Matthew Saltmarsh
BRUSSELS (MktNews) - The EU has become the locomotive for world growth and it is crucial that coordination among EMU countries is stepped up if sustainable growth and fiscal health are to be preserved, President of the European Commission Romano Prodi said Thursday.
The text of a keynote speech entitled "Are we really on the road to European Integration?" notes that with the slowdown in America, "Europe is now playing the difficult role of being the global economy's driving force, and our prospects are good."
Macroeconomic stability, the introduction of the euro and microeconomic reform are yielding the promised results, creating new jobs and cutting unemployment, he said in the speech in Germany.
The recent Stockholm European Council made real progress towards creating an integrated Europe-wide financial market, even though progress was not forthcoming in other areas, Prodi said, adding the Commission will present new legislative proposals to reinforce growth-enhancing objectives in the next few weeks.
However, there needs to be more coordination for those inside monetary union, Prodi said. This is urgent in part because of the ageing problem. "Coordination is not a synonym for regulation, or harmonisation," he said. "Peer review and exchange of best practice, the additional new methods agreed at Lisbon, are effective ways of tackling these problems."
If coordination is not stepped up, ageing could have "devastating effects on the public finances of members and, through this, on EMU," he warned.
The EMU Stability and Growth Pact in its present form is no longer sufficient and must henceforth incorporate the long-term sustainability of public finances, he said.
If a country's policies threaten to bring deficits and debt in the medium term, the EU should have the ability "to ensure that country changes course and makes the right adjustments, because the EU does not possess the necessary instruments."
Prodi said the credibility of monetary policy needs to be reinforced by a credible fiscal framework.
"The basis of our monetary system is the independence of the ECB. But the ECB needs an informed, authoritative and independent interlocutor on those economic policies that remain decentralised," Prodi said.
The current arrangements do not fully satisfy the needs for co-ordination among fiscal authorities in the euro-zone, he stressed. They "do not really enable us to define a policy for the EU as a whole."
The Commission should have the role of bringing about the necessary co-ordination of national economic policies, and should conduct the dialogue with the monetary authority on the basis of sound, sensible economic rules.
Since it was introduced in 1999, economic convergence in the eurozone has made remarkable progress, he said.
He said financial markets are well on the way to a single euro capital market which is deeper, more liquid, and more efficient than national markets have been. Issuance of euro-denominated fixed-income securities has exceeded all expectations and the euro "has rapidly become an attractive alternative to the U.S. dollar for new issues."
And if the EU is to become a truly global player, the eurozone "must speak with one voice."
Separately, Prodi said after enlargement of the EU there should be a five-year transition period for the free movement of labour, with a further extension by another two years for "exceptional cases."
"This strikes the right balance between the interests of candidate countries and of member states, even those with border regions such as Germany and Austria."
Enlargement will not increase competitive or migratory pressures as much as some people fear, he added.