Fiscal policy contribution essential to continuing the euro area economic recovery in 2018

The EESC advocates a fiscal stimulus focusing on public investment, while also prioritising structural reforms to enhance productivity and support the creation of quality jobs

The European Economic and Social Committee (EESC) disagrees with the European Commission's proposal for an overall broadly neutral fiscal stance in 2018, advocating a moderate positive fiscal stance of around 0.5% of GDP instead.

This budgetary effort must be carried out mainly by the countries with current account surpluses and fiscal space, said the EESC in its opinion on the proposals set out in the Commission's recommendation on the economic policy of the euro area for 2018 which accompanied its Annual Growth Survey 2018.

The economic recovery in the euro area remains fragile, incomplete and atypical and was mainly enabled by expansive and unconventional monetary policies by the European Central Bank (ECB), says the EESC. In view of the announced changes in these policies, the nature of the current recovery and global political and economic factors, the Committee stresses the need for fiscal policies to support monetary policies and to preserve the progress made.

A fiscal stimulus with a focus on public investment would both deliver stronger demand in the short term and expand growth potential in the long term, thus addressing the question of public debt sustainability, said Javier Doz Orrit (Workers' Group), rapporteur for the EESC opinion.

From the Committee's point of view, public investment should be consistent with the proclaimed European Pillar of Social Rights, focusing not just on infrastructure but also on social investment. Javier Doz Orrit explains: As regards the application of fiscal rules, we recommend that the European Commission exclude public expenditure on investment from the calculations. This would contribute to more inclusive growth and upwards convergence.

The stimulation of domestic demand, a necessary condition for growth and overcoming the crisis, should be done by promoting both investment and domestic consumption, the latter mainly through wage increases that overcome the depression or freeze of wages that the crisis has produced.

The EESC's recommendations take into account among other factors the development of the labour market, which is characterised by an increase in job creation, but also by persistent unemployment and underemployment in some countries. The labour market slack affects the economic and the social dimension significantly.

Besides, the euro area is experiencing relatively weak wage growth, low investment levels and a persistent external current account surplus which implies low domestic demand. Economic forecasts from experts, the announced changes in ECB's policies and world trade and geopolitical risks were also considered by the EESC.

Nevertheless, the EESC welcomes the Commission's recommendations on the overall policy objectives – sustainable and inclusive growth, resilience and convergence – and priorities for structural reforms. The EESC agrees on the need for structural reforms to focus on increasing productivity growth and improving the business and investment environment, while also supporting quality job creation and the reduction of inequalities, which could contribute to an increasing support for reforms by EU citizens. The emphasis should be on reforms that combine negotiated flexibility with security so as to create incentives for enhancing skills and innovation.

The EESC also urges the European institutions and Member States to implement effective measures – those already agreed upon and new ones – against tax avoidance and tax fraud, money laundering and the illicit activities of tax havens, to bring an end to the harmful erosion of public budgets and unfair competition.  

Finally, the EESC supports the necessary steps for deepening the Economic and Monetary Union (EMU), including the need to complete the Banking Union and the Capital Markets Union, to create a fiscal union and to strengthen economic coordination within the European Semester.

Related opinions:

ECO/435 Euro area economic policy 2017 (additional opinion) - Rapporteur: Petr Zahradník (Employers - GR I /CZ), co-rapporteur: Javier Doz Orrit (Workers - GR II/ES)

ECO/439 EU finances by 2025 - Rapporteur: Stefano Palmieri (Workers - GR II /IT), co-rapporteur: Petr Zahradník (Employers - GR I/CZ)

ECO/438 Deepening EMU by 2025 - Rapporteur: David Croughan (Employers - GR I /IE)

ECO/437 Capital Markets Union: Mid-term Review - Rapporteur: Daniel Mareels (Employers - GR I / BE)

SC/50 Annual Growth Survey 2018 - Rapporteur: Dimitris Dimitriadis (Employers - GR I / EL)