Report of the Council
on economic policy co-ordination,
endorsed by the European Council in Vienna
on 11 and 12 December 1998
The need for economic policy co-ordination
1. The move to Stage 3 of Economic and Monetary Union will link the economies of the Member States adopting the euro more closely together. They will share a single monetary policy and a single exchange rate. Economic policies and wage determination, however, remain a national responsibility, subject to the provisions of Treaty Article 104c and the Stability and Growth Pact. To the extent that national economic developments have an impact on inflation prospects in the euro area, they will influence monetary conditions in that area. It is for this basic reason that the move to a single currency will require closer Community surveillance and co-ordination of economic policies among euro-area Member States. Moreover, close co-ordination should aim at an appropriate balance of the policy mix so to contribute to the achievement of the Community objectives set out in Treaty Article 2.
2. Economic and monetary interdependence with non-participating Member States will also be strong; they all participate in the single market. The need to ensure further convergence and a smooth functioning of the single market therefore requires all Member States to be included in the co-ordination of economic policies. Interdependence will be especially strong for those non euro-area Member States which will participate in the new exchange rate mechanism.
Agreement on economic policy co-ordination
3. The Council (Eco/Fin) recognised the need for enhanced co-ordination of national economic policies and considered the issue in detail in its report to the European Council meeting in Luxembourg in December 1997. The latter endorsed this report and issued a Resolution on, inter alia, economic policy co-ordination in stage 3 of EMU. In addition, the European Council meeting in Cardiff last June, considering that the full benefits of EMU and the European single market for all Europe's citizens can be achieved only by a strategy to promote employment through increased competitiveness and economic and social cohesion within a framework of macro-economic stability, set out the essential elements of the European Union's strategy for further economic reform to promote growth, prosperity, jobs and social inclusion and welcomed the determination of Member States to ensure effective co-ordination of their economic policies.
Areas for economic policy co-ordination
4. In the meantime, nearly all elements of economic policy co-ordination have been put in place and are being tried out. The arrangements are proving to be successful, particularly since the Council is embarking on a full-fledged annual co-ordination process. While respecting the principle of subsidiarity, it will give full attention to national economic developments and policies including wage policies with a view to their contribution to the achievement of the Community objectives. It will concentrate on those policies which have the potential to influence monetary and financial conditions throughout the euro area, the exchange rate of the euro, the smooth functioning of the internal market, and investment, employment and growth conditions in the Community. This includes :
- close monitoring of macro-economic developments in Member States to ensure sustained convergence,
- close monitoring of exchange-rate developments of the euro and other EU currencies in the recognition that, in general, these should be seen as the outcome of all other economic policies,
- strengthened surveillance of budgetary positions and policies in accordance with the Treaty and the Stability and Growth Pact,
- the monitoring of nominal and real wage developments with reference to the broad economic policy guidelines,
- the close examination of national employment action plans (NAP's), dealing in particular with active labour market policy in accordance with the employment policy guidelines and the exchange of best practice,
- monitoring of Member States' structural policies in labour, product and services markets, as well as of cost and price trends, particularly insofar as they affect the chances of achieving sustained non-inflationary growth and job creation.
Modalities for economic policy co-ordination
5. The Council will apply the Treaty instruments for economic policy co-ordination fully and effectively. Its activity will centre on the broad economic policy guidelines, adopted in accordance with Article 103(2). They will be developed into an effective instrument for ensuring sustained convergence of Member States. Economic policies and developments in each Member State and in the Community will be closely monitored in the framework of multilateral surveillance according to Article 103(3), and measured against the broad economic policy guidelines. If necessary, and according to Article 103(4), the Council will make recommendations to a Member State whenever its economic policies are not consistent with the broad economic policy guidelines or risk jeopardising the proper functioning of EMU.
6. In order to take account of the special needs of co(ordination for Member States participating in the euro area, the Euro 11 Group was created and has met in fruitful dialogue several times. In September 1998, also the non-participating Member States were invited in order to discuss matters of common concern.
7. The harmonious economic development of the Community in Stage 3 of EMU will also call for continuous and fruitful dialogue between the Council and the European Central Bank, involving the Commission and respecting all aspects of the independence of the ESCB. The Council and the Euro 11 Group have started such a dialogue and stand ready to engage in it further when needed.
8. In order to stimulate a fruitful dialogue and to inform them about the stability-oriented macro-economic policy framework, the European Social Partners were invited by the Ecofin Council for a regular exchange of views.
Implementing the new arrangements for economic policy co-ordination
9. In addition to the regular work on the broad economic policy guidelines, the Council stated this spring to closely review the national employment action plans. Guided by the Cardiff European Council, the Council will moreover establish a light procedure, under which Member States and the Commission will produce short reports at the end of the year, each within their areas of competence, on product and capital markets. While fully respecting subsidiarity, this procedure will help exchange best practice and complement the information already available in national employment action plans and stability/convergence programmes. It is being implemented for the first time this year.
10. In accordance with the 1 May declaration, this summer the Council looked closely into actual and prospective developments in Member States' budgetary policies. At present, the Council is examining the stability and convergence programmes with a view to their consistency with the broad economic policy guidelines and the requirements of the Stability and Growth Pact and the commitments of the Council's 1 May declaration.
11. The results of the analysis of these different reports should feed into the annual update of the broad economic policy guidelines and contribute to making them an effective instrument at the heart of the economic policy co-ordination process.
12. Continued efforts are necessary to implement the guidelines fully and to take appropriate account of the new policy environment upon the transition to stage 3 of EMU. The ambition to ensure effective co-ordination of economic policies will imply a more active involvement of all participants in this process, including the ministers meeting in the Euro 11 Group, the Council and the Heads of State or Government.
Last updated on
22 February 1999