Verbatim report of proceedings

Tuesday, 22 February 2005 - Strasbourg

4. Economy/Public finances

  President. The next item is the joint debate on the following reports:

- (A6-0026/2005) by Mr Goebbels, on behalf of the Committee on Economic and Monetary Affairs, on the European economic situation – preparatory report on the Broad Economic Policy Guidelines [2004/2269(INI)];

- (A6-0025/2005) by Mr Karas, on behalf of the Committee on Economic and Monetary Affairs, on Public Finances in EMU – 2004 [2004/2268(INI)].

  Goebbels (PSE), rapporteur. – (FR) Mr President, Commissioner, ladies and gentlemen, the debate on macroeconomic policy is becoming increasingly ideological. In this context, a conservative and liberal majority distorted my preparatory report on the broad economic policy guidelines by removing all references to the need to coordinate European economic policies, even though this is required by Article 4 of the Treaty. That majority refuses to accept the evidence; the Stability and Growth Pact must be adjusted to the economic cycles and the Commission must also assess the quality of public expenditure by analysing any deficit that a country may have accrued. Fortunately, the Ecofin Council is soon set to disappoint these devotees of stability at all costs. In order to confirm this ultraliberal pigheadedness, that majority adopted two amendments, one demanding a reduction in the general level of taxation, the other considering that an overall rise in working time is unavoidable. For some Members, that probably represents the balance between flexibility and security advocated in the Koch report; more work for the workers and less tax for the wealthy.

Mr President, let us calmly take stock of the European economy. 2004 was a vintage year for the world’s economy. The volume of international trade has never been so great. The new report by the International Labour Organisation (ILO) says, however, that despite strong economic growth – more than 5% – unemployment across the world has scarcely gone down. Relative poverty has fallen sharply, though. The EU has experienced only moderate growth and a very slight fall in unemployment, particularly in the new Member States, yet productivity in the EU of the 25 has, according to the ILO, ‘improved at a faster rate than the world average’. This probably explains why the Union is the biggest exporter of goods and services and why Germany alone is performing better than the United States, China or Japan.

A Europe that is the biggest exporter and the biggest buyer in the world – a Europe that manages to balance its books – cannot be in as bad a situation as the prevailing euro-pessimism would have us believe. I am not about to lapse into blissful euro-optimism. The Union could do better. There is not enough growth and there is too much unemployment, particularly in certain large countries, starting with the Union’s traditional powerhouses, Germany and France. For these ultraliberals, the root cause is clear; the problem lies with the constraints of the stability policy and the absence of structural reforms. Yet structural reforms have been implemented in a number of countries; the Raffarin Government has pursued pension reforms and Chancellor Schröder has secured the adoption of Hartz 1, Hartz 2 and more recently Hartz 3 and 4.

Without growth, however, the boldest structural measures run out of steam. This is the view of the Economic Policy Committee, whose annual report on the structural reforms clearly states that governments ‘will only enjoy the fruits of their structural reforms in terms of growth and jobs in an appropriate macroeconomic environment’. Whilst it is true that the euro zone’s overall deficit has increased, albeit remaining significantly inferior to that of the United States or Japan, the result will astonish the defenders of the faith. The Stability and Growth Pact was designed to prevent public debt from leading to spiralling interest rates and thus to prevent the euro from becoming a weak currency. As things have transpired, the European Central Bank has been able to set all-time low interest rates, and the euro is performing almost too strongly against the king dollar. Despite fluctuations and the oil markets, the inflation rate in the euro zone has remained very low, and the purchasing power of those living in the euro zone is superior to that of residents of the US and the UK.

According to the evidence, the euro zone’s problem is not a lack of stability but a lack of growth. In Germany and France in particular, but also in Italy, internal demand is insufficient. All countries have reduced investment in order to limit government deficit. Because the Germans and the French are not consuming enough, private investment also remains hamstrung. Why invest if demand is so moribund? The rate of saving, on the other hand, is at high levels in the euro zone, particularly in France and Germany. This is indicative of a lack of confidence and a fear of the future. One major European country, however, is experiencing considerable growth and a less alarming unemployment rate, and that country is the United Kingdom. Why is that the case? The UK Government has supported internal demand by means of a more active investment policy and a tax policy which does not become bogged down in blind devotion to the orthodoxy of stability, but which aims for balance throughout the economic cycle. Furthermore, the British are consuming, even if they are running up almost US-scale amounts of debt. The one disadvantage for the British in comparison with the euro zone is that they pay a basic interest rate of 4.75%, as opposed to 2% in the euro zone.

The EU, and in particular the euro zone, needs more growth, and that growth can only come from internal demand, from public and private investment and from consumption. Some 90% of the Union’s trade is carried out between the countries of the 25. Even though the Union remains competitive in world trade, growth cannot come from external demand. Whilst certain small countries live primarily off external demand, the large countries always rely primarily on internal demand. Furthermore, those clamouring for European competitiveness based on the social lowest bidder and on lower salaries must acknowledge that most trade is with countries with salary levels and social security costs that are similar to those of Europe. Accordingly, it is not by slashing salaries, and hence consumption, that the Union will move forward. Consumption and, most importantly, investment must be reinvigorated in a coordinated fashion. Article 4 of the Treaty calls for economic policies to be coordinated. Thanks to the intelligent reform of the Stability and Growth Pact, the Union will see a regeneration of growth and jobs.

  Karas (PPE-DE), rapporteur. – (DE) Mr President, Commissioner, ladies and gentlemen, it is the job of the two rapporteurs not only to present the position of their parties, but also the report agreed upon. That both reports led to a very intense political debate in our committee, given that they are reports on decisions concerning the way forward rather than legislative reports, is evident from the fact that although both reports were approved by very large majorities, one group largely abstained on both. This demonstrates the importance of the fundamental policy considerations and questions of overall direction addressed in both reports.

I will restrict my comments to the report as adopted. I have three preliminary observations here. Firstly, the European Union is a legal Community, and although we are a legal Community, 12 Member States have breached the provisions of the Stability and Growth Pact or of the Treaty since that Pact was introduced. Five of them belong to the euro area: Portugal, Germany, France, the Netherlands and Greece, together with the United Kingdom, to which the excessive deficit procedure does not apply, but which is nevertheless bound by the requirement laid down in Article 116(4) of the Treaty.

My second preliminary observation is that we have, in the euro, a successful common currency, one that has turned the internal market into a home market, but we do not have a common budget policy. That is why we need a common policy framework, so that the euro can achieve its full potential and the European Union can achieve its growth and employment policy objectives. There is however, a contradiction here: in 2002 only four Member States within the euro area, accounting in total for 18% of the euro area’s GDP, had a more or less balanced budget, rising to five euro area Member States in 2004.

My third preliminary observation is that the Lisbon strategy provides us with a basis for achieving more growth and employment, and for increasing our competitiveness. The reality presented in the report is that over the last decade the EU economy has grown well below its potential, with a decrease not only in private investment but also in gross public investment, which in the euro area has fallen from 4% of GDP in the early 1970s to 2.4%.

People draw differing conclusions from all this. Some people blame the Stability and Growth Pact, because we say that legally binding provisions are not being complied with, and others say that we have not done our homework and that there is a lack of political will. We need to embark on structural reforms. We need to make demographic trends the starting point for changing our realities. The Stability and Growth Pact is a success because it highlights the political debate about the structural reforms that are required, about the failure of budget policies, and about the risks for the euro, and thus leads to political debate.

A majority of the committee supported this viewpoint. This report, the theme of which was that we need a stronger political will as regards implementation, more courage as regards long-term reforms, a more serious approach and less excuses, also states that we need a greater willingness for reform combined with more honesty towards the public. Germany’s present contention that the costs of reunification have so far been left out of the equation is an example of how insincere the debate has become, because Germany has complied with the stability and growth criteria since the beginning of this decade; it has gone along with the Stability and Growth Pact and has had no problems with it for 10 years.

I urge you to support the report before you if you wish to see greater stability, growth and employment, and if you wish to see compliance with European law and with the Treaty.

  Almunia, Member of the Commission. (ES) Mr President, I would like to begin, on behalf of the Commission and on my own behalf, by congratulating the two rapporteurs for the two reports subject to debate, Mr Goebbels and Mr Karas, and all the members of the Committee on Economic and Monetary Affairs who have contributed to producing the text we are discussing here today in plenary.

I must tell you that I largely agree with the analysis appearing in each report. In the case of the Lisbon strategy, five years after its approval by the European Council, we can all agree on the need to reaffirm the objectives and the pillars of the strategy, to ratify our support for them, and to express our regret that the implementation of the policies necessary to move towards achieving those objectives has been delayed.

