ECONOMY

The European Constitution and Greek economic policy

The EU Constitution is an historic step in progress toward a common European future. It has been drafted to respond to the challenges and demands of an enlarged Europe, a Europe that is democratic, transparent, efficient and in the service of European citizens. The aims of the EU are clearly defined in the first articles of the Constitution. Article 3 states that «the Union shall work for the sustainable development of Europe, based on balanced economic growth and price stability, a highly competitive social market economy aiming at full employment and social progress.» For this plan to take effect, certain general guidelines for economic policies have been established for all EU member states, anchored in the strengthening of the European economy and realization of the Lisbon strategy. To achieve these economic policies, as defined by the Constitution, the Union undertakes exclusive responsibility for introducing competition rules, monetary policy and a common trade policy. On a secondary level, it also undertakes competences in domains such as the internal market and economic and social cohesion. A basic precondition for meeting the economic targets is fiscal stability by abiding by a series of rules for eurozone members known as the Stability and Development Pact. The application of the pact relies mainly on two pillars: the principle of a multilateral monitoring of fiscal positions and on the process for controlling excessive deficits. Regarding the former principle, each member state of the Economic and Monetary Union submits its Stability Program, which includes the long-term objectives of public accounts. The Council of Economy and Finance Ministers (Ecofin) examines each country’s Stability Program and monitors its application, and, after a proposal by the European Commission and consultation with the Economic and Financial Committee, it issues an opinion of the program, while it can issue a recommendation about any bad aspect of public finances. Article 184 of the Constitution also makes a specific reference to this requirement – that member states must avoid excessive fiscal deficits. The Commission observes adherence to fiscal discipline, based on the proportion of the forecast or existing fiscal deficit and the ratio of public debt to gross domestic product (which should not exceed 3 percent and 60 percent respectively). Following a Commission proposal and general appraisal, Ecofin determines whether there is excessive deficit. Should this be the case, it invites the member state to take measures to limit its excessive deficit. If the member does not comply with the recommendations or does not take measures to tackle the problem, Ecofin can impose penalties on that state. Among the penalties are an interest-free deposit to the Union and the imposition of a fine. There is an intense debate taking place at the pan-European level, with the ultimate aim being the re-examination and the restructuring of the pact at the forthcoming European Council (March 22-23). The Commission is examining the way the pact could handle the missing points that have appeared (i.e. strengthening the preventive phase by avoiding certain economic policies, as well as the corrective phase) by placing greater emphasis on cautions about economic developments and by being more involved in protecting the viability of public finances, so as to strengthen the contribution of fiscal policy in economic development and to facilitate the realization of the economic reform strategy of Lisbon. Cautions For Greece, the credibility of fiscal data has become a focus of particular attention by Eurostat in the last few years. Specifically, the Eurostat report of November 22, 2004 revealed that, while community agencies had warned Greece and were for years calling us to reinstate sincerity and clarity in reporting public finances, we ignored them («Eurostat was forced to introduce several times footnotes about reservations on the quality of Greek debt and deficit figures,» Page 2 of the report). Therefore, both in November 2002 and this year, there was a significant downward revision of that data for the 1997-2003 period. The consequence of this revision was the Ecofin caution to Greece on July 5, 2004, while this month the Commission gave Greece two years to return to fiscal stability (that is, balanced and continuous reduction of the fiscal deficit from 5.5 percent today to 3 percent by the end of 2006). Nevertheless, the competitiveness of economies depends on the macroeconomic as much as on the microeconomic environment. Price stability (a primary objective of monetary policy, as defined by Article 177 of the Constitution) is an essential condition for sustainable development, but not sufficient to secure high rates of economic growth. What the European economy immediately needs is structural reforms to improve competitiveness, increase growth rates, reduce regional inequalities, tackle unemployment and promote social cohesion. This is why in specific articles of the Constitution (161-169) rules are introduced and conditions mentioned for the development of European enterprises and the bolstering of competitiveness. Five years after the adoption of the Lisbon strategy, having come to the halfway point of the course toward 2010, and ahead of the reassessment of targets during the spring summit, we can safely suggest that at community level, and despite any efforts and improvements, there is a strong lack of meeting targets. The existing situation has rekindled European interest, so that on February 2, the Commission presented a strategy adjusted to fewer and more achievable objectives. Greece, for its part, has hardly made any progress in its economic and social convergence with the other European countries. In all charts representing Lisbon’s targets, it always occupies one of the last two positions. This stems from the above point that the big aim for our country is the development of the economy. Therefore, besides macroeconomic management, a crucial position among the national economic goals must be microeconomic adjustment, structural policy and bolstering competitiveness. Investment in knowledge; the strengthening of innovation, of research and technological development; the creation of a favorable environment for initiatives and the development of enterprises (tax reform and the new investment incentives law are steps in the right direction), as well as the creation of an efficient, modern and fair state make up the new basis for achieving high and sustainable economic growth. Systematic focus on these targets is the sole way for Greece to follow the same road as the general economic policies of the Union as described in the EU Constitution. (1) Christos Staikouras is a lecturer at the Athens University of Economics and Business.