1. Introduction
1. In June 2011, the Parliamentary
Assembly decided on certain reforms to its structures and a new
division of tasks. Accordingly, the new terms of reference of the
Committee on Political Affairs and Democracy state that “[t]he committee
shall prepare reports on the activities of the Organisation for
Economic Co-operation and Development (OECD) and the European Bank
for Reconstruction and Development (EBRD). For the preparation of
the reports and the debates in the Assembly, the committee maintains
relations with the OECD and the EBRD, and with parliaments of non-member
States participating in these debates.”
2. The reform having come into force in January 2012, the Committee
on Political Affairs and Democracy appointed me rapporteur on the
activities of the OECD in 2011-2012.
3. The debate on the activities of the OECD, in which the Secretary-General
of that organisation participates, takes place on the basis of special
rules, in the framework of an “enlarged assembly” composed of the
Parliamentary Assembly of the Council of Europe and delegations
from the national parliaments of non-European member States of the
OECD: Australia, Canada, Chile, Israel, Japan, Korea, Mexico, New
Zealand and the United States of America, as well as from the European
Parliament.
4. In the past, other Assembly committees presented, on a more
or less regular basis, contributions to the report and draft resolution.
Given the more political orientation that the Assembly wishes to
give to the debate, it seems to me that this procedure could be
streamlined by eliminating “obligatory” contributions but leaving committees
that so wish the possibility of requesting to deliver an opinion
whenever necessary.
5. The report on the activities of the OECD used to be adopted
provisionally in June and sent to the delegations of non-European
OECD member States so that they would have time to prepare amendments which,
together with those from other contributing committees, were then
added to the draft resolution just before its adoption by the committee
in the course of the October part-session. This procedure seems
too cumbersome.
6. In the debate on the reform of the Assembly, some members
of the then Committee on Economic Affairs and Development proposed
that the reports on the activities of the OECD (and of the EBRD)
should be prepared by the Committee on Social Affairs, Health and
Sustainable Development (which inherited other remits of the Committee
on Economic Affairs and Development) and not by the Committee on
Political Affairs and Democracy, to which Mr Robert Walter replied:
“[t]he logic in putting this with the Political Affairs Committee
is that the work of these two institutions is basically political.
It is the scrutiny of these institutions that we are talking about
… and this fits very logically with the Political Affairs Committee”.
7. The Assembly reports on the activities of the OECD should
therefore focus more on a political assessment of the work of the
institution and not so much on its activities in the economic field
as in the past. Accordingly, I propose that, for this year, the
report focuses on responses to the eurozone crisis and on support activities
for the Arab Spring, two items on which our committee was already
active.
8. On 18 April 2012, I went to the OECD and met Mr Yves Leterme,
Deputy Secretary-General, accompanied by Mr Luiz de Mello, Deputy
Chief of Staff of the Secretary-General, and Mr Andreas Schaal, Counsellor
in the Office of the Secretary-General. I also met Mr Jean-Luc Schneider,
Deputy Director of the Economics Department. We discussed relations
between the OECD and the Parliamentary Assembly following the reform
of the Assembly in general, and in particular my report. On 23 May,
I attended the presentation on the “Economic Outlook” in the framework
of the OECD Forum and Ministerial Meeting.
9. Following our contacts with the OECD, the Committee on Political
Affairs and Democracy approved the following programme during the
April 2012 part-session (Strasbourg, 23-27 April):
- 30 May, Paris: the committee
holds a first discussion on a preliminary draft report, with the
participation of Mr Yves Leterme, OECD Deputy Secretary-General;
- during the June part-session (Strasbourg, 25-29 June):
the committee agrees on a draft report, which is then sent to the
delegations of non-European OECD member countries, which are asked
to send their comments in writing in time to be included in the
report (mid-August);
- 10-11 September, Helsinki: the enlarged committee approves
the report, in which the contributions have been incorporated (delegations
of non-European OECD member countries and a representative of the OECD
are invited); the draft resolution should include the necessary
changes to the special rules of procedure;
- 2 October, Strasbourg: the enlarged committee adopts a
position on any amendments and organises the traditional dinner
with delegations of non-European OECD member countries and OECD
staff;
- 3 October, Strasbourg: enlarged Assembly debate on the
activities of the Organisation for Economic Co-operation and Development
(OECD) in 2011-2012 with the participation of the Secretary-General
of the OECD and delegations of non-European OECD member countries.