In the case of the situation of public finances and the existing framework for monitoring the evolution of budgets and public accounts — the Stability and Growth Pact — we agree with the reference values, with the pillars established in the Treaty. Generally speaking, the evolution of public finances in the Economic and Monetary Union since the pact came into force has moved in the right direction, but, as Mr Karas said, there are too many countries, ten at the moment, in a situation of excessive deficit; some Member States of the Union have levels of public debt compared to their gross domestic product above the 60% reference value laid down in the Treaty, and we therefore need to reflect and seek improvements in the application of the pact, and we need to strengthen the instruments we rely on to make this framework for fiscal governance a success.

With regard to the first of the reports, I would like to explain the Commission’s point of view to you. It is clear that the European Union, and the eurozone in particular, has a lower rate of growth than our competitors, than the other economic regions of the industrialised world, not to mention the emerging countries which have rates of growth of 6, 7 or even 10%. That low growth creates a situation of high unemployment and lack of jobs and seriously calls into question the sustainability of our social model and the sustainability of our model of society in general.

Structural reforms are therefore necessary and, from that point of view, as the honourable Members know, in its Communication of 2 February the Commission proposed certain guidelines for moving towards a review and improvement of the application of the Lisbon strategy, establishing a series of priorities based around three key elements: firstly, making Europe a more attractive place for investment and work, extending and developing the internal market, improving regulations, guaranteeing open and competitive markets, extending and improving European infrastructure networks; secondly, improving knowledge and innovation as fundamental factors for growth, increasing and improving research and development, promoting innovation and the adoption of information technologies, and contributing to the creation of a solid European industrial base; thirdly, pursuing the objective of creating more and better jobs, establishing policies capable of attracting more people to the labour market, modernising social protection systems, increasing the adaptability of workers and companies and investing more in human capital.

On the basis of these elements, we can restore the impetus that the creators, the founders, of the Lisbon strategy — if I may use that expression — had in mind five years ago, and make up for the time lost; at the same time, we will have to act with greater ‘ownership’ at national level, because there is no question that many of the actions necessary to make the Lisbon strategy a success basically fall within national competence.

In the Commission’s view, the role of macroeconomic policy in this regard is to sustain growth. But increasing growth potential is a basic function of structural reforms. We cannot rely on macroeconomic policy to achieve it. That task must be entrusted to the structural reforms such as those appearing in the list that the European Commission has presented.

With regard to the second report — the Stability and Growth Pact, the situation of public finances — which Mr Karas has just presented, I must point out that the negotiations within Ecofin are making very satisfactory progress: further progress was made at last week's meeting. There will be more meetings, of the Eurogroup on 7 March, and of Ecofin on 8 March, which are going to be very useful in terms of reaching an agreement.

I am optimistic about the possibility of reaching an agreement at the European Council of 22 and 23 March which maintains the principles and reference values of the Treaty, as well as the pillars of fiscal and budgetary discipline laid down in the Treaty, which we must all respect. That agreement should improve the instruments so that the governance of the Stability and Growth Pact can prevent the failings we have experienced over recent years, contribute to helping the countries with excessive deficit problems to move towards adjustment, to comply with the reference values of the Treaty, both in terms of deficit and debt, to place more emphasis on sustainability and on the long term, because we are going to have to face the challenge of the ageing of the population and, at the same time, to create a better link between the budgetary discipline that continues to be a necessary element for growth and the growth strategy, more employment, sustainability — in other words the Lisbon Strategy — because the two strategies are linked to each other.

Macroeconomic balance is a condition necessary to growth, but more policies are needed: structural reforms are needed. It will be very positive for the two important issues being debated in Parliament today and being debated in the Commission and in the Council to come together at the March European Council, so that we can reach a forward-looking agreement, improving the relationship between the two strategies and, of course, keeping a clear view of the principles of each of them. One of them being more sustainability, more social cohesion, more growth, more employment and more competitiveness; the other, better budgetary discipline and greater sustainability of public finances as a necessary basis for economic stability and in order to create the conditions that all investors, all wealth creators, need in order to look to the future with more confidence.

  Hökmark (PPE-DE), on behalf of the PPE-DE Group. (SV) Mr President, first of all, I should like to say that the deficits in the public finances in a number of different countries are symptomatic of the problems in the national economies. We shall not solve that problem by permitting increased deficits. We should then, in actual fact, be in danger of undermining the stable condition for growth constituted by low interest rates. We would risk reducing the boost given to households by low interest rates, and we should weaken that basic condition for long-term growth also formed by low interest rates.

It is therefore important to emphasise the importance of structural reforms, as the Commissioner also did in his speech. It is European economies that need flexibility, not our common rules. It is with common basic conditions for companies under construction that we can create new prosperity and new jobs. It is unfortunate that the Socialist Group in the Committee on Economic and Monetary Affairs chose to abstain when we voted on Mr Goebbels’ report. The report now contains a number of practical proposals for creating higher potential for growth in Europe.

We believe that improved basic conditions for work should exist, but not by the means mentioned just now by Mr Goebbels, namely through increasing people’s working time. We wish to bring about improved basic conditions for enabling more people to be in work and for enabling people to work for longer periods of their lives, as well as, if they so wish, for longer hours at different stages of their lives. This requires changes in terms of enterprise, research and the internal market. Right now, we are in a period of change that is significant because of the competition we see.

Now, the important task is to ensure that we make the European economy still stronger through increased competition. We are concerned here with the Directive on Services and with making competition keener within a number of areas. That is our task, the goals being higher growth, more jobs and the best wages in Europe.

  Van den Burg (PSE), on behalf of the PSE Group. – (NL) Mr President, thank you. I think that Mr Karas was right in saying that in this debate, this Parliament is involved in a kind of battle about the direction we should take and in a debate about how to address macro-economic policy in the European Union.

I often have the strong impression that in this debate, the Group of the European People’s Party (Christian Democrats) and European Democrats, as well as sections of the Group of the Alliance of Liberals and Democrats for Europe are busy fighting the previous battle and are still, while being wedged in old discussions, working out reforms about the Stability and Growth Pact and fail to face today’s challenges head-on. Moreover, I often have the impression that we are engaged in national politics and that this House pursues national discussions rather than focusing on the European dimension.

My group prefers the approach for which the Commission has opted with regard to reforming the Stability and Growth Pact and also the approach that the Luxembourg Presidency has adopted in this regard. I would refer to the decisions taken by the ECOFIN Council on 13 September, which clearly favour reform of the Stability and Growth Pact within the context of wider discussions and also in relation to the Lisbon strategy and the global guidelines for economic policy.

Reform of the Stability Pact should address the preventive aspects, the differences in economic developments in the Member States and the corrective aspects, while also promoting an improvement in the excessive deficit procedure. What is of key importance in this, though, and that is something which our group would like to emphasise and which President Bush echoed recently in the context of foreign policy, is that we should pursue true macro-economic policy in Europe and, in this respect, treat Europe as an economic unit, a single entity. I think that that should very much be part of macro-economic policy, that we do not in the first instance compete as Member States against each other, and create distinct profiles for ourselves which also need defending in terms of the Stability and Growth Pact, but that we opt for this European perspective and adopt economic policies in line with that.

That is why close examination of the Lisbon strategy and also of its link with the reform of the Stability and the Growth Pact is necessary; that is also why my group is still keen to underline in that discussion that we should focus on investments and also on how we, within the parameters prescribed in that Stability and Growth Pact, should draw a distinction between current expenses and expenses that are really intended for investment in that knowledge economy that we seek as part of that Lisbon strategy. We do not want to do this in a way that Member States can decide how to do their accounts creatively, but by making choices that are clearly intended for Europe and by setting out a strategy at European level so that it is possible, for example, to depreciate investments made in the long term, as is customary in industry.

We do hope that some of these points will be addressed in those reports and that this discussion will be followed up in the March plenary, when we will be reviewing the Lisbon strategy and preparing for the spring summit.

  Klinz (ALDE), on behalf of the ALDE Group. – (DE) Mr President, Commissioner, ladies and gentlemen, a majority of the members of the Committee on Economic and Monetary Affairs agreed on a largely balanced report, even if Mr Goebbels is distancing himself from that report today. I think it is important for us to ask the Commission to take the following four points on board.

Firstly, there has been a considerable delay in implementing the Lisbon strategy. One of the reasons for this is that the strategy includes a large number of objectives. In November, the Kok group recommended concentrating on a limited number of priorities. That is a sensible strategy and one we support. We would encourage the Commission to concentrate its efforts on the priorities proposed by the Kok group, and the statements made by the Commission in this context give us grounds for optimism. We are also calling on the Commission to analyse best practice in the Member States and to learn from it. This best practice approach will make it possible, on the basis of successful examples in one Member State, to make recommendations to other Member States.

Secondly, the Commission should concentrate even more on the completion of the internal market, in order clearly to demonstrate to consumers the concrete benefits of the European single market, in the form of better and cheaper products and services. There are still barriers to trade in some areas. This is indefensible both in terms of a properly functioning internal market and of fair competition. The public needs to see clear progress on this.

