Implications for Europe of an economic and monetary union


Doc. 7731
17 January 1996

Rapporteur: Mr Alfred GUSENBAUER, Austria, Socialist Group

1. Inadequate social and economic perspective.

The project of introducing a single European currency is inherently both political and economic. If it fails economically it will fail politically. It will fail economically if it does not contribute to raising the living standards of all Europeans and including, in particular, of those who are socially and economically disadvantaged. The "convergence criteria" laid down in the Treaty of Maastricht for gauging whether an economy is "healthy" enough to participate in the EMU cover only short-term monetary and fiscal indicators. No criteria were included for employment, unemployment or the level and distribution of real earnings. It is these, however, which measure the success or failure of an economic system in providing for social welfare.

2. Anti-social consequences.

A major reason for the increase in fiscal deficits has been the slowing of economic growth. A coordinated effort to reduce fiscal deficits in Europe at a time of extremely weak growth risks making the situation worse. It is essential therefore that the cure' does not increase the disease. It impossible to judge the economic and social costs and benefits of budgetary cuts without knowing where the cuts will fall. Although the Maastricht criteria do not prescribe what types of cuts states would have to adopt, experience shows a strong emphasis on cuts in the social field. Great caution is needed to ensure that such emphasis does not derive from the use of incomplete economic arguments to conceal essentially political motives.

As a result of excessive anti-social-welfare bias in the current EMU project, countries that are not members of the EU but wish to join may fear to increase their social welfare expenditure despite the fact that in many of these countries such expenditure is already very low, and the need for major increases is strongest.

This point was underlined in the recent (December 1996) opinion of the social affairs committee of the European Parliament: EMU should not be treated as an end in itself, justifying economic measures that reduce social welfare.

3. Economic "stability" versus social welfare

The debate about the Stability Pact has shown that there are political forces which seek to increase, rather than diminish, the economic and social restrictiveness of the Maastricht criteria. On the other hand, there are opposing forces which are beginning to appreciate the dangers not only of the original criteria, but of the desire of some countries to increase their restrictiveness following the introduction of the euro. It must be recognised that a single currency combined with powerful restrictions on fiscal policy would leave national governments with few instruments for macroeconomic adjustment. Some constraint on fiscal irresponsibility is needed, but there is sufficient international heterogeneity remaining in the European economy that unless governments retain a reasonable degree of freedom to use fiscal policy to offset shocks, the social, economic and political consequences could be grave.

4. The European Central Bank

In consequence of the situation described above, the ECB will be the key macroeconomic policy institution of the European economy. It is therefore essential that its current mandate, which covers only the target of price stability, be amended to recognise that low or moderate rates of inflation are desirable as means to the much more fundamental ends of economic growth, adequate employment opportunities, rising living standards and reduced inequality. While retaining a degree of short-term operational independence, the ECB should be made accountable to democratic institutions including the European Parliament. In such accounting, the performance of the ECB should be judged, inter alia, by the performance of the real European economy.

5. The Exchange Rate Mechanism

The relationship between the participating and non-participating countries will determine whether EMU is a project to further or to disrupt European integration. The revival of the ERM can meet that challenge if it takes into account integrationist solutions such as a symmetric relationship between the countries. The ERM also needs to be accompanied by measures against speculative eruption of financial markets in order to re-orient them more strongly towards long term investment.

6. Social action - unemployment

Attempts to reduce both open and disguised unemployment have had a low profile in the EU compared with efforts to continue the process towards EMU. However, the White Paper on Growth, competitiveness and employment', the decisions of the Essen Summit of 1994 and the declarations made at the opening of the IGC in Turin in 1996 indicate a growing awareness of the problem. Nevertheless if the EU is to take fighting unemployment and under-employment seriously there is urgent need for common institutions based on EU-treaty regulations to elaborate and implement macroeconomic policies. Only a combined effort, using a range of economic policy instruments, will be able to meet the challenges which are the main concern of the majority of citizens today.

  1. Monetary policy must be the servant, not the master, of the objectives of economic growth, growth of employment and growth of real living standards for all the people.

  2. New initiatives in fiscal policy are required to efficiently promote an equitable social distribution of economic welfare.

  3. Any automatic form of stability pact should be avoided.

7. Fiscal policy

It should be recognised that the EU will have to aim at some degree of harmonization of fiscal policy, for example in ecological taxation or in measures to avoid serious distortion of competition, without losing sight of the principle of subsidiarity, which latter, in the fiscal sphere, implies that there is no harm in intra-regional differences in tax or expenditure patterns provided these do not lead to major distortions or problems of enforcement.

8. Other areas for social action - information and training

It is necessary to ensure that those members of society (whether employees, independent workers or non-employed) who are least advantaged economically and socially are not required to experience excessive adverse movements of relative social and economic welfare as the cost of adapting to the new monetary system. We must not underestimate the effort that needs to be made to inform and re-educate the public, in particular old people and small businesses.

The public image of the EU will depend in part on the success of the transition to the Euro. There is a risk that the European currency will become a focus for the discontent of the public concerning the growing gap, already perceived in some quarters, between the ordinary people and the Úlite. There could be a danger of increased support for extremism and politically dysfunctional forms of populism.

9. Conclusion

In short, it seems that Europe is becoming integrated faster in political and financial terms than in socio-economic terms. It must be devoutly hoped that the EMU will cause economic growth in Europe to recover to a rate sufficient to provide adequate employment opportunities at satisfactory levels, and with satisfactory distribution of real earnings. If not, it will provide benefit, if at all, to only a small part of the population. In that event it would represent a failure of the economic and social system as whole.

    The Rapporteur would like to thank Professor Robin Marris and Mr Stephen Marris for their contribution to the preparation and discussion of this opinion.

 Proposed amendments to the draft resolution in Doc. 7711:

Add a new first sub-paragraph 4 (i):

"to ensure democratic accountability of the European Central Bank;"

Add a fourth sub-paragraph 4 (iv)

"to ensure that EMU serves not only political but also economic and social goals of which the most fundamental are economic growth, employment and rising living standards for all the people".

Reporting committee: Committee on Economic Affairs and Development (Doc. 7711)

Committee for opinion: Social, Health and Family Affairs Committee

Reference to committee: Order No. 481 (1992) and Reference No. 2137 of 6 November 1996

Opinion approved by the committee on 7 January 1997

Secretaries to the committee: Ms Coin and Ms Meunier

[1] by the Social, Health and Family Affairs Committee