10. During last year’s debate, the enlarged Assembly adopted an
amendment to the resolution encouraging the OECD to explore avenues
for introducing a global tax on financial transactions. In our contacts
with the organisation, we sought its opinion on the role of rating
agencies in the context of the sovereign debt crisis in Europe.
The OECD, to which I convey my thanks, sent me its thoughts on both
questions, which I refer to in parts 5 and 6 of this report and
are reproduced in the appendices.
11. Finally, the proposed amendments to the rules of procedure
for the enlarged debates of the Parliamentary Assembly on the activities
of the OECD presented in the appendix to the draft resolution take account
of the reform of the Assembly’s structures and of the new distribution
of tasks among its committees. My concern has been to simplify the
procedure while retaining the possibilities for participation by
the delegations of the national parliaments of OECD member States
not belonging to the Council of Europe. On the strength of its experience
in this year’s debate, the Committee on Political Affairs and Democracy
may subsequently decide to adjust certain details.
2. The economic prospects and the policy
responses
2.1. A
modest recovery of growth and persistent high unemployment
12. In its May 2012 Economic Outlook,
the OECD lets us glimpse a gradual resumption of activity in terms of
averages in the OECD countries, but with strong disparities between
member States.
13. In the United States, the recent indicators seem more positively
oriented, particularly in the sector of household consumption with
an increase in consumer credit. The real estate market continues
to impede recovery, but the level of prices seems to be settling
and sales have steadied, as well as new construction. With a still
very accommodative monetary policy and gradual improvement in the
structure of private sector debt, gross domestic product (GDP) growth
should gradually gain strength to register a rate of about 2.75%
at the end of 2013. The OECD stresses, however, that with unchanged
legislation, expiry of the measures to grant tax relief and extend
welfare benefits would entail a considerable budgetary restriction
in 2013 (in the region of 4% of GDP) which would be liable to plunge
the US economy back into recession.
14. The eurozone is in virtual recession, with activity stagnating
in the first quarter of 2012 following a slight contraction at the
end of 2011, and the OECD does not expect a significant upturn in
activity before 2013. As well as the risks engendered by the sovereign
debt crisis and the problems besetting the banking sectors, budgetary
consolidation and deteriorating labour market conditions are likely
to be a lasting drag on growth. This average overview nevertheless
reflects starkly contrasting national situations. Italy, Spain,
Portugal and even more so Greece have seen activity decline, and
the outlook remains negative up to the end of 2013. Conversely,
in Germany a strong rebound was observed at the beginning of 2012,
following a slump in the fourth quarter of 2011, and growth should
pick up to attain a rate of 2.25% at the end of 2013. In Japan,
growth also seems to be taking off again after slackening at the
end of last year, with budgetary policy and the reconstruction effort
helping to boost activity.
15. All in all, based on the OECD’s forecasts for 2013, average
growth over the five years since the onset of the crisis will have
been barely over 1% per annum in the United States and approximately
zero in Europe, with weak average growth in Germany (1%) and France
(0.5%), flat growth in the United Kingdom, substantially negative
growth in Spain and Italy and cumulative declines in activity of
7% in Ireland and Portugal and almost 20% in Greece.
16. In opposition to this, the risk of sluggish demand in the
OECD zone having a significant impact on emerging economies does
not seem to have materialised. The expected slowdown in China remains
very moderate and the Chinese authorities have reacted swiftly to
bolster activity. The contribution of the major emerging market
economies (the “BRICS”: Brazil, Russia, India, China, South Africa)
to global growth is expected to remain high. The eastward and southward
“shift in wealth” should therefore continue in 2012/13, with emerging
economies now accounting for nearly half of the total global GDP
compared with just over a third in the early 1960s. With the difference
in potential growth rates, in the region of 1.5% in Europe and just
over 2% in the United States, compared with 7% to 9% in China and
India, this trend is bound to accelerate. According to OECD forecasts,
China’s GDP will thus exceed that of the United States in 2017,
even though the per capita income differential will remain considerable.
17. In this context of underutilised production capacity, unemployment
remains high, standing at 8.5% for the OECD zone as a whole in March
2012, that is 2.5 percentage points above its pre-crisis level with
a near 14 million rise in the number of unemployed. Once again,
it is the situation in Europe that is the most worrying, with a
further decline in the employment level since mid-2011, whereas
the United States has recorded an incipient fall of unemployment
for some months. In certain European countries, the decline appears
particularly marked, with the unemployment rate more than doubling
in five years in Denmark, Spain, Estonia, Greece, Iceland and Ireland
(admittedly with widely differing levels between these countries).
