Broad economic policy guidelines 2003-2005

The broad economic policy guidelines are the main instrument for coordinating the economic policies of the Member States. For the first time they cover a period of three consecutive years in order to rationalise and synchronise the process of coordinating economic policies with employment policy. The broad outlines for 2003-2005 emphasise the contribution of economic policies to the Lisbon programme, which seeks to make the European Union the most competitive and dynamic knowledge-based economy in the world.

ACT

Council Recommendation 2003/555/EC of 26 June 2003 on the broad guidelines of the economic policies of the Member States and the Community (2003-2005) [See amending acts].

SUMMARY

The first part contains the general guidelines for all Member States and the Community and a section devoted to the challenges specific to the euro area. The second part contains recommendations for individual Member States and takes account of their specific situations. The Commission has updated the broad guidelines for 2004 in a new recommendation that includes the 10 new Member States in the current framework for economic policy coordination. The policy guidelines for the EU15 remain entirely relevant.

GENERAL ECONOMIC POLICY GUIDELINES

Meeting the Lisbon strategic goal

Lisbon Programme. In spring 2000 the European Union set itself the goal of becoming "the most competitive and dynamic knowledge-based economy in the world". To help it achieve this goal, it decided to rationalise the various processes for coordinating economic policy and employment policy. The broad economic policy guidelines emphasise the contribution of these policies to the Lisbon programme between 2003 and 2005. They focus on the key economic policy issues and the priorities for the coming three years. They also contain recommendations for the short term, which will be adjusted each year, if necessary.

Employment policy. In addition to these broad economic policy guidelines, Member States must apply the employment guidelines and related recommendations.

Strengthening the EU's economy

Economic growth. Economic growth has been significantly weaker than anticipated because of geopolitical tensions, a slowdown in external demand and falling confidence among businesses and consumers. Employment prospects are therefore likely to deteriorate in 2003. Inflation has remained just above 2%, but could drop below that level in future. Economic policies must therefore bolster confidence and thereby help to create conditions for stronger domestic demand and job creation in the short term and an expansion of growth potential in the medium term.

Growth and stability-oriented macroeconomic policies

Macroeconomic policies. These play a key role in sustaining growth and employment and in preserving price stability. Member States should, in particular:

• reach or maintain budgetary positions that are close to balance or in surplus throughout the economic cycle;
• correct any excessive deficits in line with the stability and growth pact;
• subject to this, avoid pro-cyclical policies that counteract the symmetric play of the automatic stabilisers over the cycle.

Member States should promote the right framework for wage negotiations by the social partners. It is important that they ensure that:

• nominal wage increases are consistent with price stability and productivity gains. Labour cost increases should remain moderate to allow more job-creating investment.

Economic reforms to raise Europe's growth potential

Structural reforms. Structural reforms are essential to increase the EU's growth potential. To yield maximum synergies, they should be implemented in a comprehensive and coordinated way. The Member States should introduce the following measures over the next three years (the reforms to boost employment are described in detail in the employment guidelines):

Employment:

• make the tax and benefits system more employment-friendly;
• make sure that wage bargaining systems take account of differences in productivity and that these are reflected in wages;
• review labour market regulations (access to the labour market, employment protection, more flexible work organisation);
• facilitate labour mobility (both geographical and occupational);
• ensure efficient active labour market policies.

Productivity:

• foster competition in the markets for goods and services (by increasing the transposition rate of internal market directives, by further opening up public procurement, by ensuring the independence of competition authorities and by reducing and reorienting state aid etc.);
• accelerate the integration of EU capital markets (by implementing the Risk Capital Action Plan by 2003 and the Financial Services Action Plan by 2005);
• foster entrepreneurship and the creation of small and medium-sized Enterprises (SMEs);
• promote investment in knowledge, new technologies and innovation by increasing public and private expenditure on research and development (R&D) to make progress towards the 3% of GDP objective, for example by developing a framework conducive to R&D, facilitating the protection of intellectual property, promoting the e-Europe 2005 Action Plan, developing the Galileo satellite navigation system and improving education and training;
• enhance the contribution of the public sector to growth (by providing more growth-enhancing, cost-effective investment in physical and human capital and knowledge, increasing the efficiency of the public sector and promoting joint public-private initiatives, etc.).

