The Week in Europe 26/02-04/03/03

12.03.2003 | Euroskop

The Week in Europe 26/02-04/03/03

EU news in brief

Statement of President Prodi on Cyprus - President Prodi expresses strong preference for accession of a united Cyprus to the EU

President Prodi repeated his strong preference for the accession of a united Cyprus to the EU. In view of the imminence of 28th February, he gives full support to the final push of the UN and calls all parties concerned to step up their efforts to reach a solution of the Cyprus problem.

Respect of this date would allow sufficient time for the planned referendum to be held on 30 March. It would also allow the united Cyprus to meet the imperative deadline of 16 April as regards the signature of the Accession Treaty.

President Prodi reiterated that the acquis should not be an obstacle to a settlement. The Union is ready to accommodate the terms of a settlement in the Treaty of Accession in line with the principles on which the European Union is founded.

President Prodi recalled the Commission's willingness to organize an international Donor Conference to secure financial means for the implementation of the UN Plan."

Latest Commission report on car prices in the European Union

The latest report on car prices released by the European Commission shows that price differentials for new cars are still substantial, although some convergence is taking place, particularly within the euro zone. The situation as of 1 November 2002 shows that many European consumers can still make significant savings by buying their cars in other Member States and that competition and cross-border trade have not yet brought about significant price convergence. Car prices before taxes are the lowest in Denmark, Greece and the Netherlands. Prices in Germany, the biggest market, and Austria, remain among the highest within the euro zone. The UK remains the most expensive market in the European Union. For more information see Press release, condensed electronic version of the report and manufacturers' price tables:

http://europa.eu.int/comm/competition/car_sector/

[Background paper IP/03/290]

Blood safety Directive entered into force

The Directive which sets EU-wide quality and safety standards for the collection, testing, processing, storage and distribution of human blood and blood components entered into force with its publication in the Official Journal of the European Union on 8 February. The measures put in place comprehensive and legally binding standards for blood and blood products from donor to patient and for related medical applications (see IP/02/1919). They aim to prevent blood contamination scandals similar to those that have occurred in some EU countries in the past. This is the first time that the new EU competence in public health policy making, introduced in the Amsterdam Treaty, has been used to bring forward legislation. Health and Consumer Protection Commissioner David Byrne said : "This directive is an excellent example of how the EU can play a positive role in protecting and improving public health for European citizens." The deadline for the transposition of the directive into national law by EU Member States is 8 February 2005.

CFP reform: A new strategy to improve scientific advice for fisheries management

The European Commission has presented a Communication to improve scientific advice needed by the EU for fisheries management. "Today, more than ever before, when so many fish stocks are heavily overexploited, decisions on fisheries management have to be firmly grounded in science. The relevance and effectiveness of measures taken under the Common Fisheries Policy (CFP) depend to a large extent on the quality and timeliness of the scientific advice on which they are based. We need the right expertise at the right time. The Commission wants to tackle the shortcomings that reduce the reliability, transparency and timeliness of scientific advice. One of these options is increased co-operation between fishermen and scientists. This will be facilitated by the establishment of Regional Advisory Councils decide under the CFP reform", Franz Fischler, Commissioner for Agriculture, Rural Development and Fisheries, said. The Commission's Communication, which is the latest in a series of proposals to reform the Common Fisheries Policy, looks at a number of short- and long-term measures to ensure the delivery of the scientific advice required by the CFP, such as reorganising the provision of advice or devoting more resources to obtain it.

[Background paper IP/03/297]

Convention divided over its own timing

The European Convention Plenary started a battle of amendments to the first sixteen draft articles for a future Constitution. Most interventions dealt with two controversial issues: the inclusion in article 2 of a reference to God or Christianity and the use of the word "federal" in article 1. Several members called for an extension of the timetable of the Convention to deal with the huge amount of amendments and to give the new Member States, who are facing referenda, more time. However, Germany, France and Italy would like the current timetable to be respected. Italy is eager to finalise the following Intergovernmental Conference in December 2003 in Rome.

