OECD highlights need for flexible eurozone governance

The deputy chair of the OECD has affirmed the need for flexibility in eurozone governance rules at an exchange of views with MEPs in Strasbourg.

By Michael Wilson

13 Jan 2015

The exchange, in Monday's meeting of parliament's economic and monetary affairs committee, forms part of the review process of the two- and six- pack rules currently ongoing between the European institutions.

The organisation for economic co-operation and development (OECD) has been supportive of the efforts made by member states in implementing structural reforms, alongside a balance of monetary and fiscal policy, to help return growth to the eurozone.

During the exchange, the organisation warned that income inequality and low aggregate demand were hampering growth rates in Europe, but was quick to clarify - in face of support from programme country members - that structural reforms must also continue.

OECD representative Stefan Kapferer also pointed to wage cuts in the public sector as being beneficial in some countries - whereas wage rises in Germany had brought strong economic results - as an example of the need for a nuanced view of Europe's structural problems.

The simplification of budget rules was also put forward for discussion but met with a tepid response from MEPs. Parliament's rapporteur for the draft report Pervenche Berès agreed with the need to consolidate governance procedures but was underwhelmed with the broad OECD advice on implementation.

The current problem in reducing the onerous budget rules rests in a lack of mutual trust between governments, and institutions, over effective budget management. As rapporteur, Berès, a French Socialist, said that without this trust in place it is difficult to remove the current framework and leave a well-functioning system intact.

Outside of the economic governance rules, the proposed 'investment plan for Europe' as put forward by commission president Jean-Claude Juncker made a positive impression on Kapferer.

A need to encourage viable and attractive projects for global investors was cited as important for European integration and growth prospects, with suggestions made for utilising the current fall in oil prices to further free up capital for investment.

The OECD concluded the hearing by reinforcing the need to garner market confidence in Europe. Continuing the practice of extended deadlines and failed progress would not, MEPs were told, help Europe in the longer term.

Next steps: The European Commission has released a commission communication providing guidance on how to encourage structural reforms and investment under the existing rules of the growth and stability pact, a document which legislators have been long waiting for to clarify the degree of flexibility allowed in euro area member state budgets.

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