Week in Europe 10-16/09/03

EU news in brief

Swedish euro referendum

Sweden voted against joining the European single currency in a referendum on 14 September. The 'no' side had 56 per cent against 42 per cent for the pro-euro camp; every region of the country, with the exception of the capital Stockholm, has voted to retain the Swedish currency, the krona. The official statement of the European Commission says: “Commission takes note of the decision of the Swedish people. We firmly believe that the euro, our currency, has brought and will continue to bring advantages to the euro area economy. The euro has provided much needed stability in the individual member states' economies and has created an appropriate springboard for the Lisbon agenda to make Europe the most competitive and socially cohesive area in the world. It has also contributed to international financial stability. The euro is the world's second most important currency but it is still a young currency. Its full impact has still to work its way through to the euro area economy and that is what we are in the process of achieving together. Sweden could have influenced this effort by deciding to join the euro. We are confident that the Swedish Government will choose the way forward to keep the euro project alive in Sweden.”

"Welcome and congratulations Estonia !"

The European Commission warmly congratulates Estonia on the success of the referendum on EU accession. "In the dark days of its history, Estonia experienced first-hand what the Iron Curtain did to Europe. Now it can harvest the fruits of a united Europe. The Commission is convinced that Estonia's unique experience, qualities and talents will be a strong asset in this process", stressed Commission President Romano Prodi. The outcome of the referendum confirms the wisdom of Estonia's leaders and its people in pursuing accession - the key foreign policy objective over the last ten years. It is also a tribute to the enormous efforts of all people in Estonia to rebuild a home in which they have the freedom to determine their own destiny. "The yes-vote pays tribute to all those who have put so much energy into Estonia's remarkable transition", underlined Enlargement Commissioner Günter Verheugen. "But this is just the beginning. The result demonstrates that Estonia is ready to play its full and active role in building the new enlarged Europe."

Cancun has failed

The second failure for the World Trade Organisation in four years came about as the diverging agendas of the 146 member countries split delegates beyond the point of repair. Trade ministers now plan to meet again in Geneva in December 2003 in hopes of reviving the talks. Cancún was intended to bring fresh political impetus to the talks, which have made little progress since they were launched in Doha in November 2001. The breakdown of the Cancún meeting virtually rules out the prospect of the Doha round finishing on schedule by 1 January 2005, and raises the possibility of the talks dragging on for years.

At the Press conference closing World Trade Organisation's 5th Ministerial Conference in Cancún, EU Trade Commissioner Pascal Lamy declared:

"I do not want to beat about the bush: Cancun has failed. This is not only a severe blow for the World Trade Organisation but also a lost opportunity for all of us, developed and developing countries alike. We would all have gained. We all loose. We will not play the blame game and we will remain open to reviving this process.

Why has this not worked?

Despite the commitment of many able people, the WTO remains a medieval organisation. I said this in Seattle, got a lot of flak and I have to repeat it here. The procedures and rules of this organisation have not supported the weight of the task. There is no way to structure and steer discussions amongst 148 members in a manner conducive to consensus. The decision-making needs to be revamped.

The EU remains committed to a strong rules-based multilateral trading system and will continue to work in this direction within the WTO."

Message of Romano Prodi to the Swedish government on the death of Anna Lindh

The President of the European Commission Romano Prodi has sent on 11 September the following message of condolence to the Swedish Prime Minister Goran Persson :

"The whole European Commission is in great sorrow after learning that Ms Anna Lindh, Minister for Foreign Affairs in your government, passed away this morning. I was filled with dismay when I heard the news of the vicious attack of which she was a victim yesterday. I am deeply saddened that she did not survive this brutal aggression. The members of the Commission join me in addressing our most sincere condolences to her family, to your government and to the whole Swedish nation. We will remember Ms Lindh as a dedicated, courageous and intelligent politician, but first and foremost a warm and generous person. I have worked closely with Anna for years and liked her enormously. She has taken an active part in the construction of our European Union and her death will be deeply regretted by the Commission and all her European colleagues."