Convention President Valéry Giscard d'Estaing announced the convocation of two extra Plenary meetings on 5 and 26 March. The Praesidium presented an indicative programme of work going until 15-16 May.

Outside of the Convention room, civil society is also trying to influence the debate. On 26 February, the Confederation of British Industry (CBI) warned that there should not be anything in the new Constitution which would "override UK legislation on collective bargaining and the right to strike". Eight leading environmental organisations (the "Green G8") expressed their strong disappointment about the proposed first 16 articles of a new Constitution. In a press release on 27 February, the 8 organisations (among them EEB, WWF, Friends of the Earth Europe, and Greenpeace) accused the Praesidium of neglecting environmental protection in its draft articles.

Europe of learning opportunities through a mouse click: PLOTEUS Portal launched

I want to move to Italy and study architecture what's the easiest way of finding out what my options are and what is available? I have to move to Sweden with my family, how am I going to find out about the school system for my children? The answers to all these questions and more can be found through the new EU PLOTEUS Internet portal (http://www.ploteus.net), designed to connect people to detailed information on education and training in Europe. This Portal on Learning Opportunities Throughout the European Space, which in ancient Greek means "navigator", was launched in Brussels by the European Commissioner in charge of Education, Viviane Reding, on 5th March.

[Background paper IP/03/306]

Eurostat news releases

January 2003 : euro-zone annual inflation down to 2.2% ; EU15 down to 2.1%

Euro-zone annual inflation fell from 2.3% in December 2002 to 2.2% in January 2003, Eurostat the Statistical Office of the European Communities in Luxembourg reports. A year earlier the rate was 2.6%. EU15 annual inflation fell from 2.2% in December 2002 to 2.1% in January 2003. A year earlier the rate was 2.5%. EEA annual inflation was 2.1% in January 2003. In January, the highest annual rates were recorded in Ireland (4.7%), Portugal (4.0%) and Spain (3.8%) ; the lowest rates were observed in Germany (1.0%), Belgium (1.2%), Finland and the United Kingdom (both 1.4%).

[Background paper STAT/03/22]

Flash estimate - February 2003 : euro-zone inflation estimated at 2.3%

Euro-zone annual inflation is expected to be 2.3% in February 2003 according to a flash estimate issued by Eurostat. Euro-zone seasonally-adjusted unemployment stood at 8.6% in January 2003, compared to 8.5% in December, Eurostat reports. It was 8.1% in January 2002. The EU15 unemployment rate was 7.9% in January 2003, compared to 7.8% in December. It was 7.4% in January 2002. In January 2003, lowest rates were registered in Luxembourg (2.7%), the Netherlands (3.1% in December), Austria (4.1%), Ireland (4.5%),and Denmark (4.7% in December). Spain's 12.1% remained the EU's highest rate. Among the twelve Member States for which data are available for the most recent two months, eleven recorded an increase in their unemployment rate in the last twelve months. Portugal (4.2% to 6.1%), the Netherlands (2.4% in December 2001 to 3.1% in December 2002), and Luxembourg (2.1% to 2.7%), recorded the most important relative increases. Finland's rate decreased from 9.2% to 9.0%.

[Background paper STAT/03/24]

Enlargement news

Commissioner Solbes reviews accession prospects to EMU

"A main challenge in the future will be to fully integrate the acceding countries in the EMU framework", said European Economic and Monetary Affairs Commissioner Pedro Solbes last Thursday, speaking at a seminar on monetary strategies for accession countries in Hungary.

With the conclusion of accession negotiations at the Copenhagen Summit and the prospect of EU accession in just over a year, the ten acceding countries are increasingly focusing their attention on the next step in the integration process: their participation in Economic and Monetary Union, leading to the adoption of the euro. The benefits, Solbes argued, will mainly stem from the elimination of the exchange rate risk, the reduction of transaction costs, lower interest rates due to imported credibility, and making their economies less vulnerable to external shocks.