Thirdly, we are not against reforming the Stability and Growth Pact, contrary to what Mr Goebbels has suggested, but we are opposed to watering down the pact, which guarantees not only the independence of the ECB but also the stability of the euro. We support the Commission’s wish to strengthen the preventive side of the pact, but that does not mean, as Mr Goebbels is perhaps suggesting, that it should be permissible to have a deficit of less than 3% when things are going well but to run up a deficit of over 3% in bad times. When the going is good, reserves should be built up so that the deficit criteria can also be complied with or only marginally exceeded in economically difficult times, so that the overall cumulative level of debt can be gradually reduced.

I now come to my fourth and final point. The members of the ALDE Group on the Committee on Economic and Monetary Affairs tabled an amendment on the necessary structural reforms in the Member States. Although that amendment was accepted, as the result of an error – on whose part I do not know – it was not incorporated into the final version. We would therefore like to table this amendment once again here in the plenary, as an oral amendment. The text of this amendment is as follows: the European Parliament recommends that the Member States should implement the long overdue structural reforms required to achieve the improvement in the investment climate that is a prerequisite for economic growth.

What matters here is that we highlight the enormous importance of structural reforms for economic growth, and make it clear that responsibility for this lies with the Member States. It is high time that the EU overcame the problem of the continuing excessive commitment of resources to preserving outdated structures. Furthermore, the Member States should take targeted measures to bring the black economy under control, as it is an obstacle to healthy growth and stability. Only in that way can we make rapid progress towards achieving the Lisbon objectives.

  Jonckheer (Verts/ALE), on behalf of the Verts/ALE Group. – (FR) Mr President, Commissioner, a well-respected French economist has recently published a book entitled ‘La politique de l'impuissance’ (The politics of powerlessness), and I believe that this is a feeling that many of our fellow citizens can justifiably empathise with. I would add, however, that the politics of powerlessness is in fact a deliberate strategy chosen since Maastricht, since 1992, which is broadly based on three axes: the structural reform of the markets – as we call it in our jargon – the reduction of public deficit and the focus on conquering external markets.

Furthermore, as regards the institutions and the allocation of powers, the EU has exclusive competence in the area of competition law and monetary union; otherwise, the Member States must cope and must compete with one another. I feel that 15 years on – unfortunately, in my view – this institutional choice has been given succour by the Constitutional Treaty, a document that I endorse, even though it contains numerous gaps. 15 years on, we have seen the results of this – or rather, a lack of results – in terms of growth, particularly the quality of growth, and in terms of job creation.

Accordingly, Commissioner, our message as the ecologists’ group is that there really must be a change of strategy. We have the impression that discussions on the Stability and Growth Pact are conducted on the margins and that if we truly want to achieve the best results, we must pursue a more proactive policy at euro zone level, one in which ministers ultimately share a support framework based on more ambitious objectives and in which efforts are channelled into achieving convergence between the different national economies. As I do not have much time, I shall mention three of these objectives.

The first objective, in my view, is to implement massive reductions in taxation on labour and to seek alternative ways of funding social security systems, taking account of the diverse nature of each country. I feel that it is very important, however, to be able to say to the citizens that people who work – people who have the opportunity to work – must be able to make a decent living from their work. I believe that this can be achieved by means of massive reductions in taxation on labour.

The second objective – you will not be surprised to learn – is that we need high-quality growth, which means saving more energy and polluting much less. Please look at the Commission’s documents on the assessment of the Community’s sustainable development strategy: the results are abysmal, hence the urgent need for a sea change in this regard.

Thirdly and lastly, we must support internal demand in the Union. There is no need to focus entirely on conquering external markets, as though the economy were made up solely of innovative large companies or small or medium-sized enterprises taking on the Chinese and Indian markets. Internal demand must be supported, which entails public and private investment and involves sending a clear message to the public authorities, both at EU and Member State level, that we are proud to be European and that we have established monetary union along with an internal market. What we now need is a genuine economic and social union that offers every citizen a future.

  Wagenknecht (GUE/NGL), on behalf of the GUE/NGL Group. – (DE) Mr President, ladies and gentlemen, where European economic policy is concerned, we could of course continue on the same course. We could continue, on the pretext of allegedly necessary structural reforms, to tear Europe’s social structures apart, to force the unions to their knees with threats of high unemployment and ever more low-grade jobs, exposing more and more public services to market forces and thus limiting the services that are offered to those that the private sector can make a profit from. And we could also create a situation, thanks to a further round of tax dumping, whereby an employee on average earnings will soon be contributing more to the public purse than many a European company with profits running into billions.

Although we could, of course, continue along this path and be guaranteed plaudits from those who gain from a policy of this kind, we should not try to fool the people of Europe into believing that this policy will promote growth and employment. Who could seriously believe that the extended working hours for which the report calls will create additional jobs instead of destroying yet more? Who could seriously believe that further cuts in public investment will boost internal demand as opposed to sending more small and medium-sized enterprises to the wall? Who could seriously believe, on the basis of our experience to date of privatisation, that it increases employment rather than cutting it?

It is true to say that the economic performance of most countries in Europe is unimpressive, but it is a lie to suggest that the cause for this is a lack of competitiveness. Labour costs have fallen in many European countries in recent years; this trend has been particularly marked in Germany, where employees have had to accept an average cut in real wages of over 2% in the course of the last 12 months.

Has this meant that a particularly large number of jobs has been created in Germany? Quite the opposite! The unemployment rate has hit a new record high. The same, though, is true for exports, and not just in Germany. I say that because the only thing that the political priorities set out in the report before us can achieve is a further increase in the investment returns of European global players and export companies. That might please the European Round Table of Industrialists, but for most people it is a disaster. My group will never agree to a policy of this kind, but we will do everything we can to encourage opposition to it.

  Whittaker (IND/DEM) , on behalf of the IND/DEM Group. – Mr President, Mr Goebbels' report is a frank admission of much that is wrong with the European Union. He has recognised that high economic growth is necessary to achieve low unemployment, to pay pensions and to achieve what is here called 'social cohesion' or 'social protection'.

So why is growth so poor? Several speakers have blamed the Stability and Growth Pact. Some say it is being interpreted too strictly and that governments are not spending enough. Others say the opposite, that we must stick to the Pact more tightly. They cannot both be right. I suggest that both sides are missing the point.

Mr Goebbels says we will raise growth by promoting competition, enterprise, entrepreneurship, initiative, and risk-taking, particularly among small- and medium-sized enterprises. Let me analyse this. I agree that small businesses are important; large multinationals have all the influence, but create jobs outside the EU. However, I do not believe there is a shortage of small business opportunities, investment capital, or entrepreneurs who would be prepared to take risks in setting up businesses and taking on employees. So why is this not happening? And why, when it does happen, do so many fail? It is because we have gone out of our way to make it hard for them.

Go and talk to small businessmen. You will hear the same story repeated everywhere: too much red tape and too many rules, particularly those connected with employing people. These difficulties occur because the whole spirit of the EU is to use centralised direction in a vain attempt to achieve an idealised society by making laws and restricting activity. Examples of this include the Working Time Directive and the large numbers of rules introduced to uphold various rights, each of which has the major effects of crushing enterprise and enriching lawyers. The whole ethos is biased against the employer.

We all want high employment and to live in a compassionate, cohesive society. However, this is only possible when we have wealth. In trying to achieve our ideals by means of coercion, we kill off the source of our wealth. The whole model is in drastic need of revision.

My colleagues in the other British political parties still cling to the idea that they will be able to persuade the European Union to change its ways. In the UK Independence Party we have recognised that this will not be possible. The only way to preserve some prosperity in Britain is to leave the EU. We want our EU neighbours to prosper too, but when they fail to do so because of blind adherence to a flawed model we would prefer not to be dragged down with them.

  Ryan (UEN), on behalf of the UEN Group. – Mr President, we have all seen the success of the internal market, where there is free movement of goods, persons, services and capital. It is clearly the case that the single European currency system is operating well. It commands the confidence both of the citizens of Europe and of the business and investor communities.

For the European Union to succeed, there must be broad economic coordination from the 25 Member States. This is an integral part of the overall strategy to implement the Lisbon process, so as to guarantee that the European Union becomes the most competitive economy in the world by 2010. However, EU governments are going to have to hammer out an agreement as to how the rules governing economic and monetary union are going to operate into the future. The bottom line is that some countries are running up serious budget deficits, which is clearly in breach of EMU criteria.

Some countries want the rules governing the operation of the single currency regime to be opened up and made more flexible. I feel that this is an issue at which EU governments should look carefully so as to ensure that they can build the necessary infrastructure projects in the transport, energy and telecommunications fields.