At the same time, the duration of unemployment has lengthened considerably
in some countries. The proportion of unemployed workers who have
been jobless for more than a year now exceeds 30% of total unemployment
in the United States, the highest level since the Second World War,
43% in Spain and even above 60% in Ireland. New labour market entrants
have been particularly hard hit, with a near 9% fall in employment
among 15 to 25 year olds. Among older workers (55 to 64 year olds),
however, employment has risen, no doubt reflecting the impact of
pension scheme reforms. Lastly, the level of skills has had a strong
impact on employment, which among the low-skilled has fallen by
over 8% since the downturn, whereas among the higher-skilled it
has risen by over 9%. The level of unemployment should be barely
stabilised in 2012, with an average rate of 8% for the OECD countries,
before easing slightly in 2013. The improvement will be mainly confined
to the United States, whereas the unemployment rate would remain
unchanged at 11% in the eurozone.
2.2. Rising
inequality
18. Rising inequality began long
before the financial recession, but the slackening of growth has
heightened its political resonance. That is why the OECD has conducted
recent analyses to determine the causes of this development and
explore the possible responses to it. The first determination made
is that the trend, commencing initially in certain English-speaking
countries, since the beginning of the 21st century has affected most
OECD countries including the more traditionally egalitarian ones
such as Denmark, Germany or Sweden. Only a small number of countries
record comparative stability (Belgium, France, Hungary) or a reduction
of inequalities (Greece, Turkey). A downward trend is also observed
in Mexico and Chile, but starts from far higher levels than in the
midstream OECD countries. Moreover, the change in income distribution
works to the benefit of a small slice of the population. In the
United States, for instance, the proportion of household income going
to the top 1% rose from 13% in 1990 to 18.5% in 2008. The share
of the top 0.1% has increased fourfold in 30 years to represent,
in 2008, some 8% of aggregate pre-tax income, compared to 4%-5%
in Canada, the United Kingdom and Switzerland, and almost 3% in
Australia, France and New Zealand.
19. The growth of inequalities is due primarily to a considerable
broadening of wage-derived income. While the opening of markets
and technological progress have allowed productivity and growth
to be increased, the least-skilled workers have been the least able
to grasp the opportunities thereby created. That is why the OECD
places emphasis on improving the skills of the workforce to combat
inequalities, making it possible to reduce wage dispersion at the
same time as increasing the employment level. A “road map” was accordingly put
before the member countries at the ministerial meeting in May 2012
to ensure development of skills. Although they count for less in
aggregate income, capital yields also helped accentuate inequalities, particularly
in the Scandinavian countries.
20. Meanwhile, taxes and transfers now lower inequality by about
29%; more than in the mid-1980s, but less than in the mid-1990s.
In fact, the statutory marginal rates of taxation on the highest
incomes have been significantly reduced, decreasing from 60-70%
in the early 1980s to about 40% on average by 2010. The increase
in the GDP proportion of spending on social transfers reflects an
increase in the number of beneficiaries, not an improvement in benefits,
whereas the generally proportional welfare contributions have only
a limited redistributive effect.
2.3. Economic
policy responses
21. This persistent climate of
weak growth makes the necessary consolidation of public finances
extremely tricky. Most European countries are nevertheless pursuing
a rationalisation strategy that involves both raising revenues and
cutting spending. In countries such as Greece, Hungary, Italy and
Portugal, there are plans to reduce the budget deficit by about
5% of GDP over the period 2011-13 and by up to 7% in Spain after programmes
that were already extensive during the two previous years (over
10% in Greece). On average for the eurozone, the adjustment is projected
to be 1.5% of GDP in 2012 and a further 1% in 2013, with a similar-sized
reduction in the United States and stability in Japan, mainly due
to reconstruction spending. Despite this major effort, however,
gross debt will continue to grow in the United States up to 2013,
and would barely stabilise in 2013 in the eurozone to verge on 100%
in 2013 and exceeding 220% in Japan, up by 30 to 50 GDP points since
the start of the crisis in most countries, with a much more severe
deterioration in countries like Greece and Ireland.