"These conditions in turn will lead to an increase in trade, investment, employment and growth", he predicted. But he warned against attempts at premature EMU participation "Countries lose their exchange rate flexibility, while the process of structural change, catching up and fiscal consolidation is not yet finished". In any case, the acceding states will first have to comply with the EU requirements for a minimum 2-year participation in the EU exchange rate mechanism after they become members of the EU in 2004.

At present, the acceding countries rely on different exchange rate arrangements, ranging from currency boards to free floats - and reflecting the different approaches each has taken to managing its transition process. Reflecting on which exchange rate strategies these countries should follow for a smooth and successful entry into the euro area, Solbes urged: "They should avoid rates that are inconsistent with economic fundamentals, excessive exchange rate fluctuations and competitive devaluations" - and they will be subject to the EU's policy co-ordination and multilateral surveillance procedures. The only clear incompatibilities are fully floating exchange rates, crawling pegs, and pegs against anchors other than the euro. Countries with currency board arrangements can keep them until the adoption of the euro, the Commissioner confirmed. "Acceding countries must choose a policy path that makes possible a rise in the standards of living while respecting the relevant EU acquis", he said.

For the subsequent adoption of the euro, new member states will have to achieve a high degree of sustainable convergence - and this will be assessed against the convergence criteria in the Treaty. "The new member states will have to comply with the same conditions set by the Treaty as the current euro area members", he emphasised. And he went on to make clear that this "excludes the possibility of either an adoption of the euro immediately upon accession or the unilateral adoption of the euro before accession".

He identified three policy challenges that confront the acceding countries. They must focus on preparing their economies for integration into the EU and pursue policies favouring real convergence: "Structural reforms, in particular, will improve the flexibility of the economy and will lessen the impact of shocks to income and employment". Some countries may also need to have some exchange rate flexibility: "In this respect, the ERM II mechanism could provide them with the required degree of flexibility, while providing a means to anchor market expectations". And they all need "to reform and consolidate their public finances and create the necessary margin for manoeuvre so that fiscal policy can serve as an adjustment instrument when the exchange rate instrument is no longer available."

The priority is to prepare their economies for integration into the EU, said Solbes - so they should "focus on furthering the process of structural and economic reform in order to enhance their status as functioning market economies and be able to cope with competitive pressure and market forces within the Union", in line with the Copenhagen economic criteria.

So far, he pointed out, "progress in terms of real income convergence, the principal measure of real convergence, has only been modest. In 2001, GDP per capita measured in purchasing power terms reached around 45% of the EU average for the ten acceding countries, against around 41% in 1995. For most of them, closing the income gap with the current member states will require reaching and sustaining growth rates well above the EU average over the coming years". And they will have to ensure the convergence of economic structures towards those of current member states. "Further reforms of labour, product and financial markets are needed to strengthen the supply side of the economy and enhance their growth potential".

The acceding states should also use the remaining years before EMU membership to consolidate public finances, insisted the Commissioner. "Reaching sound public finances will require substantial efforts in some countries. In particular, they will need to implement reforms in order to reorient the structure of government expenditures and to cut the currently high levels of mandatory and quasi-mandatory expenditures".

Candidate countries' current account transactions

According to the latest data from Eurostat, all thirteen candidate countries - except Turkey in 1998 and 2001, and Slovenia in 2001 - recorded deficits in their current account balances, mainly due to deficits in goods balances. However, on average the current account-to-GDP ratio showed a falling trend over the 1998-2001 period. Most of the candidate countries are described by Eurostat as relatively open economies exhibiting an increasing exposure to both export and import markets. It remarks that travel services on the export side and other services on the import side are in general the most important components of the international services transactions of the group.