I am not taking a belligerent approach with regard to the operation of EMU criteria, but we cannot allow the situation to go on forever where countries are running up large budget deficits and are clearly in breach of so-called strict rules governing the operation of the single currency regime. That undermines the credibility of the overall EMU framework.

If the broader international investor community is to have maximum confidence in economic and monetary union within the EU, the EU must put its house in order. We have all seen how volatile currency markets can be. Either all countries comply with the rules and have confidence in the system or we will have a credibility problem with regard to the issue for an indefinite period.

  Martin, Hans-Peter (NI). – (DE) Mr President, I believe that the report before us is a further sign of the helplessness that has taken hold of the European Union. There are signs that things are starting to fall apart because of a wide variety of counteracting trends. Although the internal market is in place, we are lacking everything that we know is required for a reasonable economic policy, by which I mean the need for a minimum of common principles. The result is the greatest redistribution of financial assets in peacetime history. This does not only apply to this continent, although the situation here is particularly difficult, because we have a large middle class that is breaking up. I am therefore sorry to see that this report does not suggest any real approach for counteracting this. I believe that enlargement has come too soon, and that consequently we are promoting wages dumping, so that very many things we were warned about are now actually happening. The first approach to adopt must be to create genuine transparency, so as to ensure that these discrepancies are at least clear for all to see.

  Radwan (PPE-DE). – (DE) Mr President, Commissioner, we are discussing the Lisbon strategy and how Europe is intended to become the most competitive region in the world. We have not managed to achieve that over the last five years, and we have now identified the chief culprit: the Stability and Growth Pact! People are saying that if we scrap the pact Europe will be better off, because that will enable us to make better progress.

I have not heard anyone talking about the homework that needs to be done at national level, and about where the real culprits are to be found – in the Member States. Germany even believes that it is worth making higher net payments to Europe in return for the abolition of the Stability and Growth Pact.

Commissioner Almunia, your predecessor, the Spanish Socialist Mr Solbes, assured this House on several occasions that the Stability and Growth Pact is sufficiently flexible, and I am bound to agree with him. What I cannot accept is that we should keep the 3% and 60% criteria and then, as Chancellor Schröder has done, seek to have certain factors excluded in the run up to or even after the procedure. This is then sold to us under the Lisbon banner by saying that we no longer can or must take anything growth-intensive into account in the procedure from now on. It has to be taken into account. And Germany’s economists tell us that we will then end up with an 8% or 10% deficit. The appropriate sanctions are not being applied here.

If we are to take Lisbon seriously, then we first have to take the Stability and Growth Pact seriously, and not use the argument that ten Member States are in breach of it. I would be delighted if speed limits were applied by saying that if you get caught too often by a speed trap, we will just raise the relevant speed limit so that not so many people are fined in future! Rules are there to be respected.

We need to take the Lisbon strategy seriously. We need to take it seriously when framing EU legislation, so that in future every new directive is checked to see whether it conflicts with the Lisbon objectives or promotes them. The Member States need to make sure that they do not torpedo legislation on the internal market when it is inconvenient for them, and the Commission must take to task those Member States that are at fault. The Commission should introduce benchmarking and announce this in the clearest possible terms. We in Europe have to realise that the world is not flat and that we are engaged in global competition. We need to finally react to this so that people are aware we are taking this subject seriously.

  Berès (PSE). – (FR) Mr President, Mr Karas is no longer here, but I would like to have said to him that I share the view that the EU is a Community of law. Above the Stability and Growth Pact is the Treaty, in which there is an article, which has not been changed, calling on Member States to consider their economic policy as a matter of common interest. Accordingly, growth throughout the euro zone is a matter of common interest and I do not feel that the Stability and Growth Pact in its current form is the instrument that we need.

I would say to Mr Radwan that the question before us is not whether we are exceeding the speed limit, but whether we want to drive slowly in a Mercedes, and it strikes me that, at the moment, this is more or less the case with the Stability and Growth Pact.

I should like to make three comments on the Stability and Growth Pact. Firstly, I feel that a good reform is one that provides the Union with a macroeconomic instrument with which to implement the Lisbon Strategy. Against this backdrop, the question of ‘taking expenditure into account’ will be high on the agenda. This is not a matter of opening street market-style negotiations, in which Member States compete to have their demands heard, but of finding where there can be added value for European growth, and only the Commission can tell us this, because the Commission embodies the common European interest.

Secondly, there are those who say that, for accounting reasons, the manner in which one Member State or another pursues structural reforms in the area of retirement could come under the heading of ‘taking expenditure into account’. I feel that this is dangerous, given that, again for accounting reasons, this would lead us into debates that go to the heart of national cohesion.

The third point I should like to make is that, in terms of the way in which we assess the situation in the Member States, it cannot in fact be said that everything takes place on a level playing field. The economic situation, as regards the Stability and Growth Pact, has a different meaning depending on the size of the country; it is inadequate to say that all Member States are alike when it comes to the Pact. Everyone in economic circles now accepts – although it remains frowned upon to say this in political circles – that the impact of using the budgetary instrument varies according to the size of a country’s economy. At the moment, two countries such as France and Germany are in a situation in which they are both responsible for and the victim of a state of affairs that no Member State, in the euro zone or in the EU as a whole, is taking advantage of. It is in nobody’s interest to see the economy of the euro zone weighed down by weak growth in the main economy of the euro zone. This runs counter both to the Treaty and to the Member States’ common interest.

  Starkevičiūtė (ALDE). – (LT) Thank you Mr President. I would like to say that at the moment we are debating two documents at the same time, which have in essence been prepared splendidly and which complement each other. They must form an economic foundation for the Stability and Growth Pact, for a third group of documents which we are debating and, you see, perhaps it would be worthwhile considering that if we wish to send a clear message to our citizens, the citizens of the European Union, the business community, and ultimately the international community, then perhaps we should devote more attention to some of the provisions in one document, which would lay the foundation for macroeconomic stability, the Stability and Growth Pact. It would be naive to think that we can maintain or consolidate the Stability and Growth Pact with some legal provisions or criteria. I say this with fifteen years of experience of the reforms which my country has implemented. We must not look for differences, if we wish to implement reforms, we must look for consensus. I believe that there are four points on which we can agree and our experience of reforms tells us that these may have a positive influence on economics. First of all we must devote attention to the investment required for productivity, because we need a particular kind of investment. We must devote attention to structural reforms, however these are impossible without fiscal measures. As unemployment appears during structural reforms, support is needed, but one cannot devote all one's attention to support alone, as otherwise the budget cannot be sustained. We must devote attention to the expansion of new businesses, that is we must try to simplify tax administration, so that minor companies and small business can work successfully in Europe. As for the fourth and most complicated point – we must be aware that cheap goods are pouring into Europe, we are surrounded by cheap manufacturing countries and we must begin to think about how we can reduce taxes, of course without upsetting the macroeconomic balance, because much can be achieved, as our experience of reforms has shown, through the implementation of better tax administration. It is no surprise that many countries encounter problems with profit transfer and value added tax reduction, however there are many ways to administer taxes better and reduce the burden of taxation, as the experience of our countries shows. I believe that this is the most successful way to use the knowledge we have accumulated. Thank you.

  Manolakou (GUE/NGL). – (EL) Mr President, the reports on public finances in EMU and the state of the European economy do not under any circumstances take account of grass-roots problems which are common to the workers of the Member States in that their cause is the same: the anti-grass roots policy of the European Union. The fact that these are common problems is clear from the workers' demonstrations being held in most countries against the cost of living, unemployment, low wages, redundancies, the privatisation of the health, education and welfare sectors, longer working times, insecurity and uncertainty about the future.

The rapporteurs, instead of replying to the foregoing, support stricter compliance with the Stability Pact, with extortionate tax and anti-grass roots austerity programmes to combat deficits. In other words, it is always the workers who pay, never the plutocracy. At the same time, they are calling for the anti-grass roots Lisbon strategy to be applied quickly, in order to promote greater exploitation of labour through part-time and temporary work, longer working hours, later retirement, the abolition of government participation in social security and the circumvention of collective agreements. This is the new redistribution of wealth, with even greater benefit for big business and even more inequality and injustice. They call for the European economy – by which they mean the profitability of the European monopolies – to be invigorated with new, harsher, more anti-grass roots austerity measures and for the workers to make greater sacrifices, for their own good, while demanding that governments reduce even the minimal social spending which remains and make immediate changes to insurance and pension systems which, as they say, are inadequate.

These are the European Union philosophies and policies which cause the workers to express their feelings by staying away from elections, such as the European elections, for which there was a 40% turnout, or the recent referendum in Spain on the so-called European Constitution, for which there was a 35-40% turnout. These are signs which express the workers' feelings of indifference and that is why they are turning their back on the European Union. However, the best response is a fight in the form of organised disobedience to this policy and a counter-attack designed to bring about its radical change.