Strengthening sustainability

Long-term sustainability of public finances:

• reduce public debt ratios to cater for the ageing of the population. Member States with government debt ratios above the 60% of the GDP reference value should ensure a satisfactory pace of government debt reduction towards that value;
• design, introduce and effectively implement reforms of pension systems, for example encouraging people to extend their working lives, linking benefits to contributions better and improving access to supplementary pension schemes, etc.;
• like the Member States, the Community should apply strict budgetary discipline.

Economic and social cohesion:

• modernise social protection systems while ensuring an adequate level of protection and fighting poverty and exclusion;
• improve the functioning of markets to encourage private investment in regions that lag behind, ensure that public support, including from EU sources, is focused on investment in human capital and infrastructure, and that investment programmes are designed and administered efficiently.

Environment: efficient management of natural resources:

• reduce sectoral subsidies, tax exemptions and other incentives that have a negative environmental impact;
• reduce subsidies to non-renewable energy, promote energy efficiency and increase the proportion of renewable energy;
• adjust the system of transport taxes, charges and subsidies to better reflect environmental damage and social costs and to increase competition in transport modes such as rail freight;
• renew efforts to meet the commitments under the Kyoto protocol, for example by introducing a greenhouse gas emissions trading scheme.

Challenges specific to the euro area

Challenges. Economic growth failed to fulfil its potential in 2002. The guidelines list four challenges for the euro area:

• to strengthen potential growth,
• to cater for balanced macroeconomic policies,
• to monitor inflation differences,
• to strengthen economic policy coordination.

Recommendations. The Council advises national decision-makers in the euro area to strive for an economic policy mix that is compatible with price stability and with business and consumer confidence. Countries in the euro area should maintain budgetary positions that are close to balance or in surplus throughout the economic cycle in cyclically adjusted terms. Where necessary, they must ensure an annual improvement of at least 0.5% of GDP, and those countries with excessive deficits need to correct them. They are asked to analyse the causes of inflation differences in order to take measures in sectors where such differences are undesirable. As far as policy coordination is concerned, the members of the euro area should deepen the analysis and discussion of economic developments (exchange of information, external representation, etc.) and improve the efficiency of coordination procedures in the area of structural reforms.

COUNTRY-SPECIFIC ECONOMIC POLICY GUIDELINES

The second part of the broad economic policy guidelines contains a section for each of the Member States, setting out the challenges and, within the overall strategy, specific recommendations taking account of differences in performance, outlook and structures. Only the main challenges facing each Member State are listed below.

Belgium

• continue the budgetary adjustments in the forthcoming years, in particular with a view to ensuring the long-term sustainability of public finances in the face of population ageing;
• increase participation and employment rates, especially for older workers and women;
• enhance competition in certain service sectors, increase the efficiency of the public administration and improve the business environment.

Denmark

• ensure an adequate labour supply in view of the ageing of the population;
• enhance competition in certain sectors and improve the efficiency of the public sector.

Germany

• promote job creation and adaptability and mobilise the unutilised employment potential;
• increase productivity through improvements in the business environment and the efficiency of the education system;
• reduce the general government deficit to below 3% of GDP in 2005;
• secure the long-term viability of pension and health-care systems.

Greece

• take appropriate measures to reach a budgetary position close to balance or in surplus;
• increase the low level of productivity;
• reduce the high rate of structural unemployment and increase employment rates, particularly for women.

For additional information on the budgetary data provided by the Greek authorities to the Community, please consult the Eurostat report.

Spain

• raise the low employment rates, especially among women, and reduce wide regional labour market disparities;
• increase the low level of productivity;
• ensure the long-term sustainability of public finances in the face of population ageing.