In 2001 the current account deficit deteriorated in five countries (Bulgaria, Estonia, Latvia, Romania, and Slovakia) while in the rest the deficit remained unchanged or was even substantially reduced (Malta, Poland). Two countries (Slovenia and Turkey) registered surpluses in their current account balances.

The average current account-to-GDP ratio for the whole group improved from -5.6% in 1998 to -4.5% in 2001. In the 1998-2001 period, Turkey showed the lowest average ratio (-0.6%), whereas the average current account deficit ratios of Latvia and Lithuania were the highest of the group (-9.2% and -8.5% respectively). Cyprus, Hungary, Lithuania, Malta, and Poland exhibited considerable progress in reducing their current account deficits as a percent of GDP while the ratio of Bulgaria continued to deteriorate. The ratios of Estonia, Latvia and Slovakia have remained more or less stable but well above the average ratio of the group.

Malta and Estonia are the countries with the strongest outward orientation followed by Slovakia and the Czech Republic whose economies continued to open up to international economy with a trade openness ratio exceeding 70%. Poland, Romania and Turkey are at the other end of the spectrum with the lowest ratios (around 30% on average). However, in the last years, the trade openness ratios of Romania and Turkey showed an upward trend. The ratios of the other candidate countries ranged on average between 50% (Lithuania) and 63% (Hungary), with Cyprus having a surprisingly low ratio for the size of its economy (only 49%).

The structure of exports of services shows that travel services is the most important component of total services exports for Cyprus, Malta, Hungary, Slovenia, Bulgaria and Turkey. Exports of transport services are the other major component of total services exports. In Latvia the exports of transport services accounted for 65% of the country's total services exports. The share of this item in total services exports is also high in Estonia (48%), Lithuania (46%), Romania (38%) and Slovakia (36%). The share of other services exports in total exports was equal to 43% in Romania, 41% in Hungary, 35% in Czech Republic and 32% in Turkey.

On the side of imports of services, in Bulgaria and Cyprus transportation and travel services covered the major part of services imports. In the Czech Republic and Hungary, other services represented the bulk of total services imported (60% and 66% respectively). In Lithuania and Latvia total imports of services are evenly distributed among the three major categories of services. Import of transport services represented almost 50% of Malta's total imports of services, whereas imports of other services was the major component of total services imports in the other candidate countries, with a share ranging from 43% (Poland) to 52% (Slovakia).

Bolkestein argues for ambition

"Nobody can claim that taking forward the European project with more than 25 countries will be an easy task. But was the establishment of the single market easy to achieve? Or the launching of the euro? These two key achievements in Europe's integration prove that ambition and realism are compatible. Today we must be, once again, both ambitious and realistic. Ambitious because enlargement is a huge operation - never before have so many candidate countries entered the EU at the same time. Realistic because we cannot afford to fail. This implies the need to make the Union more democratic, more transparent and more efficient". That was the approach taken by European Internal Market and Taxation Commissioner Frits Bolkestein, when he gave a single market perspective of the challenge of the enlarged EU in Washington DC last week.

The Commissioner was certain of the benefits: "Enlargement will be a dynamic and positive factor for growth, investment and job creation across the Union over the coming years. We must look at enlargement leading in the long run to higher prosperity through restructuring, reallocation, upgrading of products and skills, industrial specialisation, development of services and inter-sectoral labour mobility", he predicted. But he was insistent on the need for further tough reforms in the candidate countries before the benefits can be reaped. "A stable financial services system, subject to internationally agreed standards of prudential supervision, is a pre-condition for these countries to attract new investment. It is also an indispensable requirement so that, for example, Polish or Hungarian banks will be allowed to offer their services throughout the EU. Some significant progress is being made here, but more needs to be done, for example to guarantee the independence of financial sector supervisors from political interference. Similarly, in the sensitive area of health care, we have identified problems related to lower standards of professional qualifications in a number of applicant countries."