Commission staff study points to external assumptions, international environment and track record of the Commission Forecasts

While in the Commission Forecasts interest rates, exchange rates or oil prices are treated more like assumptions, it is interesting to test their realism. It appears that these variables are formulated in a reasonably accurate way and that in general alternative assumptions would not improve the picture. More specifically, the Commission approach to fixing the exchange rate outperforms a procedure based on the use of forward exchange rates or central parities. This implies that it would be reasonable to continue with the current approach and include the Candidate Countries eventually. Somewhat more attention could, however, be paid to oil futures when setting the oil price. With respect to the direction of bias, there is a tendency to set favourable assumptions, but this is in general not significant in a statistical sense. In the case of one-year predictions, the external assumptions together with the international economic environment outside the EU can explain on average up to about 60 % of the forecast error in EU GDP and inflation. It is larger in the case of the 2001 overestimation of EU GDP growth and the 1998 overestimation of EU inflation. In particular an accurate assessment of world GDP and trade is important. Wrong oil prices affect the quality of the inflation forecast. The monetary assumptions play a lesser role, but the signal coming from long-term interest rates influences the GDP forecast and the exchange rate assumptions have an impact on the import price errors.

This study is available on :

http://europa.eu.int/comm/economy_finance/publications/economic_papers/economicpapers189_en.htm

Commission staff study points to projected trends in candidate countries' debt ratios in the light of the 2003 fiscal notifications

A new study carried out by economists in the European Commission's Directorate General of Economic and Financial Affairs develops a set of government debt projections that relies upon the deficit and debt data reported in April 2003 and the fiscal plans presented in the 2002 Pre-Accession Economic Programmes (PEPs). It, thereby, takes advantage of the further progress towards compliance with the EU methodology shown by the 2003 fiscal notifications. Due to the present absence of commonly agreed projections on age-related expenditures, however, this study can only offer some preliminary insights on the medium-termsustainability of public finance in the candidate countries (CCs), and the acceding countries in particular (ACs). To this end, after briefly recalling the current budgetary position of the CCs and discussing some methodological issues, the paper illustrates the projected evolution of CCs' debt to GDP ratio under different scenarios and concludes highlighting the preliminary nature of these remarks and suggesting areas for further work. Full document available on:

http://europa.eu.int/comm/economy_finance/publications/enlargement_papers/elp16_en.htm

Commission staff study points to the main results of the April 2003 fiscal notifications presented by the candidate countries

A new study carried out by economists in the European Commission's Directorate General of Economic and Financial Affairs presents the evaluations of the fiscal notifications submitted in April 2003 by the acceding and other candidate countries. The fiscal notifications consist of reporting to the Commission government deficit and debt figures calculated in accordance with the EU methodology (ESA 95 system of economic accounts). The fiscal notifications submitted annually by the acceding and other candidate countries use the same format and consist of producing the same data as the notifications provided by the Member States in the framework of the Excessive Deficit Procedure. The April 2003 notifications are the third exercise performed by the candidate countries following the April 2001 and April 2002 submissions. Full document available on :

http://europa.eu.int/comm/economy_finance/publications/enlargement_papers/elp17_en.htm

A picture says more than a thousand words: Commission decides on graphic health warnings on cigarette packs

"Smoking can cause a slow and painful death" is one of the 14 health warnings used on tobacco packages in the EU for which the European Commission is now seeking colour photographs and illustrations for cigarette packs. The Commission has adopted a Decision which opens the way for Member States to use such pictures as part of the obligatory health warnings on tobacco products from 1 October 2004 on. It also lays down the conditions under which they may be used. The Commission Decision is a follow-up to the 2001 Tobacco Products Directive (see: IP/01/702) which already makes it obligatory to enlarge the size of health warnings on tobacco packages: from 30 September 2003 on, they have to take the form of large black on white text covering at least 30% of the front of the cigarette pack and at least 40% of the back. However, the next step to use picture warnings will not be compulsory. Third countries such as Canada and Brazil already use hard hitting photographs, such as dying cancer patients or diseased lungs, to illustrate their mandatory health warnings. During the negotiations on the 2001 Directive, several EU Member States and many Members of the European Parliament advocated the introduction of graphic health warnings in Europe. As the Commission is responsible for setting up a central EU library of colour photographs and other illustrations from which Member States will be able to choose, the Commission has also launched a tender inviting interesting parties to create and pre-test the respective images. Further information

Call for tenders on the technical and scientific support regarding the follow-up of the decision on colour photographs/illustrations used as additional health warnings on packages of tobacco products:

http://europa.eu.int/comm/health/ph_determinants/life_style/Tobacco/call_139790_2003.htm

[Background paper IP/03/1213]

Solana: What are the threats facing the 21st century?