  Wohlin (IND/DEM). (SV) Mr President, growth in the EU is clearly below what it potentially could be. The EU has high unemployment; it has a current account surplus in respect of other countries; and the figure for inflation is lower than that aimed for under monetary policy. As the report emphasises, there is a great need for structural reforms. The report does not, however, do enough to emphasise quite a few countries’ need for a more expansive policy.

One cause of the unduly restrictive policy is the way in which the Stability and Growth Pact has been designed. In my opinion, it is wrongly constructed, which leads to an unduly restrictive policy in certain countries. The mistake lies in focusing too much upon the budget deficit. Instead, the focus should be on the debt ratio.

A country with a debt ratio of less than 60% of GDP and which keeps inflation below 2% will have a decreasing debt ratio if its economy grows in real terms by one percentage point or more and if the budget deficit amounts to 3%. If a country’s economy grows by 5% and if inflation is at 2%, the nominal GDP will increase by 7%. The budget deficit could, then, amount to 7%, and the debt ratio would be stable in the case of such a deficit. Such a country would not put any strain on the eurozone. The increase in debt would be stable and therefore defensible in the long term. The country ought probably to have a sound credit rating and ought not to constitute any credit risk for the eurozone as a whole. Such a budget deficit is defensible in the long term. A limited deficit of 3% means that the national debt is continually decreasing as a percentage of GDP. Because a debt ratio of 60% of GDP is reasonable in economic terms, there is no reason to force such a financial restriction upon the country.

It is only natural for new, rapidly growing countries to have significant deficits in their balance of current payments and capital imports. Private savings may perhaps not be sufficient; the state too may have a budget deficit. The conclusion to be drawn from this is that countries with debt ratios of less than 60% of GDP and with inflation under control should be allowed to grow more quickly and to conduct a more expansive policy. In this way, the whole of the EU would be given a boost. I recommend that the Stability and Growth Pact be altered along these lines.

  Angelilli (UEN). – (IT) Mr President, ladies and gentlemen, the need for reform of the Stability Pact is also clear from the report on public finances in EMU. The Pact undoubtedly has an important role in terms of stability, but also needs to act as a stimulus to growth.

We are aware that Ministers at the Ecofin Council meeting are preparing the text for the reform, but Parliament must not opt out of the debate. It would therefore be desirable, prior to the final decision by the Council, for Parliament to have an opportunity to express its views on the procedures for reform of the Pact by holding a debate on the subject. Since the debate in September, Parliament appears to have adopted a passive stance, whereas it should instead be exercising a key role in the reform process, above all allowing all Members and groups to give a clear outline of the possible strategies.

We have to be practical and realistic. We cannot state in our documents that we have to become the most competitive economy in the world, while at the same time the figures are clearly showing growth to be stagnating. The Pact therefore has to be reformed. I refer to more flexible ways of applying the Pact during periods of economic difficulty, to the need to give due credit for the structural reforms undertaken by Member States, and, possibly, to allow expenditure on investments in support of the – still remote – objectives of the Lisbon strategy to be excluded.

To conclude, I believe Parliament must resume an active role in this debate, as the only institution directly representing the citizens of the Union.

  García-Margallo y Marfil (PPE-DE). – (ES) Mr President, the rapporteur, Mr Goebbels, laments the lack of coordination of economic policies. I agree with that, but I reach a different conclusion.

Without those coordination rules, making the Stability Pact more flexible would be equivalent to breaking it and breaking the Stability Pact would mean neutralising the Central Bank’s efforts to maintain prices, it would mean rises in interest rates, it would mean a delay in growth, which is what we all want, a delay in the implementation of the structural reforms and, more dangerously, a serious threat to the welfare state. The resources we spend on paying interests and paying off public debt will mean less resources for guaranteeing finances.

What we need at the moment is more employment and more productivity. More employment, above all, means paying attention to those sectors of the population with most difficulties and we know that they are women, young people between 15 and 25 years old and people over 55. And more productivity means more investment, more effort in investment and development and more effort in education and professional training with a view to increasing the productivity of work.

The Commissioner’ speech also reminds me – to quote Mr Goebbels once again – of those speeches of the defunct Soviet Union that said that the transition to socialism would inevitably end the following year. When they became aware that that transition was possible, they concluded that the transition was complete and that they had already arrived at communism. A few years later the Iron Curtain fell.

There is no need to weaken macroeconomic stability, but it is essential that we continue to insist more strongly, more vigorously, on structural reforms as the only guarantee, the only serious formula, for achieving growth.

  Bullmann (PSE). – (DE) Mr President, ladies and gentlemen, Mr Karas said earlier that we are dealing here with decisions about our future direction, and he is quite right there. However, you can only make decisions about your direction if you can see the horizon. To be capable of making decisions about future direction, you have to be up to date in your analysis and your proposals, and I can tell most of the Members in the Conservative group that they, of all people, are not up to date with their proposals in these two reports, and not in a position to see the horizon.

You know very well that the Economic Policy Guidelines are the most tedious document to emerge from Brussels year after year. So what are your proposals in the Committee on Economic and Monetary Affairs to modernise this instrument? Where is your contribution to a meaningful debate?

Structural reforms, I hear you say! Quite right! Europe and its Member States need structural reforms. But you know very well that structural reforms can only work, and can only lead to more growth and higher employment if they form part of an active industrial policy, part of an active policy for small and medium-sized enterprises and part of a budgetary policy appropriate to our economic situation. I feel like weeping when I look at your proposals. You should read your texts through once before you adopt them, that would be a great help!

You want a general reduction in the level of taxation. It would be better if you were to discuss a decent policy for SMEs with us rather than putting this sort of nonsense in your reports. You want everyone to work longer hours. Why not help us to increase the employment rate, so that more people are in work? Europe stands to gain more from that. That is why you can only hope to get our agreement if you vote for some reasonable amendments. Otherwise we cannot support this nonsense.

  Bourlanges (ALDE). – (FR) Mr President, the EU’s economic policy is currently made up of three elements: a platonic ambition – the Lisbon Strategy; a despised constraint – public spending controls; and a demand that has been ignored – support for purchasing power.

The Lisbon Strategy is a platonic ambition. Who could not support the objectives set in Lisbon? Who could not be in favour of a knowledge-based economy, of better training for people, of progress in research and development and of an innovation-based society? Who would not be in favour of these objectives? Who, on the other hand, cannot see that the term open cooperation is an empty shell? Open cooperation is nothing but the free policy of States that, from time to time, make imaginary appointments with the European Union, and the Council, the Commission and Parliament are reduced to institutions of comment and disapproval. We will not win the game this way.

Controls on public spending are a despised constraint. Behind a supposed dispute between Keynesians and liberals on the issues of the instruments of short-term economic policy and the use of public spending, for 25 years we have seen public spending spiral out of control and systematic deterioration, in a number of large countries, particularly in terms of debt, which prevents our children from taking control of their own futures. This is tantamount to death, or the past, taking away life, or the future.

The European Central Bank (ECB) stands unjustly accused in this case. What do we blame the ECB for? We blame it for excessively high interest rates, yet they have never been so low since the war; and for the policy of an excessively strong euro, a situation that has obviously been brought about by US policies of systematic deficit and not by the supposed good qualities of the Europeans. The truth is that the ECB scarcely has the resources. Then there is the Stability and Growth Pact, which is an instrument to be reformed. What do we blame the Stability and Growth Pact for? We blame it for being stupid and malicious. If this is the case, then let us endeavour to make it less stupid, whilst retaining its binding nature.

I shall finish, Mr President, by mentioning a demand that had been ignored – stimulating purchasing power. Who cannot see that we are currently in a system in which employees have less and less money and purchasing power in comparison with shareholders? There are potential remedies, such as spreading share ownership and reducing taxes for workers, yet these remedies are ignored.

My fear, Mr President, is that the institutions and the EU will be reduced to being the chorus in a classical tragedy in which the actual protagonists are the national governments.

  Guerreiro (GUE/NGL). – (PT) In light of the reality of the deteriorating economic and social situation in most EU countries, the Stability and Growth Pact is finally being called into question, albeit late in the day, and only when France and Germany have failed to comply. Better late than never, though.

Unfortunately, the perspectives that have been set out for the 8 March ECOFIN Council will mean more of the same when they come to be implemented. The so-called flexible application of the Stability and Growth Pact would depend on a country’s greater or lesser capacity to place at risk public social security, pension and health systems and, as some people have pointed out, public administration reforms. In other words, the more a Member State implements policies and objectives enshrined in the Lisbon Strategy that we consider extremely onerous, the greater its flexibility to implement the Stability Pact, and this would be unacceptable.