22. To compensate for the budget tightening – and in the absence
of inflationary pressures – the monetary authorities have pursued
a highly accommodative policy, with official interest rates at near
zero and central banks announcing or already implementing asset
purchase programmes. While emphasising the need for continued accommodative
monetary policies, the OECD also notes their inherent risks. Liquidity
provision at very low rates and at long maturities could lead financial
market participants to take excessive risks as in the past and increases
the danger of resource misallocation by keeping non-viable institutions
afloat, while asset purchase programmes may weaken central banks’
balance sheets. The OECD accordingly stresses the urgency of tightening
supervision to ensure that the banks clear doubtful debts off their
balance sheets and see to their necessary recapitalisation, including,
if required, by injection of official capital. Structural reforms
also need to be undertaken for the major financial institutions
to cease receiving the authorities’ de
facto guarantee, if the risk of the financial system
sustaining a systemic collapse is to be averted, either by separating
retail and investment banks or via increased obligations regarding
reserve levels.
23. All in all, calibrating macroeconomic policies looks extremely
tricky. While stressing that rationalisation of public finances
is an indispensable goal, the OECD recalls that the strategies must
accommodate the effect of the budget deficit reduction measures
on growth. If a good many countries take action at the same time
in the same direction, the effect is inevitably amplified. That
is why the OECD states that, if activity in Europe proved less sustained
than forecast in the budgetary projections, it would be fitting,
in many cases, for the automatic stabilisers to be allowed to operate.
In view of this risk of budgetary rationalisation and weakening of
growth forming a vicious circle, additional measures of support
to activity are under discussion in Europe, for example by providing
a common guarantee for the issue of government loans to recapitalise
the banks and make it easier to absorb bad debts. Another option
might be to increase the resources of the European Investment Bank.
24. But it will also be necessary to tackle the problems of competitiveness
besetting growth in many OECD countries, which are partly responsible
for the friction between the European countries. A fresh effort
for structural reforms, notably in the services industry and sheltered
sectors, could create employment and at the same time generate tax
revenues. The OECD’s recent study, based on an analysis of thirty
years of structural reforms, shows that while the benefits of such
reforms typically take time to fully materialise, their impact in
the short term is, contrary to popular belief, seldom negative and
may even be quite rapidly positive in some cases. It appears from
this study that, in periods of excess capacity, it is important
not to reduce unemployment benefits and job protection in order
to avoid impeding growth, and not to sacrifice active labour market
policies. Conversely, taxation reforms aimed at reducing levies
on labour and shifting them towards consumption or environmentally
damaging activities can have relatively speedy effects on employment
and help to support investment. Their negative impact on equity
needs, however, to be compensated with measures targeted at low
income earners. The OECD has undertaken considerable work on environmentally
related taxation and green tax reform, and how to reform environmentally
damaging subsidies which can both benefit the environment and contribute
to fiscal consolidation. Likewise, reducing the entry barriers for
the retail trade and professional services can enhance the employment
component of growth. In that regard, the OECD notes that responsibility
for adjustment rests with the countries having a large current account
surplus as well as with the countries that carry a deficit. While
the latter are to restore their competitiveness and increase their
productivity through greater flexibility of the commodities and
labour markets, those with a surplus should move towards an increase
in wages and consumption. But, the organisation points out, while
the adjustment seems to be under way in the countries with deficits,
little has been done as yet in those with surpluses.
3. The
sovereign debt crisis
25. The main topic of concern in
Europe remains the sovereign debt crisis, however.
26. The causes of the crisis are multiple and mutually reinforcing.
In many countries, low interest rates and easy access to credit
without regard to ability to repay led households and governments
to become over-indebted. The lack of regulation of financial markets
meant that banks neglected to manage their risks and became over-extended
in the last twenty years. The authorities failed to grasp the opportunity
afforded by faster growth in the years leading up to the crisis
to put public finances on a sounder footing. On the contrary, some
governments reduced fiscal pressure and relaxed control of spending.
The downturn in activity and the need to support the banking system
led to a further deterioration in the health of public finances.
Government and banking sector debt reached untenable levels, triggering
a crisis of confidence and, in some countries, a liquidity crisis.
The close links between the banking sector and public finances created
ripple effects between budgetary stability and the stability of
the banks. This spiral was particularly pronounced in Greece, Ireland, Portugal
and Spain, which were forced to seek assistance from the European
Union, other eurozone countries and the IMF in order to meet their
commitments and give them sufficient room for manoeuvre to adjust
their public finances. In order to cope with this situation, new
financial support mechanisms (the European Financial Stabilisation
Mechanism and the European Financial Stability Facility) were created
in May 2010, with a combined lending capacity of 500 billion euros.