"What are the threats facing the 21st century and how can we tackle their underlying causes? How can we ensure that the collective security system ... remains relevant? How can we strengthen European approaches to early warning systems and crisis prevention and management?" These were among the many questions addressed on Wednesday 10 September by the EU High Representative for the common foreign and security policy, Javier SOLANA, when he addressed a joint meeting of the European Parliament Foreign Affairs Committee and members of its counterpart committees in national parliaments.

Mr Solana, who has been asked by the European Council to guide a process of reflection on EU security strategy, first of all ran through the new combinations of threats "where risks have become real". Firstly, there was "mass terrorism capitalising on the persistence of regional conflicts". Secondly, there was a risk of criminal organisations acquiring weapons of mass destruction with the connivance of rogue states or failed states. Thirdly, he warned of the danger of collusion between religious fundamentalism, international mafia-style organisations and cyber-terrorism.

"But let us focus on three strategic objectives", said Mr Solana. "We must extend the security zone around Europe and the Balkans to the Caucasus and the Mediterranean periphery if we are to have stable relations with our neighbours", he explained. "Then we must improve the effectiveness of the United Nations system and of multilateralism. Lastly, we must anticipate and forestall the actual emergence of these threats", he went on. In addition, Mr Solana recalled that the EU was the only regional organisation with such a wide range of instruments. There was a need for efforts to be combined when using political, diplomatic, economic and financial instruments as well as police and military capabilities, in close cooperation with the United States.

New Directive to fight pollution by ozone enters into force

On 9 September, a new Directive has come into force in the European Union which aims to ensure a better protection from ground level ozone of both the population and plant life. This year's hot summer in Europe resulted in record-high ground level ozone levels in many parts of the EU. Ground level ozone is a pollutant which can cause severe health problems, in particular in vulnerable groups like elderly people and children. The new Directive obliges Member States to inform and alert the population when ozone concentrations in the air are above certain thresholds. It also defines long-term objectives to protect human health and vegetation from ozone to be attained across the EU as far as possible by 2010. The new Directive and further information can be found at:

http://europa.eu.int/comm/environment/air/ambient.htm#2

Europeans are healthier and living longer, says European Commission

Life expectancy in the EU has increased by 8 years since 1960, with the average life expectancy in 2000 being 75 for men and 81 for women one year higher than in the US. This can be attributed to better health and living conditions for European citizens. So says the report on the Social Situation in Europe 2003, released by the European Commission, which this year had as its special theme the health of Europe's citizens. A summary of the report is available at

http://europa.eu.int/comm/employment_social/publications/index_en.html

[Background paper IP/03/1219]

Safe management of GMOs: the Cartagena Protocol on Biosafety becomes law

The Cartagena Protocol on Biosafety enters into force. The Protocol is designed to protect biological diversity and human health from the potential risks arising from genetically modified organisms (GMOs) by providing a clear legal framework for their transboundary movement. The Advanced Informed Agreement (AIA) procedure established by the Protocol will ensure that countries can make informed decisions on whether to import GMOs intended for introduction into the environment. Shipments of GMO commodities will have to fulfil specific documentation requirements. The entry into force should be an incentive for more countries to ratify the Protocol, ensuring their participation to the First Meeting of the Parties scheduled for February 2004 in Malaysia. For further information about EU policies on biotechnology, see website:

http://europa.eu.int/comm/environment/biotechnology/index_en.htm

[Background paper IP/03/1236]

Enlargement news

Talks start with Latvia & Lithuania on €2.7 billion of EU funding

The European Union last week opened negotiations on structural and cohesion funding with the last two acceding states from central and Eastern Europe Latvia and Lithuania. Talks have already started with the other six.

As with the other acceding states, the talks are aimed at finding agreement on the details of how the EU money for 2004-2006 is to be used, within the broad objectives of improving physical infrastructure, promoting business sector competitiveness, generating growth and creating jobs.