France

• rapidly reduce the general government deficit to below 3% of GDP;
• increase labour market participation and reduce structural unemployment;
• ensure the long-term sustainability of public finances in the face of population ageing;
• ensure competition in the network industries and accelerate the adoption of internal-market measures in order to create a level playing-field.

Ireland

• achieve a smooth transition from double-digit economic growth to lower, sustainable growth by ensuring stable macroeconomic conditions and strengthening the supply side of the economy.

Italy

• avoid an excessive deficit;
• rapidly consolidate public finances and ensure the long-term sustainability of public finances in the face of population ageing;
• raise the low employment rate, especially among women and older workers, and reduce the wide economic disparities between north and south;
• strengthen the knowledge-based economy;
• improve the business environment and enhance competition in the energy and service sectors.

Luxembourg

• increase participation and employment rates, especially for older workers;
• improve the business environment and encourage entrepreneurship in order to achieve a more balanced economic structure.

Netherlands

• pursue budgetary adjustment in the coming years in the face of weaker potential growth and the budgetary costs of ageing;
• take additional measures to avoid an excessive deficit;
• draw currently inactive people into the labour market;
• tackle the relatively slow productivity growth (increased competition and more business investment in R&D).

Austria

• ensure the sustainability of public finances in the face of population ageing;
• continue to improve the technology base and encourage business investment in R&D and innovation;
• promote effective competition in areas such as the press, food distribution, pharmacies, insurance, furniture retailers and network industries.

Portugal

• take additional measures to avoid an excessive deficit;
• accelerate the consolidation of public finances and curb the rapid growth in public expenditure;
• increase overall competitiveness (make the education system more efficient, invest in R&D, increase competition and check the high nominal wage growth);
• ensure the long-term sustainability of public finances in the face of population ageing.

Finland

• reduce the high level of structural unemployment and increase the employment rate of older workers;
• enhance competition in certain sectors and improve the efficiency of the public sector.

Sweden

• ensure an adequate labour supply in view of the ageing of the population;
• enhance competition in certain sectors and improve the efficiency of the public sector.

United Kingdom

• strengthen the budgetary position to avoid budgetary imbalances
• increase the relatively low level of productivity;
• address the high numbers of working-age people claiming sickness and disability benefits and sustain labour supply in the longer term;
• improve the quality and efficiency of public services.

Cyprus

• ensure a reduction of the general government deficit on a sustainable basis;
• increase the diversification of the economy towards higher value-added activities.

Czech Republic

• reduce the general government deficit and ensure the sustainability of public finances;
• reform retirement and healthcare systems;
• address labour-market structural problems;
• improve conditions for accelerated productivity growth;
• promote entrepreneurship.

Estonia

• address the sizeable current account deficit through an appropriate budgetary policy;
• address labour-market structural problems;
• improve conditions for increasing productivity;
• develop effective competition in network industries such as electricity, gas and telecommunications.

Hungary

• ensure a further reduction of general government deficit on a sustainable basis;
• increase employment rates and address labour-market structural problems;
• enhance cost competitiveness through wage moderation policies;
• improve conditions for increasing productivity;
• develop effective competition in network industries such as electricity, gas and telecommunications.

Latvia

• achieve a more pronounced reduction in the general government deficit on a sustainable basis;
• increase employment rates and address labour-market structural problems;
• enhance cost competitiveness through wage moderation policies;
• improve conditions for increasing productivity;
• develop effective competition in network industries such as electricity, gas and telecommunications.

Lithuania

• address labour-market structural problems;
• maintain low general government deficits;
• improve conditions increasing productivity;
• develop effective competition in network industries such as electricity, gas and telecommunications.

Malta

• ensure a reduction of the general government deficit on a sustainable basis and the long-term sustainability of public finances;
• increase employment rates, especially among women;
• encourage effective competition, taking into account the specific characteristics of the small domestic economy.

