Verheugen calls on member states to continue with Lisbon reforms

 

The European Commission published today its first assessment round of country-by-country reform efforts for the year 2005/2006. The verdict on the euro area is that reform efforts in member states are substantial enough to explain partly the economic upturn in the euro area, but not sufficient enough for a monetary union to cope with shocks (see EU Economy 2006: Adjustment dynamics in the euro area). The Commission admonished that member states do not sufficiently benefit from good economic conditions to introduce reforms and budgetary consolidation efforts.  They also pleaded for more policy coordination at euro area level - especially in the Eurogroup - to promote policy action in Member States.

 

Since the relaunch of the Lisbon Process in 2005, each EU member country submits a yearly National Reform Programme outlining its reform initiatives under the integrated policy guidelines. These guidelines were decided by the council for the 2005-2008 period.

Here is the assessment with respect to the relevant policy areas:

 

• Fiscal policy: Member states reform efforts focused on how to improve long term sustainability of public finances especially in the area of pension and health, which was considered as a strength of the reform programmes. Also there is progress in keeping promises on consolidation paths. The countries with the highest deficits have reduced their structural deficits substantially in 2006 and are expected to continue to do so in 2007. Six countries already fulfill their medium term objectives; five member states have not even set a date to achieve their target.

• Wages: Although unit labour costs increased only 1% in the euro area, several countries showed wage increases well above productivity. Wages seem to decouple also at sectoral and regional level. Many countries responded by reducing non-wage labour costs, often targeted at specific groups such as low paid. This might not be enough.

• Structural reforms: Efforts to increase R&D and innovation were at the forefront. The Commission calculated that upon full implementation of the announced plans, R&D spending could increase to 2.8% of GDP in 2010 from 1.9% in 2004. This would be close to the target of 3% set out by the Lisbon strategy. Improved regulation on administrative burdens for companies also featured high as a priority. Challenges ahead are low productivity in the service sector and to promote the full integration of financial markets. Furthermore, tax incentives to housing investments are to be removed, a key factor that according to the Commission contributed to the housing price acceleration in some Member States.

• Employment policies: Member states took single initiatives to increase labour supply for specific groups but an integrated life-cycle strategy was missing. Incentives to work were increased in several countries through marginal reforms in the unemployment and welfare benefit system but employment protection was rarely touched upon. Active labour market policies, especially in the development of efficient training measures, remain sketchy at best. Education efforts focused on young persons and less on adults. There is insufficient action for older workers to stay in the workforce. Finally, measures to increase labour mobility will fail as long as pension rights are not portable and professional qualifications are not recognised.

 

mundschenk(at)eurointelligence.com

---