  Janowski (UEN).   (PL) Mr President, Commissioner, ladies and gentlemen, I will not be able to explore the subject in depth in the short time available to me, so I shall merely highlight a number of issues.

Firstly, the money and energy that are being wasted on excessive and all too often absurd bureaucracy represent a major constraint on the EU’s economic development. Secondly, there should be a thorough study of the tax systems in the Member States, with one of the aims of the exercise being to find out whether the VAT system currently in force is the best solution. There may well be other more effective taxes, and indeed experience has taught us that this is the case. Thirdly, a systematic analysis of the economic situation of the EU as a whole and of the individual Member States must be carried out every three or four years and feedback given, in order both to identify any progress achieved and to make it possible to react quickly enough to any problems. Fourthly, there is a severe lack of funding for research aimed at fostering economic development.

Finally, I should like to turn to an issue that has not yet been touched upon. All this intense economic debate and all the ever so clever schemes proposed and which have given rise to such concern will be so much hot air unless real steps are taken to prevent the impending demographic disaster in the EU. I am not making empty threats. Members of this House need only stir themselves to look at the population statistics. Although these do not make easy reading, there is no mistaking the warning they contain. Whereas today there are four persons of working age to support every person of retirement age, in 30 years' time two persons will have to do so, and the question arises as to whether this is feasible. We should not forget that the family, which includes both parents and children, is the most basic economic unit. The 1992 Nobel Prize winner Gary Becker has gone so far as to say that the family, and work carried out within the family, account for as much as 30% of national income. The French economic Jean-Didier Lecaillon has made similar comments, and I could give examples of others, notably by John Paul II, whose voice carries particular weight. Charles de Gaulle is recognised by all as a true statesman, and he was entirely serious when he said that if you are poor and have no other options, you must invest in the family. Sapere aude Europa. I thank you.

  Claeys (NI). – (NL) Mr President, this report provides a host of proposals to do away with the deficit that was created when the Lisbon strategy was carried out. I would specifically like to express my appreciation for paragraph 7 of the report, which underlines the important role that small and medium-sized enterprises (SMEs) actually play in the creation of jobs and prosperity in general. It is of major importance that a climate be created which encourages the entrepreneurial spirit among young people, a climate in which the administrative burden and the tax burden are substantially reduced and in which SMEs have easier access to risk capital. Another conclusion is that the report does not breathe a word about the Commission’s Green Paper on economic immigration. That is just as well, certainly in view of the current level of unemployment. The Commission’s plea to admit and stimulate new immigration is blinkered, counterproductive, but also totally misplaced, even though the Commission refers to the Lisbon objectives to table that proposal.

  Lulling (PPE-DE). – (FR) Mr President, my fellow members of the Group of the Alliance of Liberals and Democrats for Europe and the Group of the European People’s Party (Christian Democrats) and European Democrats will certainly be delighted to know, given the nature of this debate, that Mr Goebbels opened up to the Luxembourg press, saying that their amendments adopted in committee reflected the ‘fundamentally reactionary and neoliberal nature of these two groups in Parliament’. The outlandish nature of these words has, of course, a somewhat laughable element: it suggests that this House is, at the very least, made up of hardcore reactionaries. Yet there is also reason to be concerned about these words. In this House, the Socialist Group willingly cultivates a certain degree of ambiguity when it comes to the principles of economic policy. With the socialists, this ambiguity turns to actual loathing.

Personally, I do not think it is superfluous to point out in this debate that the conditions for sound, sustainable development are created by sound public finance and by reasonable compulsory deductions. Stability is not an obstacle to growth; it is a prerequisite to growth.

On our side of this House, we do not succumb to the same weakness for ideological blindness. We show much greater pragmatism. There are situations in which more interventionist policies turn out to be necessary in order to reinvigorate the economy, but that is not the point here. The current situation in which Europe finds itself scarcely fits into that pattern. Having discovered Keynesianism a little too late, Mr Goebbels would like to bring it into all recipes and all sauces, even when it is not called for. Increasing supplementary budget deficits does not provide a solution to our current problems. If this were the case, the countries known for their financial and budgetary slackness would have long since been held up as the example to follow.

Lastly, it is not a crime to say that Europeans have a duty to work harder and better in order to guarantee their standard of living in the face of global competition, Mr Bullmann. The exemplary nature of the French 35-hour week says more than any lengthy discourse on the subject. Of course, Mr Goebbels put forward a number of good ideas in his report – such as encouraging certain types of investment in social services or in sustainable development – but he seems ill at ease with the crux of the issue, which is that economic efficiency follows clearly defined rules and that it is dangerous to overlook them.

  Andersson (PSE). (SV) Mr President, firstly, I should like to say how sorry I am that the representative of the Group of the European People’s Party (Christian Democrats) and European Democrats, Mr Hökmark, has left the debate. I believe that the proposal arrived at by the committee is unacceptable for us Social Democrats for three reasons.

Firstly, no general increase in working time is required. What we need is more people in work, not a general increase in working time. Secondly, a comprehensive reduction in tax in Europe would not solve the problems. How can it be that the Nordic countries, which have the heaviest burden of taxation, have the highest growth in the EU? This suggests that the PPE-DE Group has completely lost the plot. Thirdly, we need a balance in the Lisbon Process. Those making the proposal, as it now stands, are even worse than the Commission in the way that, in general, they emphasise only the first pillar of the Lisbon Process when what is required is reciprocity between the pillars.

I share the view that structural reforms are needed, but what is most important is that, in the process, social responsibility should be accepted and both sides of industry involved. Mr Hökmark comes from Sweden, where his party is nowadays cosying up to the Social Democrats. In the national debate at home, they do not talk about tax reductions or an increase in working time. They do so in this House, however.

Sweden has had an extremely successful economic policy during the post-War period, with the single exception of during the years 1991–1994. Mr Hökmark was one of Sweden’s policymakers at that time. It would be regrettable if the PPE-DE Group were to adopt this neo-liberal policy and make it its own. The result would be political antagonism. We Social Democrats want to see a balanced, rather than a neo-liberal, policy. A neo-liberal policy will not solve Europe’s problems.

  Czarnecki, Ryszard (NI).   (PL) Mr President, ladies and gentlemen, this is the first time we have ever been faced with a situation in which a majority of Member States, or in other words 13 out of 25, are outside the euro zone instead of within it. Interest rates in Europe are also at their lowest levels since the Second World War, and yet this is not acting as any kind of incentive to investment. We need to recognise the fact that the eurozone is experiencing slow economic growth. We already know that domestic consumption will remain low for the next two years, and this is true for the EU as a whole. At the same time, since enlargement there has been a significant rise in the economic aspirations of citizens, and in particular of those in the new EU Member States, such as my country, Poland. These aspirations are at odds with a poor economic situation in which it is impossible to meet consumers’ expectations. In political terms this may result in a rise in Euroscepticism over time, and indeed this is made all the more likely by the fact that all projections, including those quoted in the Goebbels report, suggest that unemployment levels will remain high in the immediate future.

EU citizens expect the real economic growth they have repeatedly been promised in recent years, for example at EU summits. Yet they also expect justice and equal treatment for all Member States. By condoning large budget deficits in countries such as Germany or France, but coming down heavily on other weaker and poorer countries if they dare to have a deficit, the EU is putting into practice an idea familiar to us from Orwell’s ‘Animal Farm’, namely that all men are equal, but some are more equal than others. This does nothing to bolster the EU’s authority in the eyes of the other Member States. In short, it is a scandal.

  Kauppi (PPE-DE). – Mr President, I wish to begin by thanking my colleagues Mr Goebbels and Mr Karas for their work in preparing the reports on public finances.

As we know, growth in the EU has not been as good as we expected. The decrease in the share of GDP used for private and public investments in comparison with the 1970s is drastic, as our colleague Mr Karas described. Due to a lack of structural reforms and low investment, growth in GDP is not satisfactory. However, we cannot rely only on public investment to stimulate growth: we must give incentives to stimulate private investment, which is the real source of sustainable growth in Europe.

At the heart of this debate is the future of the Stability and Growth Pact. The goal of the Pact was to balance the budgets of Member States and to create budget surpluses by 2003. The idea behind this was for the Member States to pay off their debts in the good times and to ensure, by reforming the structures of the public sector, that their budgets could be kept balanced in the bad times as well. However, it is not easy for us politicians to restrain ourselves from increasing spending in good times. Unfortunately this shows in the poor results of many Member States with regard to the Pact.

I am strongly in favour of the Pact. The Member States who have done their share and have kept their public finances in check – especially my country, Finland – have to suffer as a result of the irresponsibility of the Member States that just do not care! Unfortunately it now seems inevitable that some elements of flexibility will be added to the Pact. However, we should be wary of watering down the Pact.

