interest to the European Union and other European countries could receive a Council of Europe follow-up and be of use to the entire continent, thereby facilitating the ultimate accession of the countries of central and eastern Europe to the Union.

34.       Others, however, do not see any virtue in having the EU join the Council of Europe. For one thing, they argue, it is not a state but an institution, albeit with certain supra-national powers. Furthermore, how could one be sure that the EU would be of the same opinion on a given matter as the member states that make it up? And why should it be a member, when all its member states are already in the Council? And how would those member states feel who are not members of the EU, if EU members have 'one vote more', so to speak?

35.       A final comment concerns the "democratic deficit" of the European Union. The Rapporteur would argue in favour of more power being given to national parliaments in the shaping of the Union's legislation and decisions. In her own country Denmark, a system is followed whereby Danish ministers travelling to meetings of the European Union's Council of Ministers are given a mandate from the Danish Parliament, and are requested to report back to the competent Danish parliamentary committee. This has

served to improve the far from satisfactory parliamentary control over the Union, and to

give a greater say to the people's elected representatives. This is as it should, for the present-day duties of national parliaments in many ways go beyond the national frontiers.

36.       In conclusion, the main messages of this report are the following:

a.       The rapid growing-together between Europe and the rest of the world is the most important and difficult challenge we shall have to face in the coming years. Europe needs to engage in open trade with all countries in conformity with the Uruguay Round and WTO principles. Ensuring this becomes one of the 1996 IGC's most important tasks.

b.       This will require Europe to undertake fundamental economic and social reforms, involving not only the transition to a market-oriented economy at present under way in central and eastern Europe, but also within the established west-European market economies. The 1996 IGC must create structures and mechanisms permitting such reforms to be approached.

c.       The issues to be tackled are such that they cannot all be taken up within the European Union alone. The Council of Europe, because of its much larger membership and pan-European vocation, should be an increasingly used instrument, including in the democratic, environmental, social, economic and transport fields, at both intergovernmental and interparliamentary level. Whether it is strategic discussions about the Europe's future economic architecture and its relations with other parts of the world, or in monitoring otherwise opaque international organisations in the economic field, the Council of Europe and its Parliamentary Assembly have major contributions to make.

d.       In consequence, the Parliamentary Assembly should be allowed play a greater role in debating future pan-European economic co-operation, not only by organising regular debates on the activities of the OECD, the EBRD and other organisations, but also by discussing regularly the relations between the European Union and the European non-member states of the Union, with the participation of the member of the European Commission concerned, and by holding joint meetings of the competent committees of both European Assemblies.

e.       The democratic nature of the Union should be strengthened by:

- the scrutiny by national parliaments of draft European legislation and major political decisions of the European Union prior to their adoption in the EU Council of Ministers;

- strengthening the democratic powers of the European Parliament vis-à-vis other EU institutions and within the strictly defined competences and responsibilities of the European Union;

- having the European Union as such accede to the European Convention on Human Rights and Fundamental Freedoms;

f.       Furthermore, the role of the Council of Europe in promoting greater European unity should be strengthened by giving the Council of Europe real possibilities to assist the CEECs in achieving economic and social development commensurate with that in Western Europe, and to promote co-operation in the fields of legal and administrative co-operation, education, culture, youth and environmental protection.

g.       The Council of Europe should facilitate the accession of applicant states to the European Union by helping to bring their legislation into conformity with that of the Union, in particular in the fields where the Council of Europe has a proven record of competence, such as human rights, democracy, social standards, judiciary and penitentiary matters, environmental protection and nature conservation, education and the cultural heritage. It should be stressed that this work should be done not only at the time of the accession of a given country, but that it should be pursued on a permanent basis in order to develop common concepts and ideas among all member states.

h.       For this purpose the European Union should co-operate much more closely with the Council of Europe in order to avoid duplication of work. There should be greater involvement of the Union in the preparation of Council of Europe recommendations and conventions, which often constitute the basis for European legislation at a later stage. The Union should adhere to as many Council of Europe conventions as possible and participate in relevant Partial Agreements (that is to say programmes of co-operation in which some but not all member states take part. This is already happening in two areas).

i.       Such unfortunate examples as the adoption of a European Union "Social Charter", when there already exists such a Charter within the Council of Europe, should in future be avoided. Instead, it would be much better if, for example, the Council's Social Charter could be strengthened and adhered to by the Union and all its member states.

j.       The Council should be more involved in the implementation of the PHARE and TACIS programmes in the fields for which the Council is particularly competent. Much better co-ordination of the assistance programmes of both organisations could be achieved through institutionalised co-operation.

*

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      Reporting committee: Political Affairs Committee (Doc. 7373).

      This contribution was unanimously approved by the Committee on Economic Affairs and Development on 7 September 1995.

      Secretary to the committee: Mr Torbiörn.