OECD Launches Economic Survey Of The European Union

by Ulrika Lomas, for LawAndTax-News.com, Brussels

21 September 2007

The Organisation for Economic Cooperation and Development on Thursday launched the OECD's first Economic Survey of the European Union.

Commenting on the report's findings, OECD’s Secretary-General, Angel Gurría, observed that: “A vibrant single market is central to Europe’s long-term prosperity.”

He went on to add that:

"Our basic assessment is a positive one. The European Union has made a major contribution to prosperity in Europe. The single market programme, while far from finished, has boosted incomes, competition and growth. Economic reforms are starting to pay off, especially in the countries that started early. Unemployment is falling and the slide in productivity growth has stopped – and will hopefully begin to pick up again."

"But let me explain why we think more reforms are needed. Primarily, it is because living standards could be substantially higher. There is a sizeable gap in GDP per capita compared with the OECD’s best performers, and the gap has widened over the past decade. More than a third of the working-age population remains inactive. And the challenges are getting tougher. Globalisation brings great opportunities for vibrant economies but punishes less flexible ones, and population ageing will put welfare systems under pressure."

"Having said that, it is important not to generalise. The Union is diverse. In some areas, European countries are among the best performers in the OECD : Finland for its school system, the United Kingdom and northern Europe for their labour markets, the Eastern Europeans, Spain and Ireland for their dynamism and Germany and France for their world-beating exporters. Some member states have learned that liberalisation works, while others have tended to shield companies from competition. The challenge is for Europe’s laggards to learn from its best performers."

The OECD believes that member states need to provide a fresh impetus to clear the rules and red tape which are stifling competition and blocking cross-border trade and investment, and to that end, the report published on Thursday made five policy recommendations.

The main weak spot in the EU’s internal market is the services sector, according to the report. Differences in national laws make it hard for a service provider in one country to do business across Europe. The report is cautiously optimistic that the EU Services Directive, to be implemented by the end of 2009, will help create Europe-wide markets but said that member governments need to stop protecting providers from outside competition.

Competition is weak also in network industries such as electricity, gas, telecoms, transport, ports and postal services.

To create more competition in energy markets, the report recommended improved linking of national markets to create regional or pan-European markets. The networks also need to be fully separated from the generation and supply activities. The legislative proposals recently announced by the Commission on this issue are a welcome development, according to the OECD.

The report highlighted good progress in financial markets but called for changes to Europe’s fragmented banking industry. Establishing an effective single euro payments area (SEPA) to make it easier to transfer money from one country to another needs to be accelerated, it suggested.

The report also called for farm support to be cut and made less market-distorting. It recognised that the reform of Common Agricultural Policy in 2003 was a major step forward, but argued that for it to be even more effective, the link between subsidies and farm production needs to be broken completely. Farm support could be better targeted so that, for example, it could be of more benefit to lower-income farm households and to the poorer farming regions.

The survey called for the EU to act together with the world’s other big traders to reduce farm subsidies and open up its markets to the rest of the world.

It also recommended getting better value for money from spending on the regions of Europe, continuing to modernise and strengthen competition law, and removing restrictions on immigration from the EU’s new member states.

The European Commission has reportedly welcomed the conclusions of the OECD report as in line with its existing reform plans.

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