Three issues should be kept in mind. Firstly, the rules should be same for all Member States and the criteria should be objective. Secondly, no expenditure, such as public investments or research funding, should be automatically excluded from public expenditure: these exceptions would provide an opportunity for Member States to interpret them in a very innovative way. Thirdly, the flexibility accorded to the Member States should be bound to reforms they have carried out in good times. It is only fair that those Member States that have paid their debts and have reduced their deficits should have some flexibility, but those who have not done anything should not be given any more room for manoeuvre.

I hope that good common sense will win out and that the Stability and Growth Pact will remain; and, if any changes are made to it, at least let us direct them in a favourable direction.

(Applause)

  Rosati (PSE).   (PL) Mr President, the proposed changes to the Stability and Growth Pact are intended to make tax rules within the European Union more flexible and practical, whilst upholding the fundamental principle of budgetary discipline. I believe these changes are a step in the right direction, but I should like to highlight three related issues.

Firstly, the Commission proposals mainly focus on current budget deficit, whilst attaching less importance to public debt. I believe that the opposite should be the case, as the most important factor determining long-term financial stability is the size of the debt in relation to gross national product, and not the deficit in any given year. This means that tighter deficit limits should be set for countries with very high levels of debt than for those with low levels of debt. The latter can afford to run a higher deficit on a short-term basis, and should not be punished for having stuck to the rules in the past. Levels of debt should therefore be a more important criterion than current deficit.

Secondly, the method used to calculate deficits must make allowance for the particular situation of those of the new Member States that have embarked upon the difficult task of reforming their pension systems. In these countries, expenditure associated with these reforms has risen on a temporary basis because it is necessary both to finance current pensions and to establish pension funds for future generations. This expenditure should not be treated as current public expenditure for the purposes of the Stability and Growth Pact, as it does not increase current demand, but instead contributes to national savings. New Member States should not be punished for carrying out difficult structural reforms.

Thirdly, I should like to suggest to the Commissioner that consideration be given to excluding expenditure associated with payments into the EU budget when establishing the principles according to which deficits will be calculated for the purposes of the Stability and Growth Pact. Although it is true that such expenditure increases demand throughout the EU, it also helps implement the key principle of solidarity. Such a solution could also make it easier to reach a compromise on the size of the European Union’s budget for 2007-2013. I would note that one of the reasons why certain Member States are calling for a ‘small’ budget is because they are net contributors to the EU budget. Many thanks.

  Samaras (PPE-DE). – (EL) Mr President, we are talking about competitiveness, but competitiveness relates directly to currency exchange rates. We have allowed the euro to become overpriced in relation to the dollar. It has risen from 0.84 to 1.30, causing extensive damage to our competitiveness.

The Central Bank has basically sacrificed competitiveness, where we are lagging behind, in order to reinforce stability, where we are fine. In other words, we have protected the point at which we are strong and left the point at which we are weak exposed. Thus, the expensive euro has exacerbated the recession. The recession has reduced the inclination of companies to take investment risks and adopt innovations. In other words, what good is the Lisbon strategy? Look at what the Americans, Russians, Chinese and Indians are doing. While all our competitors are focusing on competitiveness and growth, we are focussing on waste and debt. All of them are achieving higher returns than us, while we are wallowing in chronic recession. Perhaps we should start to question our economic policy mix? As long as the present mix continues, the Lisbon strategy and the Stability Pact will become more and more mutually incompatible. Keep the Lisbon strategy, but make sure the monetary policy applied by the Central Bank also helps. Keep the Stability Pact, as long as the emphasis is on restraining expenditure, not increasing income.

The European Central Bank needs to relax monetary policy so that the Member States can tighten up their public finance policy, especially on the spending side. Then, whatever active demand loses in public spending, it will gain from increased exports and we shall avoid tax increases. This is a policy mix that combines prudence and growth but, if we are to achieve it, the Central Bank also has to cooperate. Of course we need prudence, but prudence is one thing and inflexibility is another. As long as we confuse prudence with inflexibility, we shall have neither prudence, nor growth nor competitiveness.

  Bersani (PSE). – (IT) Mr President, ladies and gentlemen, I refer to the Goebbels report and would like to congratulate our fellow Member on his excellent approach to the topic, with its focus on striking a balance between the obvious need to revitalise economic and growth policy in Europe and the aim of stability and the conditions for achieving it. However, during the course of the debate, this balance has been lost and can only be restored if we behave reasonably, as recommended by Mrs Lulling earlier.

It is not reasonable to approve a report which does not face up to the need for greater coordination of the economic policies of Member States, nor can we agree that a statement of this sort goes against the autonomy of the monetary authorities. It is not reasonable to approve a report which makes no reference to reform of the Stability Pact and its link with the Lisbon objectives, at a time when we are patently moving towards an agreement. It is not reasonable to state that a general reduction in the tax burden is vital for competitiveness, if we look at the excellent results of countries with both heavy and light tax burdens.

In any event, I wonder if the European Parliament should really be recommending a general and generic cut in taxes when no Member State would consider such a proposal credible in current circumstances. Similarly, no one would reasonably state that a general and generic increase in working hours would be viable or effective. Linking the liberalisation and improvement of services too closely with their privatisation only risks increasing resistance to any process aimed at liberalising the market.

To conclude, I believe the document contains some important pointers and is a creditable effort, but on certain issues the balance needs to be restored, leaving ideological claims aside and thereby making a useful contribution to the debate on the economy now being conducted throughout Europe.

  Mann, Thomas (PPE-DE). – (DE) Mr President, the Member States have committed themselves to bringing their budgets close to balance or into surplus. That is a commitment under the Stability and Growth Pact, and countries such as Germany have breached it by running up deficits. Although they give cyclical problems as their excuse, they have failed to make the necessary structural reforms.

What the then German Finance Minister Theo Waigel secured agreement to in 1997 in the interests of Europe was a seriously meant guarantee of stable prices, budgetary discipline and the ability to react to structural changes, such as the need to finance a society with an increasingly elderly age profile. This was not about neo-liberal politics of the left, it was also in the interests of the workforce.

The Luxembourg Presidency announced a modification of the pact, not any easy task. Berlin wants to abolish the excessive deficit procedure, while the smaller countries in the euro area are quite rightly insisting that this pact should be observed to the letter. They have done their homework.

Mr Juncker told the Committee on Economic and Monetary Affairs that there was no question of changing the 3% threshold and the excessive deficit procedure. I am also in favour of the Commission keeping its powers in this area, from sending ‘blue letters’ to imposing fines. You, unfortunately, have announced an ‘intelligent interpretation’ of the pact. Does that not represent a watering down?

You quite rightly said that Greece must be held to account if it again submits falsified data. Please correct me if I am wrong, but, shortly afterwards, you led the Germans to believe that they could treat the cost of reconstructing the East as a special liability that could be taken out of the calculation. At that, other countries came along and said that their own investment in education, military installations or infrastructure should also be excluded. Once you enter the realms of creative accounting in this way, you can relegate the pact to the waste paper bin. You are just juggling figures and not providing any guarantee to Europe’s citizens.

I support my colleague Mr Karas’ excellent report; we must not play fast and loose with confidence in the euro.

  Rasmussen (PSE). – (DA) Mr President, this is a constructive report by Mr Goebbels and the committee that presented it. I also wish to thank Commissioner Almunia for a thoughtful contribution and for his commitment to a reform of the Stability and Growth Pact, as presented.

My contribution in this House today will focus upon two of the most important issues for Europe. The Conservatives and Liberals here in Parliament focus upon structural reforms – about which we are prepared to negotiate, I should like to say – not only in the European Parliament but also in our individual states. The Socialist Group in the European Parliament, of which I am the President, does not oppose reforms. We want to see the correct reforms. I would add one thing, however: Europe’s main problems do not only include the need for structural reforms; its second big problem is that demand in our countries is too low.

I would make a genuine and urgent appeal to the leaders of the right-of-centre European parties. My personal experience as a prime minister and as a party president in Europe is that we do not get our people’s support for reforms if there is not simultaneous demand and growth in our societies; or, to put it another way: there can be no successful reforms without economic growth, and no sustainable economic growth without reforms. I would therefore make a very urgent appeal for the European dimension to be introduced. What is the European dimension? What the European dimension genuinely involves is our learning to do things simultaneously. There is a shortage of demand in the internal market, and this is something that we can remedy at the same time if all the finance ministers, together with Mr Almunia, decide to invest in the Lisbon objectives over the next four years. In that way, we should obtain the extra growth we need. We have documented matters, and it would be fantastic if the right-of-centre parties too here in Parliament could appreciate that we must invest and that we must implement reforms and that we must do these things simultaneously.

  Montoro Romero (PPE-DE). – (ES) Mr President, I agree with the analyses expressed here this morning insisting on Europe’s need for more growth and more employment.

