Thursday, 3 June 2010

EU: Useful stability and convergence programmes?

In the wake of the financial and economic crisis, how should the economies of the EU member states be launched on a growth and reform path? Where are the structural weaknesses and sudden pitfalls? How should the governments return to budget discipline?

The continuing dialogue concerning economic policy coordination between the European Union and the member states has resulted in a spate of country by country Council opinions, freshly published in the Official Journal of the European Union (OJEU).

The opinions we have not mentioned this far concern Estonia, France, Germany, Hungary, Ireland, Italy, Latvia, Belgium, Lithuania, Luxembourg, Poland, Malta, Portugal, Romania, Slovakia and Slovenia.



Council Regulation 1466/97

The procedure is laid down in:



COUNCIL REGULATION (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies; link to the consolidated version of 27 July 2005.


Council Regulation 1466/97 sets out the rules covering the content, the submission, the examination and the monitoring of stability programmes and convergence programmes as part of multilateral surveillance by the Council so as to prevent, at an early stage, the occurrence of excessive general government deficits and to promote the surveillance and coordination of economic policies (Article 1).


Each participating (eurozone) state submits a stability programme (Article 3). There are now 16 euro area member states, which at some point reached the third stage of economic and monetary union (EMU), and the Commission has proposed that Estonia should be allowed to introduce the euro currency from 1 January 2011.

Each non-participating state (which has not adopted the euro) submits a convergence programme (Article 7). Of the 11 member states outside the eurozone, nine have an obligation to join and two have opted out (Denmark and the UK), leaving the door open for later changeover.

According to Article 5(3) the updated stability programmes are examined by the Economic and Financial Committee on the basis of assessments by the Commission and, if necessary, by the Council.

The corresponding provision for convergence programmes is Article 9(3).



Useful?

Individual stability and convergence programmes and opinions are hardly the best way to form a picture of the state of the economy or public finances in the eurozone or the European Union as a whole, although each country plays its part.

The main addressees are the national governments and parliaments in their work to devise economic policy, launch growth-enhancing reforms and guard against excessive deficits.

However, for a wider public (businesses, media and citizens) it is worthwhile to study the outside opinion offered by the EU, because it assesses the challenges in store and the strengths and weaknesses of government action this far.

In many cases government medium-term projections are virtuous, but they may be optimistic. In most instances the governments have not announced the needed reform policies or the corrective measures, such as savings or tax increases, beyond the immediate future.

The propaganda war in domestic politics is not always the best guide to the real issues, so it is worth the time and effort to check a second opinion from a fairly objective source, such as the EU or the OECD.




Ralf Grahn