92002E1193

WRITTEN QUESTION E-1193/02

by Erik Meijer (GUE/NGL) to the Commission

(26 April 2002)

Subject: Consequences of introduction of the euro: measures to protect people against price increases and a decline in purchasing power

1. Is the Commission aware that it was reported on 10 April that sales of goods fell by 1 % in the Netherlands in the first quarter of 2002, but that total consumer spending rose by 4 % as a consequence of an average rise in prices of 5 %?

2. Are the fall in sales and rise in prices for the first quarter referred to above in line with the figures previously forecast by the Commission? Or by what percentage do they exceed its forecasts?

3. Are the figures contained in the study by the Catholic broadcasting association KRO and financial research institute Nibud on the popularity of the guilder and the euro in line with its expectations?

4. Which of the objectives that were set when deciding on and preparing for the introduction of the euro have, according to the results of this survey, not been met?

5. Does the Commission have comparable data for other countries in the euro zone? Do they differ from the data for the Netherlands or are they essentially similar?

6. How does the Commission explain the fact that price increases vary between different sectors and the corresponding products and services? Are the sectors that have been the first to increase their prices the same in all countries of the euro zone?

7. On the basis of these figures, what measures does the Commission think are necessary in order to protect people against price increases and rounding up of prices? Would it be desirable, in the view of the Commission, to freeze prices at the level of the end of 2001 or to compensate those on lower incomes? If the Commission regards a certain trend towards increased prices as acceptable for reasons of annual inflation, what is the maximum percentage that it would consider acceptable for the period up to the end of 2002?

Answer given by Mr Solbes Mira on behalf of the Commission

(24 June 2002)

1. The Honourable Member is presumably referring to press releases PB02-052 of 13 March 2002 and PB02-071 of 10 April 2002 from the Centraal Bureau voor de Statistiek (CBS), according to which turnover in retail trade in the Netherlands

rose by 5,7 % year-on-year in January 2002 and by 3,9 % in February 2002, corresponding to a decrease in volume of respectively 0,2 % and 1,2 % and to a rise in prices of respectively 6,0 % and 5,1 %. As far as the Commission knows, no data are yet available for March 2002 and for the whole first quarter of 2002.

2. The Commission has taken due account of these data in establishing their most recent economic forecasts. The faster than expected inflation at the beginning of this year is the main reason why the previous (November 2001) inflation forecast for 2002 was revised from 2,6 % to 3,5 %% for the harmonised index of consumer prices (HICP) and from 2,5 % to 3,3 % for the national consumer price inflation (CPI). The forecast for real growth in private consumption for 2002 was similarly revised from 2,3 % last autumn to 2,1 % this spring.

3. It must be acknowledged that the results of the Katholieke Radio Omroep/Nederlands Instituut voor Budgetonderzoek (KRO/NIBUD) enquiry over the popularity of the euro are not totally satisfactory. However, the advantages of a single currency in the largest part of the Union are such that they will become progressively clearer to European citizens. Moreover, the disappointment felt by many Dutch consumers is due to the acceleration in inflation in the Netherlands since the beginning of 2001, a phenomenon in which the introduction of coins and notes in euro probably played only a minor role.

4. It is much too soon to draw from data and surveys covering only a period of two or three months significant conclusions about the degree of achievement of the objectives pursued by the creation of the euro. As already stated, the Commission firmly believes that the advantages of the single currency for the Union's economy and the European citizens will become visible progressively as time goes by and definitely outweigh the costs associated with it.

5. The question refers to consumer perception surveys the Commission cannot supply a reply since no such data are available at Eurostat, be it at Community or national level.

6. It should be noted that the CBS has taken the view that they are not able to make any assessment of the likely changeover effects. The movements in consumer prices vary indeed between Member States and expenditure groups as they usually do. The rate of change in the euro-zone HICP between the 4th quarter of 2001 (Q4/01) and the 1st quarter of 2002 (Q1/02) was 0,8 %. This was higher than the corresponding rates for the two previous quarters but lower than the rate for Q2/01. Assessments at the most detailed level of HICP components available to Eurostat highlight for January 2002 and for Q1/02 some unusual price changes and therefore the possibility of changeover inflation mainly for a range of services such as those provided by restaurants and cafes, some health-related services and some repair services. The overall price increase for most item groups can, according to Eurostat's analysis, be explained by a normal inflation pattern and by some special non-euro factors in particular bad weather affecting fruit and vegetable prices, increased energy prices, and some significant tax increases on tobacco. These factors can explain as much as 0,64 %. The euro changeover effects are thus likely to fall within a range of 0,0 % to 0,16 %. An ad-hoc comparison of quarterly changes with the three non euro-zone Member States between Q4/01 and Q1/02 reinforces the impression that a large part of the observed price changes in restaurants and cafes, gardens, plants and flowers, hairdressing salons and personal grooming establishments and maybe bread and cereals are most likely related to euro-changeover effects.

7. Prices are generally freely determined by the interaction of supply and demand and not by administrative decisions in most Member States. However, if national authorities are of the opinion that the prices of some goods and services (or of all of them) should be temporarily frozen in order to curb inflation, they are perfectly entitled to do so, although past experience suggests scepticism about the long-term efficiency of such a measure. Moreover, it should be reminded that, despite the strong acceleration in inflation since the beginning of 2001, households after-tax disposable income spectacularly increased in the Netherlands in 2001, by 10,8 % in nominal terms and 5,7 % in real terms according to recent estimates made by the Centraal Planbureau, due to the large tax cuts implemented at the beginning of last year and also to fast rising wages. A slower but still significant increase in households disposable income (6,0 % in nominal terms and 3,3 % in real ones) is forecast by the CPB for 2002.