More growth to confront the challenges facing us as Europeans: the challenge of enlargement, the challenge of creating jobs for our women and young people. More growth so that Europe can play the leading role it deserves in the world economy, since, otherwise, the world economy will not have balanced growth. As Mr Rasmussen has just emphasised, that means that European consumers and European investors need more confidence, they need confidence policies, policies, in short, on which to base their consumption and investment decisions. In turn, that confidence requires healthy public finances and budgetary balance. Budgetary balance means less taxes for workers and for small and medium-sized businesses, less taxes in order to compete more successfully within the globalised world economy.

Making the Stability Pact more flexible would be a grave error and, Mr Almunia, Commissioner, the press coverage of the debates in Ecofin are not inspiring confidence; the confrontation amongst European governments in relation to promoting the flexibility of the Stability Pact sends a negative message in terms of the confidence of the markets. Together with a firm Stability Pact, we need structural reforms. We need a more flexible economy, not ultimately one that is good for the few, but a balanced economy which supports our growth on the basis of flexibility and competitiveness.

  Langen (PPE-DE). – (DE) Mr President, Mr Rasmussen said that reforms are not possible without economic growth. The reverse is also true: economic growth in Europe is not possible without reforms. Particularly in Germany and France, which are major states with an excessively high government activity rate, high taxes and overly complex social systems, reforms are a prerequisite for economic growth.

We are today discussing the Goebbels and Karas reports, in which the difficulties we face with a common monetary policy combined with decentralised budgetary and finance policies become apparent. The Stability and Growth Pact was created as a linking mechanism and as a prerequisite. The political intention to reform the Stability and Growth Pact will shake the very foundations of the Maastricht Treaty and of European monetary union. The budget policy rules are among the cornerstones of Economic and Monetary Union. The citizens of Europe were given an undertaking that state borrowing would be reduced, an undertaking that after just six years is being reneged upon. The objective of these rules is to maintain credibility and trust regardless of the government in power at any given time. There is, however, a serious design flaw in the Stability and Growth Pact, one on which you, Commissioner, have repeatedly failed to comment.

Where the monitoring procedure is concerned, the Commission has too few powers and responsibilities. The guilty parties are sitting in judgment on themselves, which does not bode well. If the ECOFIN Council does not apply the rules to itself, the Commission is powerless. If there is no will to apply budgetary discipline, reforms will not help either. This is not just a question of rules, but also of political will. The Commission wants to introduce new rules for economically good times. There may be some justification for that, but it is naïve. If the existing means of bringing pressure to bear do not work, how can we expect this to work voluntarily when the economic situation is favourable?

The Social Democrats and the Communists have failed to understand the changes that the euro has brought about. Before the euro existed, the market punished highly indebted states in an open and easily understandable way, by means of high interest rates for government borrowing, high inflation rates and devaluation. As recently as 1992 there were differences of six percentage points.

(Heckling)

Just listen, please! You know I am right. Six percentage points! That difference no longer exists. There are no longer market forces that compel states to adhere to financial discipline. Unless the ECB tackles this problem by means of a system of differentiated assessment of state loans, the euro will not remain stable in the long run.

  Almunia, Member of the Commission. (ES) Mr President, I would like to thank all the honourable Members who have spoken for their contributions to the debate, which I have found very interesting.

I would like to conclude by reiterating the Commission’s analysis. At several points during the debate, thoughts have been attributed to the Commission that neither I nor the Commission agree with.

The Commission and I believe that the main challenge in terms of increasing growth in the European Union and in the eurozone is to increase the growth potential. That requires structural reforms such as those the Commission has proposed in its Communication on the review and revitalisation of the Lisbon Strategy.

If we do not increase the growth potential, the medium- and long-term sustainability of our economy and our social model will not be possible and short-term macroeconomic stability and budgetary stability will be seriously jeopardised by the lack of growth. So that is our analysis and, on that basis, macroeconomic policy, as the Kok report states — and I completely agree on this point — must support a strategy of structural reforms which increases growth potential in order to sustain that growth and in order to prevent the lack of liquidity, funding and demand from jeopardising our ability to take advantage of all the growth possibilities that we have achieved as a result of the reforms.

The Commission believes success in the revitalisation of the Lisbon strategy to be a priority and to this end we have proposed ten priorities and we have considered how to improve the capacity of each of the Member States to implement the Lisbon strategy in accordance with their particular situations, so that we can achieve the objectives we all agree on in all of those states and throughout the European Union. These objectives have not been reduced in the Commission's communication, and have been confirmed just as they were defined five years ago.

With regard to the Stability Pact, Mr President, I would like to make a few clarifications. I believe we should understand what is happening over the current few weeks, during which the Council, with the support of the Commission by means of the excellent cooperation with the Luxembourg Presidency, is trying to reach an agreement in order to improve the way we apply our budgetary discipline mechanisms in practice and in order to ensure that the objectives pursued by the Treaty, where it defines budgetary stability as one of the conditions of the Economic and Monetary Union, become a more positive and obvious reality than they are at the moment.

What are we doing? Firstly, we are reiterating our firm and clear commitment to the reference values laid down in the Treaty. 3% is laid down in the Treaty and the Commission will ensure that that reference value is respected. I would like to make it clear once again, and I will continue to do so whenever necessary, that neither the Commission's proposal nor the currently unanimous position of all the Ecofin ministers, proposes excluding any category of spending from the calculation of the deficit. What we are considering, in accordance with Article 104 of the Treaty, is what important factors should be taken into account when analysing why there has been excessive deficit and what should be done in order to recover the situation of balance, the sustainability of the public finances, in order to bring the level of deficit below the reference value.

It is possible to distinguish, as we are doing precisely in this debate, between not excluding any category of spending and at the same time taking into account economic factors, from the composition of public spending, the situation of the cycle, the structural reforms underway, in order to see how the preventive part of the pact is applied, how public finances stand in terms of medium- and long-term balance or, in terms of the excessive deficit procedure, what recommendations are truly effective in terms of a country in a situation of excessive deficit recovering its budgetary balance. To this end, it is extremely important, and this is the second key element in our discussion, to prevent the application of the pact leading in practice to pro-cyclic policies, both in the preventive part and in the corrective part of the excessive deficit procedure.

One of the most obvious reasons why certain countries have broken the 3% of deficit rule is that, when they were at positive points in their economic cycle, they did not apply pro-cyclic policies, they did not sufficiently consolidate their public finances, and there are instruments in the Treaty such as early warnings, which furthermore are strengthened in the Constitution and directly attributed to the Commission, which must be used more effectively. Furthermore, each Member State must establish national rules which supplement the peer pressure on those making decisions at national level on the composition of revenue and budgetary spending and thus the budgetary deficit of each of the Member States, which, I would remind you, is still a national competence, although, as Mrs Berès said, the combined result of those national budgetary policy decisions is of common interest, since we are in an Economic and Monetary Union.

With regard to the excessive deficit procedure, and this is the most difficult point in our discussion, we are discussing how that procedure should be launched. I shall reiterate our position: no spending will be excluded from the calculation of the level of deficit. But if you read Article 104 of the Treaty once again, you will see that, once the European Commission informs the Council that a certain country is, in its judgement, in a situation of excessive deficit, the Council has full powers, following an overall assessment — Article 104(6) of the Treaty — to decide ‘‘whether an excessive deficit exists’.

We are trying to ensure that the criteria the Commission uses when informing the Council that a country is in a situation of excessive deficit coincide with the criteria the Council then uses, in order to prevent any further clashes such as those which have occurred in the past. So that while respecting the functions and competences of the Commission — and the Commission is not going to give up any of the competences attributed to it by the Treaty — and also those of the Council — which is not going to give up any of the competences attributed to it by the Treaty either — within the context of that relationship, that cooperation, there are no clashes which paralyse the procedure, leading to conflicts such as those which arose just over a year ago.

Governance is very important. It is very important that there be national rules which complement the ownership efforts of the Member States in relation to the common budgetary discipline rules. It is very important that we have clear, reliable and accurate statistics, as we have seen recently. It is very important that there be cooperation between the two institutions, the Council and the Commission, and it is extremely important that there be support and debate in Parliament, such as the one taking place today, and there will undoubtedly be further such debates in the future.

It is very important that we reach an agreement. You have mentioned, and I share this concern, the credibility of the Economic and Monetary Union and, in particular, the credibility of our single currency on the markets. The markets will not understand if there is no agreement in the March European Council, and all of us, each according to our respective responsibilities, must make the greatest possible effort to ensure that that agreement is concluded and published on 23 March in the European Council's conclusions. For its part, the Commission will make every possible effort in that direction.

I shall end by acknowledging the excellent cooperation we are enjoying with the Presidency of the Council, which is firmly committed to achieving that success.

  President. The joint debate is closed.

The vote will take place today at 12 noon.

IN THE CHAIR: MR VIDAL-QUADRAS ROCA
Vice-President