How can imbalances between the Member States within the Eurozone and the EU be corrected? Is it sufficient to focus on current account deficits or does the entire economic and social situation, including wage developments also have to be considered also in surplus countries? How large may the budget deficits of the Member States be and what happens if these limits are exceeded? These are the main questions, which the MEPs discussed in the Economic and Currency Committee. The reason why the debate in the European Parliament is so important is that the Parliament and the Member States have to reach a joint decision. However, due to the fact that from the workers’ point of view, the Member States have already agreed on a worrying one-sided austerity policy, which under the pressure of the “markets” has largely ignored the employment and social situation, the final hopes for reasonable economic improvements are now resting on European Parliament.

Focus on national debt
The limits of public debt and new borrowing have triggered a major discussion. The speed with which the states that exceeded these limits had to improve their budget deficit was also discussed. The Commission demanded a public deficit rate of 3 %, which also seems to have found the approval of the European People’s Party. Most Social Democrat MEPs request that the 3 % should be inflation-adjusted and that public investments will not be included into debt. Udo Bullmann, shadow rapporteur of the Social Democrats, demands that states should achieve a target value for public investments. Corien Wortmann-Kool, rapporteur of the European People’s Party, believes that such a target could put confidence of the financial markets at risk.
Another bone of contention is how long the period for deviations from the target deficit rate may be and what the rhythm of reducing the debt should look like. The Liberals demand the fastest and most serious reduction, whilst the Social Democrat rapporteur Colin Scicluna requests the option for exemptions if economic growth is below 1 % to enable contra cyclical measures. In particular the Liberals are opposed to any exemptions; they demand that countries should not exceed the limits even in times of crisis and request that in case these limits are exceeded proceedings are automatically initiated. The political groups could not reach agreement concerning the decision-making process if debts are too high, i.e. above 60 % of the GDP. With regard to the requested annual amount to reduce the excessive deficit, the demands, which reached from 0.2 to 1 %, were far apart. Concerning the provisions, to what extent countries were permitted to deviate from the budget deficit, the Liberals demanded far more rigid rates than the Social Democrats.

Economic imbalances between the Member States
To detect macroeconomic imbalances, it is intended to introduce a scoreboard with different variables, which will serve as a guide. Elisa Ferreira, the Social Democrat rapporteur, demands with regard to the macroeconomic imbalances that not only variables concerning debt or the current account deficit should be included, as some Liberal MEPs had suggested. The scoreboard should also incorporate macroeconomic and social factors, such as the distribution of income, the level of wages and other macroeconomic variables. Not only deficit but also surplus countries should be addressed. However, there is also still no agreement how the scoreboard should be defined in the first place.

An ‘intelligent’ pact
It is a key demand of the Social Democrats that the economic development is included and that anticyclic fiscal policy should play a more important role. According to Hoang Ngoc, strict automatic sanctions, as proposed by the Liberals or the inclusion of public investments into the level of debt, would make a countercyclical economic policy impossible. One should not only look at the expenditure side but also at the revenue side (eg. corporate or financial taxes). The Social Democrats also demand that the national governments and the Parliament should play a more important role and that pension reforms are not included in the legislative proposals. Bullmann argued that Europe would not be in the crisis because of the large national debts, but because of social and economic imbalances and financial markets, which were not adequately regulated. Therefore, it would not be sufficient to focus just on national debt and current account deficits to counteract a new crisis. What was also needed were incentives for investments; not only a Stability and Growth Pact in its old form, said Ferreira.
A new publication of the European Trade Union Confederation and the European Trade Union Institute, which was presented in Brussels on 23.03.2001, showed alternative economic paths. “Benchmarking Working Europe 2011” critically analyses all current economic strategies of the EU (e.g. EU 2020) as well as the economic and social situation in Europe and shows alternatives. One chapter is also devoted to the dependency ratio calculator, which was developed by the AK. The calculator shows that the currently initiated debate by the Commission on the demographic development and its impact on the systems of social security and their financial feasibility often does not make a clear distinction between demographic dependency ratios (relation older / younger people) and economic dependency ratio (relation benefit recipients / people in work) . The very central significance of the labour market development is thereby largely ignored.

Further links:

Reports and Amendment Applications in the ECON Committee (Agenda Item Nr. 11-16):

Benchmarking Working Europe2011