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Building resilience must be a top priority for the euro area in 2019

Javier Doz Orrit
  • Economic resilience and labour market resilience must go hand in hand
  • Commitment to deepening EMU through stabilisation and upward convergence is crucial
  • Urging Member States into contractionary fiscal stances may be problematic

In 2019 it will be of the utmost importance for the euro area economies to build up economic and labour market resilience, taking into account the current economic outlook, says the European Economic and Social Committee (EESC) in its opinion on the European Commission's 2019 economic policy recommendations for the euro area.

To ensure that Member States are able to weather future shocks with limited economic and social costs, we must have strong economies and labour markets. To this end the Economic and Monetary Union (EMU) must be deepened by completing the Banking Union, increasing the EU's own resources and establishing a macroeconomic stabilisation function for the euro area, as well as properly implementing the European Pillar of Social Rights (EPSR).

Growth in the EU is expected to slow down and shocks could occur. This is one of the reasons why Member States - and in particular the ones belonging to the euro area - must pursue an economic policy aimed at converging towards more resilient economic and social structures and progressing with construction of the EMU, said Javier Doz Orrit, rapporteur for the EESC opinion.

Growing downside risks to the economy, persistent negative effects of the last major recession and the European Central Bank's decision to end its quantitative easing programme in 2019 constitute further reasons for this approach. The euro area would at present clearly not be prepared for another socio-economic crisis that might well occur in the not too distant future.

The Committee's opinion, which was adopted on 24 January, supports most of the recommendations put forward by the Commission in the framework of the European Semester process, but not without nuancing its own views on the way ahead for the euro area economies.

EESC questions the urgency of rebuilding fiscal buffers at this juncture

The Committee welcomes the European Commission's recommendation for a symmetric rebalancing of current accounts of the Member States of the euro area. The EESC calls for effective measures to reduce excessive surpluses, significantly increasing public investment and wages in countries with surpluses.

In general terms, the EESC considers that, in the medium term, the growth of real wages should be in line with real productivity growth, as well as with inflation, and not lagging behind it.

On the other hand, the EESC advises against urging Member States with a large public debt and negative or zero output gaps to build fiscal buffers by means of contractionary fiscal stances. This is likely to perpetuate low growth in those countries, without helping reduce their public debt as a share of GDP.

Javier Doz Orrit said, These countries should of course do their best to ensure the high quality of their public finances, but urging them to build up savings could be counterproductive for their inclusive and sustainable growth, debt sustainability and, in the end, for the stability of the whole euro area too.

Also in this context, the EESC draws attention to the urgent need for guidelines and measures to encourage public investment and facilitate private investment. European leaders should consider the so-called Golden Rule when applying the EU's fiscal rules, exempting public investment from deficit calculations and taking into account the sustainability of existing debt levels.

Deepening the Single Market without compromising social and labour rights

In order to strengthen economic resilience in the euro area, countries must further improve the business environment and promote the completion of the single market. Establishing the common consolidated corporate tax base would be a step in that direction. Financing business should be another priority. Developing the Capital Markets Union and the Banking Union and reducing non-performing loans could be crucial in this regard. Existing obstacles should - in the EESC's view - be overcome as a matter of urgency.

Nevertheless, the Committee highlights the fact that policy changes should not be carried out at the expense of revenue for financing social investment and social protection systems, or at the risk of lowering social and labour rights. On the contrary, it strongly advocates implementation of the EPSR and the promotion of upward convergence in economic and social standards. Economic and social resilience should go hand in hand.

Tax systems must be fairer and more efficient

As regards action against tax fraud and aggressive tax planning, which should also help improve public finances, the EESC agrees with the Commission's call for action. However, the EESC believes that European Union rules must be applied without further delay and that other more effective measures should also be taken, including instruments to end the illicit activities of tax havens.

Following the discussions at the Eurogroup and the ECOFIN Council on 21-22 January, the EESC is asking Member States to demonstrate the commitment necessary to swiftly overcoming the remaining disagreements on these issues. This should enable European leaders to present to ordinary citizens and their representative organisations a much-needed vision for the future of the European economy in the run up to the Summit in Sibiu and the European elections in May 2019.