Round table n o 6 What kind of domestic market and what budget for the EU? Adriaan Dierx European Commission Directorate General for Economic and Financial Affairs Centre d'analyse stratégique Europe in the Global Economy Paris, 23 November 2007

2 Overview A number of important policy initiatives have been recently put forward by the Commission to respond in a coherent manner to the internal and external challenges facing the EU economy 3 Reviews: Mid-term Review of the Lisbon Strategy Mid-term Review of the Lisbon Strategy Single Market Review Single Market Review EU Budget Review EU Budget Review …and next year:

3 Lisbon Strategy in the context of globalisation The October Communication from the Commission to the Autumn European Council highlighted: The October Communication from the Commission to the Autumn European Council highlighted: The re-launch of the Lisbon Growth and Jobs Strategy in 2005 has helped to speed up the pace of reforms. The re-launch of the Lisbon Growth and Jobs Strategy in 2005 has helped to speed up the pace of reforms. Sound public finances and flexible and efficient markets are crucial in light of the increasing interdependence of the Member States' economies (spillover effects). Sound public finances and flexible and efficient markets are crucial in light of the increasing interdependence of the Member States' economies (spillover effects). Strong policy coordination and the adoption of country- specific recommendations represent a step forward. Strong policy coordination and the adoption of country- specific recommendations represent a step forward. In the euro area spillovers are even more important. In the euro area spillovers are even more important. Sharing a common currency and monetary policy offers an added importance to policy coordination. Sharing a common currency and monetary policy offers an added importance to policy coordination.

4 Single Market Review Achievements and Challenges From 1992 to 2006 the SM resulted in a 2.2% increase of the EU GDP and in the creation of 2.75 million additional jobs. However, benefits can be doubled with the removal of Internal Market barriers which remain in place barriers still exist at national level The SM, EMU and enlargement, have contributed to reinforce the integration of European product markets. The resulting increase in competition led to considerable changes in market leadership. However, a lack of business dynamism and price rigidities persists a lack of business dynamism and price rigidities persists the SM has lost attractiveness for foreign investors especially in comparison with fast growing markets the SM has lost attractiveness for foreign investors especially in comparison with fast growing markets the SM has failed to promote the expansion of activities in fast growing markets the SM has failed to promote the expansion of activities in fast growing markets the SM has been an insufficient driver of innovation the SM has been an insufficient driver of innovation

5 Single Market Review Further potential Obstacles to exploitation of full potential Obstacles to exploitation of full potential Implementation is slow and sometimes incorrect Implementation is slow and sometimes incorrect Rather legalistic than economic approach Rather legalistic than economic approach Barriers persist in certain sectors Barriers persist in certain sectors An Internal Market for knowledge is still missing An Internal Market for knowledge is still missing Therefore, the SM of the 21 st century needs to… Therefore, the SM of the 21 st century needs to… Deliver more results for citizens and SMEs Deliver more results for citizens and SMEs Open new frontiers of knowledge and innovation Open new frontiers of knowledge and innovation Take better advantage of globalisation Take better advantage of globalisation Be based on better knowledge of the functioning of markets Be based on better knowledge of the functioning of markets

6 Single Market Review External dimension Single Market policy cannot be developed in isolation but must take more account of the global context Single Market policy cannot be developed in isolation but must take more account of the global context (by further trade liberalisation and active enforcement of our market access rights) Expanding the competitive space for EU firms to third countries (by further trade liberalisation and active enforcement of our market access rights) (by promoting EU standards outside the EU as well as benefiting from best practices elsewhere) Expanding the regulatory space (by promoting EU standards outside the EU as well as benefiting from best practices elsewhere) ( through better standards, lower prices and greater choice) Actively ensuring that EU citizens fully reap the benefits of openness ( through better standards, lower prices and greater choice)

7 Single Market Review Governance and market monitoring Building on the existing experience of the Commission and Member States, the Commission developed a two stage methodology for market and sector monitoring. Building on the existing experience of the Commission and Member States, the Commission developed a two stage methodology for market and sector monitoring. 1. Sector screening aimed at identifying sectors offering the greatest benefits based on 3 criteria: Economic importance (static and dynamic) Economic importance (static and dynamic) Their role in the adjustment capacity of the EU Their role in the adjustment capacity of the EU Signs of market malfunctioning Signs of market malfunctioning 2. In-depth monitoring of the selected sectors in order to determine why markets in these sectors are not functioning well

8 Accepting the need to adjust in the global economy The public acceptability of further integration of the SM is hampered by: negative attitude of citizens towards economic reforms economic reforms tend to carry short-term adjustment costs for relatively small, well identifiable groups, while its benefits show in the longer-term to a wider, more heterogeneous group In order to increase the political acceptability for further reforms it is crucial to: provide evidence illustrating the overall impact of reforms proposed and to identify the most appropriate sequencing of reforms facilitate the process of adjustment particularly for those most directly affected

Need for a more supporting role of the EU budget The EU budget composition: 36% structural funds, 44% CAP, 7% education, R&D, energy and transport. Perspectives for the EU budget review Does the current budget composition allow to fully support growth and cohesion? Could a reform of the CAP improve effectiveness and efficiency of current EU spending?

Catching-up and regional cohesion For the period 2007 to 2013, 350bn are available for the Structural Funds (EFRD, ESF) and the Cohesion Fund For the period 2007 to 2013, 350bn are available for the Structural Funds (EFRD, ESF) and the Cohesion Fund Over 80 % are reserved to promote growth and real convergence of the least-developed Member States and regions Over 80 % are reserved to promote growth and real convergence of the least-developed Member States and regions The bulk of this expenditure will support the Lisbon agenda through investments in infrastructure, education, research and entrepreneurship The bulk of this expenditure will support the Lisbon agenda through investments in infrastructure, education, research and entrepreneurship Perspectives for the EU budget review Perspectives for the EU budget review Could the effectiveness and efficiency of structural policy be enhanced by reinforcing its concentration on growth and competitiveness? Should the structural policy focus even more on least-developed Member States and on regions with a high growth potential?

Making rural areas and farmers fit for the 21 st century Distortionary market interventions have been substantially reduced, demanding merely about 10% of 2007 CAP expenditure Distortionary market interventions have been substantially reduced, demanding merely about 10% of 2007 CAP expenditure 67% of CAP expenditure are dedicated to direct payments to alleviate income pressure in agriculture resulting from past and ongoing CAP reform 67% of CAP expenditure are dedicated to direct payments to alleviate income pressure in agriculture resulting from past and ongoing CAP reform 23% of CAP spending are dedicated to rural development to support adjustments in farm sector and rural areas and to promote the provision of agriculture-related public goods 23% of CAP spending are dedicated to rural development to support adjustments in farm sector and rural areas and to promote the provision of agriculture-related public goods Perspectives for the EU budget review Perspectives for the EU budget review Does the successful reform process allow for reduced agricultural expenditure in the long-term? Does the successful reform process allow for reduced agricultural expenditure in the long-term? Do all rural development measures such as the provision of public goods need to be financed at EU level? Do all rural development measures such as the provision of public goods need to be financed at EU level?