27. In the summer of 2011, the market began to question the ability
of some European governments to finance their public borrowing.
The loss of confidence over sovereign debt had knock-on effects
on the funding and solvency position of banks which had large exposures
to sovereign debt and were explicitly or implicitly reliant on government
support. This fed back into the credibility of governments, as the
likelihood of their having to bail out their banks increased. The
loss of confidence impacted on governments’ financing costs while interbank
market conditions tightened and banking share prices fell, prompting
the banks to speed up their debt repayment and reduce the amount
of funding they supplied to the economy. In an effort to break this
spiral, a series of measures were approved at the European summit
in October 2011. A plan to restructure the Greek debt was agreed,
which aimed to halve the country’s debt burden and bring it back
down to 120% of GDP. This voluntary exchange of bonds helped pave
the way for Greece to receive a further €100 billion in public funds by
2014. At the same time, the lending capacity of the European Financial
Stability Facility and the European Financial Stabilisation Mechanism
was increased to reach €700 billion. A number of measures were introduced to
deal with the banks, requiring them to raise their capital ratios
to 9%, after marking down their sovereign bond holdings to market
prices, from June 2012.
28. According to the European Banking Authority, banks would need
to increase their capital reserves by some €106 billion, to be raised
initially from the private sector and, if necessary, through a loan
from the European Facility. Banks which failed to meet the new capital
target would have to cut dividend payouts and bonus payments. The
third part of the plan focused on enhancing policy co-ordination
and surveillance within the eurozone under the Treaty on Stability,
Co-ordination and Governance in the Economic and Monetary Union.
This treaty should come into force in January 2013 after ratification
by the member States. According to this new treaty, member countries
must introduce balanced budget requirements. The Excessive Deficit Procedure
is being strengthened, giving the European Commission and Council
the right to examine national draft budgets and, if necessary, suggest
amendments.
29. These measures were welcomed as a crucial step towards restoring
confidence in States and in banking systems and bringing about the
change of governance needed to ensure consistent policies across
the eurozone. The Greek debt restructuring was approved by the country’s
creditors, the European Central Bank (ECB) provided the necessary
liquidity to the banking sector and countries such as Italy, Portugal
and the United Kingdom agreed new budgetary consolidation programmes
and structural reforms. The respite was short-lived, however, and
tensions escalated once again in June 2012. On top of the economic
difficulties, there are now doubts about the public’s acceptance
of the adjustment process. In any event, additional measures might
be needed to boost confidence, ensure a continued orderly deleveraging
by the various players and enhance the stability of the eurozone.
In the economic report on the eurozone which it has just published,
the OECD recommends a range of measures in line with the guidelines
recently adopted at European level and which are designed to address
the sovereign debt crisis, including:
- in Greece, voluntary restructuring of its debt, recapitalisation
of banks and a viable programme of official support;
- if necessary, an increase in the capacity of the eurozone
“firewall”;
- recapitalisation of the banking sector, as recently decided,
drawing on public funds if necessary and avoiding excessive deleveraging
so as not to hamper lending to the economy;
- the establishment in July 2012 of the European Stability
Mechanism as a permanent crisis mechanism with robust capital and
governance structures.
30. These measures should be coupled with prudent macroeconomic
policy, an ambitious programme of structural reforms, and the introduction
of rigorous budgetary procedures and enhanced supervision of financial
institutions.
4. The
OECD and co-operation with the countries of the Middle East and
North Africa (MENA)
31. Since 2005, the OECD has been
pursuing a MENA-OECD Initiative on Governance and Investment for Development
with Arab countries. This programme, which is being conducted in
co-operation with international organisations active in the region,
aims to provide Arab reformers with OECD support in their efforts
to modernise public governance and improve the environment for entrepreneurs,
by creating a platform for dialogue and sharing of experience between
Arab leaders and OECD experts, as well as a new forum for regional
co-operation between Arab countries.
32. The areas for co-operation were decided by the Arab countries,
which have chosen to focus on policy areas that are seen as having
the greatest potential for creating conditions for more sustained
economic growth and job creation in order to cope with rising unemployment,
and build confidence. In the field of public governance and State
reform, the chosen themes were budgetary reform and the management
of public finances; human resource management and integrity in the
civil service; e-government and administrative simplification; regulatory
quality, public service delivery and public-private partnerships.