Lithuania has an allocation of €1.5 billion - €900 million under the EU structural funds, and just over €610 million under the cohesion fund. And Latvia has about €1.2 billion - €625 million under the structural funds, and around €520 million under the cohesion fund.

Loyola looks at enlarged transport challenges

Within the EU and the enlarged EU, a prerequisite for a fully functional internal market is indeed a good transport system, European Transport Commissioner Loyola de Palacio told a Euro-Asian transport conference in St Petersburg last week.

So the EU is currently reviewing the 1996 guidelines for the development of its trans-European transport network, to take account of EU enlargement and to concentrate the funding and management of the network. In addition, after enlargement, the EU territory will include two-thirds of the ten pan-European transport corridors and four transport areas agreed at Crete in 1994 and Helsinki in 1997 to connect the EU with its neighbours. "So a fundamental re-assessment of future corridor development and management is needed", the Commissioner said.

As to current suggestions to extend corridors eastwards and southwards to Siberia, the Caucasus, Central Asia, Turkey, Iran and the Mediterranean, she said that new links become more attractive as economic and geopolitical realities change and new trade possibilities open up, but "the number of corridors should probably be limited to a level which is manageable and affordable in terms of financing. The net result of the revision could be a series of streamlined corridors starting in the heartland of the EU and extending ultimately to Asia and the farther ends of the Mediterranean."

The enlarged EU and the EU's "new neighbourhood" initiative will help promote trans-national flows of trade and investment as well as shared interests in working together to tackle trans-boundary threats. But to make these closer links function, "an efficient transport network is fundamental. Issues such as infrastructure, border crossings and interconnected transport networks are thus inevitably on the agenda of the wider Europe initiative", said de Palacio.

Already the EU's Northern Dimension initiative provides a regional framework between the EU and the North West Russia to address trans-national and cross-border issues, she pointed out. And its objectives include dealing with the special challenges of the region, such as harsh climatic conditions, long distances, and insufficient transport and border crossing facilities.

EBRD and Volksbank join forces to help local investment

To help meet the increasing investment needs of individuals, small businesses and municipalities in central and Eastern Europe, the European Bank for Reconstruction and Development is providing up to €150 million to Austria's Volksbank Group banks in the region. The funding will support Volksbank's local subsidiaries in providing finance, including loans for local entrepreneurs; mortgages, to meet the growing demands of people wishing to own their own homes; and medium to long-term finance to small and medium-sized enterprises and smaller municipalities. These are the clients that usually find such finance difficult to obtain. The money will be channelled through four subordinated loan facilities totalling €37.5 million to regional banks in the Czech Republic (€10 million), Hungary (€10 million), Slovenia (€10 million), and Bosnia and Herzegovina (€7.5 million). The facilities will also strengthen the capital bases of each bank, allowing them to further expand their business in the region. At a signing ceremony in Vienna, Noreen Doyle, first vice president at the EBRD, said Volksbank Group and the EBRD share a common goal in developing access to finance for local citizens and smaller firms across the region. Volksbank Group employs more than 1,500 local staff at its banks across the region.

Straw greets enlargement's opportunities

"It is hard to overstate the significance of the enlargement of the EU which will come to fruition next year", UK foreign affairs minister Jack Straw told the House of Commons last week. "It will be three times greater than any previous enlargement. EU membership will be a fitting reward for the courageous steps eight former members of the eastern bloc have taken since the fall of the Berlin Wall to embrace the values of liberal democracy. In addition, the EU will be joined by two nations - Cyprus and Malta - which have long, historical links with the UK and are members of the Commonwealth." Speaking in a debate on the upcoming Inter-Governmental Conference that will agree a new EU Treaty for the enlarged Europe, he said successive British governments had supported enlargement, both out of a sense of obligation to help correct the injustices of the Cold War, and on a pragmatic assessment of UK national interests. "Enlargement will mean greater trade and investment opportunities for British companies and more jobs for British workers. It will give us more partners in the fight against those problems which cross borders such as drug trafficking, environmental pollution, international terrorism and the proliferation of weapons of mass destruction".