Poland

• urgently address the deep-seated structural problems in the labour market;
• ensure a reduction of the general government deficits on a sustainable basis and the long-term sustainability of public finances;
• improve conditions for increasing productivity;
• speed up the restructuring of the economy and accelerate privatisation in industry;
• improve the business environment.

Slovakia

• ensure a further reduction of the general government deficit on a sustainable basis;
• continue to address the deep-seated structural problems in the labour market;
• improve the business environment and support entrepreneurship;
• improve conditions for increasing productivity.

Slovenia

• lower inflation in a sustainable way;
• increase employment rates, especially for older workers;
• improve conditions for sustained productivity growth;
• promote the development of effective competition in all segments of the economy, notably in network industries such as electricity, gas and telecommunications.

RELATED ACTS

Commission Recommendation on the Broad Economic Policy Guidelines for the Member States and the Community [COM(2005) 141 final - Not published in the Official Journal] On 12 April 2005 the Commission presented a Recommendation concerning the broad economic policy guidelines for the period 2005-08. In the Recommendation it relaunches the Lisbon strategy and sets out to reflect those objectives in the BEPGs.

The Commission discusses:

• Macroeconomic policies for growth and jobs.

The Member States must:

- achieve a balanced budget;

- safeguard economic sustainability;

- promote an efficient allocation of resources;

- ensure coherent macroeconomic and structural policies;

- ensure that wage developments contribute to macroeconomic stability;

- ensure a dynamic and well-functioning euro area.

• Macroeconomic reforms to raise growth potential.

The Commission recommends that the Member States:

- extend and deepen the internal market by speeding up transposal of directives;

- ensure open and competitive markets;

- create a more attractive business environment;

- facilitate access by small and medium-sized enterprises to financing;

- develop proper transport infrastructures;

- encourage research and endeavour to improve innovation services, especially for technology transfers;

- encourage sustainable use of resources and strengthen the synergies between environmental protection and growth;

- concentrate on developing new technologies and markets.

The Recommendation is an integral part of the growth and employment guidelines (2005-08). It forms Part I of the single document. Part II comprises a proposal for a Council Decision on the employment guidelines for the Member States.

Commission Communication: Second Implementation Report on the 2003-05 BEPGs (presented in accordance with Article 99(3) of the EC Treaty) [COM(2005) 8 final - Not published in the Official Journal]

The Commission concludes in its second report that progress in implementing the BEPGs for 2003-05 is mixed. Some Member States are making faster progress than others: Belgium, Denmark, Finland, Ireland, the Netherlands and the United Kingdom have given a relatively good follow-up. As regards the new Member States, implementation is heading in the right direction, particularly in Cyprus and Slovakia. The Commission considers that the business environment is more favourable, that competition policies have become more effective and that environmental sustainability has been improved. It notes that the pace of labour market reforms appears to have been maintained. By contrast, it regrets that progress in the transition to a knowledge-based economy has been limited. In addition, the market integration process appears to have slowed down. It is concerned that a number of Member States do not have a sound budgetary position and/or have not set about correcting their excessive deficits. The long-term sustainability of public finances was still not secured in 14 Member States in 2004. The overall pace of the reform remained unchanged in 2004. Clearly, given the current pace of reform, full implementation of the BEPGs for 2003-05 will not be secured and it will, therefore, be difficult to fulfil the ambitions spelt out in Lisbon.

Commission Communication on the implementation of the 2003-05 broad economic policy guidelines [COM(2004) 20 final - Not published in the Official Journal]

In this communication, the Commission examines the measures taken or planned in 2003. It also sets out the information required for updating the guidelines in 2004. A detailed evaluation of the implementation of the specific recommendations for each country is given in an annex [SEC(2004) 44 - Not published in the Official Journal].

In general, the Commission found that the pace of reforms had accelerated in certain areas, such as labour markets, competition, the business environment, new technologies, education and reform of pension systems. However, there was insufficient progress in the areas of market integration, investment in research, and social and environmental sustainability. The Commission was also concerned about the deterioration in budgetary positions in several Member States.

Last updated: 04.07.2005