Later, this list was extended to include “cross-cutting” areas such
as gender equality and water resource management. In the field of
investment and the business environment, the focus has been on investment
policies and promotion, SMEs, entrepreneurship and human capital
development, competitiveness, action against corruption, corporate governance
and socially responsible corporate behaviour.
33. In pursuing this initiative, the OECD employed working methods
used in activities with member States, based on peer-to-peer exchanges
and open dialogue with due regard for the specific features of individual countries
and drawing on rigorous analyses. This approach, specific to the
OECD, had already proved successful in the 1990s in co-operation
with central and eastern European countries starting out on the
road to democracy and a market economy. In each area, the activities
were conducted in working groups comprising practitioners from OECD
and Arab countries, and co-chaired by a MENA country and a member
country of the OECD. In addition, the SIGMA programme (Support for
Improvement in Governance and Management), a joint initiative of
the OECD and the European Union, which provides technical assistance
to countries wishing to reform their public administrations in line
with EU standards and good practices, likewise began operating in the
region.
34. Thanks to the work done in these working groups, Arab countries
have been able to benefit from the OECD’s experience in conducting
reform and to tap into the expertise of its member States. It has
also led to a greater awareness of the differences but also the
similarities that exist between Arab countries and paved the way
for regional co-operation, with those countries which are most advanced
in their respective fields leading the way in the reform process.
The Arab countries have also developed co-operation at national
level, in areas of more specific interest to them, through in-depth
exchanges of experience, North-South and South-South transfers of
expertise and peer reviews. As a result of this work, a number of
Arab countries have chosen to sign up to OECD instruments or to
set common standards, in particular as regards the fight against corruption.
A number of them have also established regional centres to train
their civil servants and disseminate best practices. The OECD Secretariat
has drawn all this experience together in a progress report on public
governance reform in the MENA region (2010), which provides an original
collection of common data that countries can use to gauge their
progress and follow up their reforms.
35. Among the various country-specific co-operation activities,
the Initiative to Support the Palestinian National Authority deserves
a special mention. The Palestinian National Plan is designed to
lay the foundations for a State based on the internationally recognised
principles of good governance and the rule of law, on which to build
infrastructure and the economy. One of the main themes chosen by
the Palestinian National Authority within the framework of this
co-operation is capacity building in the field of regulatory policy,
so as to improve the rule of law and create a more secure legal
environment for citizens and businesses. The aim is to increase the
capacity of staff in the legislative and regulatory process and
to bolster regulatory institutions. The co-operation is also about
achieving greater integrity, with an assessment of existing systems
and, in particular, the code of conduct for public officials. The
third area is e-government which, given the limited mobility of
the Palestinian population, is a particularly important factor in
better access to public services, the simplification of administrative
procedures, more transparent regulation and, hence, anti-corruption
efforts.
36. Since 2011, the Arab Spring has prompted the OECD to step
up its co-operation programme with the Arab countries, but also
to re-examine it in order to consider how best to respond to the
new circumstances. At the ministerial meeting in May 2011, OECD
ministers reiterated their commitment to this co-operation, saying
that “governance reform plays a prominent role in supporting economic
growth and development”, and asked the OECD to develop proposals
for further work in this area. At the same time, the G8 countries
launched the Deauville Partnership and likewise asked the OECD “to
deepen this collaboration aimed at improving policy frameworks for
investment and governance and advancing the structural reform agenda”.
37. They further highlighted the relevance of “the accession to
and implementation of international instruments in the fight against
corruption, such as the United Nations Convention against Corruption
(UNCAC) and the OECD Convention on Combating Bribery in International
Business Transactions, and other related instruments on government
integrity and transparency”. With its knowledge of good practices
and its experience with peer-to-peer exchanges, the OECD was invited
to participate in the International Financial Institution co-ordination
platform. The OECD is also involved in the co-ordination network
set up with the United Nations, the Arab League and the Union for
the Mediterranean.
38. In order to better meet the needs of Arab countries in the
new political context and ensure that the projects undertaken were
relevant, the OECD conducted in-depth consultations with government
officials from the participating countries, but also with private
sector and civil society actors and international organisations active
in the region (including the World Bank, the United Nations Development
Programme (UNDP) and the Arab Administrative Development Organization
(ARADO)). These consultations showed that the MENA countries were
all eager to pursue co-operation with the OECD, taking the view
that the “OECD method” was very helpful for countries embarking
on reform. By drawing on OECD members’ experience and standards, each
country could advance at its own pace, developing high-quality institutions.
The Arab countries also pointed out that co-operation networks on
specific themes, which did not exist in the region, fostered greater regional
integration, one of the keys to future growth and development.
39. The OECD countries and MENA countries thus jointly decided
to strengthen and deepen co-operation in the existing regional networks,
by refocusing their priorities slightly. The chosen themes relate
mainly to:
- promoting clean
and efficient governments, by addressing, for example, the risks
of corruption, in particular at the interface between the public
and private sector, in key areas such as public procurement, by
setting up anti-corruption agencies and institutional mechanisms
such as codes of conduct, and achieving greater efficiency and transparency
in the management of public funds;
- strengthening democratic governance and open government,
by looking at how to establish more participatory policy-making
processes, through consultation procedures and the use of ICT tools
to facilitate participation;
- promoting regional development so as to foster sustainable
growth and reduce disparities between territories and between categories
of the population;
- creating a better business climate for jobs, by focusing
for example on SMEs, access to finance and competition policies
to support both entrepreneurs and consumers;
- promoting business integrity, corporate governance and
responsible business conduct, using OECD instruments;
- promoting gender equality, with, for example, the setting
up of a think tank to combat legal discrimination and promote women’s
integration in the economy, drawing, inter
alia, on the OECD-MENA Women’s Business Forum.
40. At the same time, as part of the Deauville Partnership, Egypt,
Jordan, Morocco and Tunisia have presented development plans, which
will be implemented with the help and financial support of the G7
and international financial institutions, and for which the OECD
intends to provide assistance in its areas of expertise. As well
as the public and corporate governance projects, the OECD is planning
to conduct analyses highlighting the links that exist in these countries
between economic performance and structural policies, so as to prepare
the ground for strategies and plans that are both prudent and reform-oriented.
41. In the realm of development assistance, the Arab Co-ordinating
Group Institutions (ACGI) and the OECD Development Assistance Committee
(DAC) held a special High-Level Partnership Dialogue in London on
4-5 July 2011. It was the first time in more than twenty years that
the two donor communities had met at senior level. The event – which
was also attended by key multilateral institutions and distinguished
international experts – took place against the backdrop of historic
political change in the Middle East and North Africa region. Discussions
focused on how the international development assistance community
could best support the message for dignity, freedom, self-determination
and social justice taking root and spreading across the region. They
also addressed sequencing issues and broader policy coherence concerns.
The concluding statement reaffirmed the commitment to a renewed
partnership across the two donor communities, and acknowledged the
centrality of closer co-operation in the MENA region and beyond.
42. In order to help improve co-ordination and avoid duplication,
in 2011 the DAC conducted a survey of donors’ ongoing and planned
support programmes in the area of governance to countries of the
Middle East and North Africa following the Arab Spring. The survey
revealed three broad priority funding areas: (i) humanitarian assistance
in the short term; (ii) facilitation of democratic transition, including
gender equality and human rights in the medium term; and (iii) support
for a move towards longer-term economic development and democracy
to address unemployment and poverty issues. Responses also indicated
that development agencies, along with their foreign ministries,
have been reflecting collectively on strategic, cross-governmental responses
and working towards enhanced partnership and engagement agreements
as part of facilitating political dialogue. The preliminary survey
results were distributed to the above-mentioned Joint ACGI-DAC High-Level
Partnership Dialogue. An update on existing efforts, remaining challenges,
and recent demands one year after the Arab Spring is under way since
August 2012.
5. A
financial transaction tax?
43. During the debate last year,
the enlarged Assembly adopted an amendment to the resolution, urging
the OECD to explore the options for introducing a global financial
transaction tax (FTT). The OECD has submitted its analysis in response
(see Appendix 1). I note that the organisation, “while not supporting
a general FTT”, suggested that governments consider introducing
a financial transaction tax limited to over-the-counter (OTC) derivatives
transactions, even though “the best option would probably be a regulatory
solution that forces OTC trades onto regulated exchanges”. I also
note that the Canadian delegation does not support the idea of a financial
transaction tax. Our colleague Hermine Naghdalyan has prepared a
report on “Restoring social justice through a tax on financial transactions”
for the Committee on Social Affairs, Health and Sustainable Development
(
Doc. 13017).
6. The
role of rating agencies
44. The role of rating agencies
has been widely criticised in Europe in the context of the sovereign
debt crisis and we therefore sought the OECD’s opinion on the matter.
The OECD acknowledged (see Appendix 2) that the role of rating agencies
had become increasingly pro-cyclical. The organisation also indicated
that principles are being developed by the Financial Stability Board
(FSB), which start from the basic idea that banks, market participants
and institutional investors should be expected to make their own
credit assessments, and not rely solely or mechanically on external
ratings. It also notes that despite the increased regulatory activity,
key issues still remain to be resolved but these are not often within
the power of law makers.
7. Conclusions
45. Some time ago, the Economist magazine wrote that “something
is very wrong with the world economy. That something is a combination
of faltering growth and a rising risk of financial catastrophe.
Economies are weakening across the globe. The recessions in the
eurozone’s periphery are deepening”.
46. The most recent OECD Economic Outlook, published in June 2012,
set out projections under which growth overall would remain subdued
with a muted and possibly bumpy recovery in OECD economies and emerging
economies continuing to make a substantial contribution to overall
demand. The main risk factors included a failure of policy makers
to address key issues, particularly the financial and economic stability
of the euro area as well as its low growth potential. So far, the
most severe downside risks have been avoided but there are increasing
signs of the real economist cost of the euro area crisis in terms
of weak demand and rising unemployment. Prospects have weakened
since June in the United States, across most emerging economies and
notably in euro area countries under market pressure.
47. While much has been undertaken in terms of reform in Europe
since the beginning of the crisis, the OECD economic surveys of
the European Union and euro area indicate substantial unfinished
business in terms of the creation of a banking union and structural
reforms to boost growth and competitiveness. These include in particular
measures to complete the single European market, but also employment-oriented
labour market reforms. The OECD has argued for an efficient firewall
and supported the strategy of the ECB to take all the necessary
measures. In order to restore competitiveness and growth, the OECD
supports European governments in defining an ambitious reform agenda
including new sources of growth like innovation and green growth,
deregulation, labour and product market reforms, social policies
and the necessary investment in skills and education.
48. It is up to Europe’s politicians to deal finally and firmly
with the euro. Coming up with a credible solution, following the
strong actions outlined by the ECB, does not guarantee a smooth
ride for the world economy; but not coming up with a solution could
guarantee an economic disaster. It is against this background that
the enlarged Assembly’s debate on the activities of the OECD is
taking place this year.
49. During its June 2012 part-session, the Assembly adopted
Recommendation 2002 (2012) and
Resolution 1885
(2012) on the young generation sacrificed: social, economic
and political implications of the financial crisis,
Resolution 1884 (2012) on austerity measures – A danger for democracy and social
rights, and
Resolution
1886 (2012) on the impact of the economic crisis on local and regional
authorities in Europe. All these texts point to a reorientation
of the programmes to combat the crisis in order to promote economic
growth while protecting the most disadvantaged groups of the population,
in particular young people.
50. The dangers to democracy posed by the crisis were highlighted
during the debates on these reports. If, on the one hand, it is
for each country to decide on the measures which better suit its
situation, on the other hand, European solidarity is essential and
a sharing of certain competencies, including budgetary competencies,
among the States in the euro area, seems inevitable.
51. The OECD’s recommendations to “go structural”, “go social”,
“go green” and “go institutional” seem to define an effective and
adequate policy mix for a way out of the crisis. The Assembly may
wish to discuss concrete policy actions along those lines.
52. In June 2012, the Assembly also adopted
Resolution 1888 (2012) on the crisis of democracy and the role of the State
in today’s Europe, which analysed the relationship between governance
and the crisis, as well as the dangers to democracy linked to certain
measures taken in response to the crisis. It concluded that Europe
needs sound States based on strong democracies, a topic on which
the OECD has also put quite some of emphasis in its recent work.
Sound institutions and strong governance system were seen as the
basis to build confidence for businesses, workers, households and
citizens (“go institutional.”). The enlarged Assembly suggests a
future report, based on the present resolution, on the OECD’s work
in the area of public governance. An important step in this direction
could be the OECD contribution to the Parliamentary Assembly report
on the impact of the economic crisis on local and regional authorities
in Europe, currently under preparation.
53. Also during the June 2012 part-session, the Assembly adopted
Resolution 1892 (2012) on the crisis of transition to democracy in Egypt, and
Resolution 1893 (2012) on political transition in Tunisia, which followed up
its work on the Arab Spring. It recalls once again its
Resolution 1831 (2011) on co-operation between the Council of Europe and the
emerging democracies in the Arab world, and it confirms its readiness
to share its experience in democratic transition to facilitate the
political transition in these two States.