I move:
That Dáil Éireann notes the studies published by the Commission of the European Communities on the research project directed by Mr. Paolo Cecchini.
The studies in question are, first, a book The European Challenge 1992 — The Benefits of a Single Market by Mr. Cecchini and secondly, a more analytical study entitled The Economics of 1992, An Assessment of the Potential Economic Effects of Completing the Internal Market of the European Community, published in the March 1988 edition of the Commission's journal, European Economy. The studies now published, including some material other than the two reports to which I have referred, form only a small part of the output of the research project which, we are told will run to 6,000 pages when fully published.
Deputies will certainly not have had the opportunity to read all the published material and indeed will probably have been unable to do more than absorb the main results set out in the studies I cited earlier. I do not, however, consider that this need inhibit us from using the opportunity afforded by this motion to debate some very important issues that arise out of what I will henceforth call, for convenience, the Cecchini study.
The Government welcome the publication of the study which comes at a timely moment in both the Irish and the Community context. In the domestic context, it will serve to highlight the opportunities and the challenges arising from the programme to complete the single market, at a time when the Government are seeking to direct the attention of the commercial sector of the economy to these issues. In the Community context, publication comes at a time when the Council are getting down to discussions on the more sensitive proposals in the Commission's White Paper and when negotiations are under way on the reform of the Structural Funds pursuant to the Single European Act and the Conclusions of the European Council meetings in Brussels in June of last year and 11-12 February last.
Let me deal first with the study's assessment of the potential effects at Community level. The reports suggest that, coupled with an appropriately growth-oriented economic policy — and I shall come back to this — the implementation of the 1992 programme could:
— increase GNP by up to 7 per cent;
— create 5 million net jobs;
—lower the price level by 6 per cent;
—improve the budget balance of the Member States as a group.
These are, I emphasise again, estimated gains for the Community as a whole. They say nothing about the distribution of the benefits — and I also want to come back to that matter.
These results are of great significance for Ireland. There is evidence that the disparities in levels of development and living standards between member states and regions in the Community showed the strongest tendency to narrow at times when the rate of economic growth in the Community was most rapid. In more recent years, Community growth has been sluggish — no more than 2 per cent a year over the period since 1980 and during that period the regional disparities have widened again.
The Government, therefore, welcome and support the emphasis in the Cecchini study on the need for a macro-economic policy in the Community based on a coherent growth-oriented strategy, with appropriate and co-ordinated measures on the demand side complementing the essentially supply-side benefits of implementing the measures in the 1992 White Paper. Such a complementary and expansionary policy is needed to ensure that the Community economy climbs on to the higher growth trajectory necessary if the full economic gains of the internal market programme are to be realised. In the Programme for National Recovery, we indicated that one of our main concerns in the Community would be to ensure that the co-ordination of economic policies led to a faster rate of economic growth and thus to a significant impact on the unacceptably high level of unemployment.
In line with this concern, we will be actively promoting adoption at European level of a policy stance that aims at using the benefits from the downward competitive pressure on costs and prices to increase output.
I referred to the need for such an approach if the gains from the internal market programme are to be maximised. I should explain here that the initial effects of the changes embraced by the programme, as analysed in the study, would be on costs and prices, both directly as a result of the removal of barriers and indirectly through the effects of competition and through realising previously unexploited economies of scale. The results of macroeconomic studies of these factors in seven member states — not including Ireland — were fed into macroeconomic models of the European economy and the results indicated that even with a passive economic policy, there could be a medium-term gain, over say five-six years, of 4½ per cent in terms of GDP, a lowering of 6 per cent in the price level and a net gain of two million extra jobs from full implementation of the programme. The estimates also indicated that the budget balance would be improved markedly and the current account of the balance of payments should show a significant improvement.
The study drew the further conclusion that since all the main indicators of monetary and financial balance would thus be improved it would be legitimate to consider adjusting medium-term macro-economic strategy to a somewhat more expansionary path. A number of possible variants are illustrated. In the middle of the range, for example, lies a case in which the GDP level after a medium-term period might be 2½ per cent higher, in addition to the 4½ per cent gain suggested under the passive macro-economic policy, thus totalling 7 per cent. In this case, inflation would still have been held well below the course initially projected in the absence of the internal market programme. The budget balance would also be improved while the balance of payments might be worsened by a moderate but sustainable amount.
It might be thought in some quarters that a 7 per cent addition to growth in output is not all that major an effect. But it needs to be realised that this 7 per cent would be on top of the growth that would occur otherwise — just as the 6 per cent lowering in prices would act to cancel out or abate the inflation that would occur otherwise. Moreover, as one distinguished commentator has pointed out, the 7 per cent supplement is equivalent to three-and-a-half-years normal growth in the Federal Republic of Germany and there are very few other economic policies which have a chance of achieving so much at European level. The Commission put it another way: that the potential gains could be about large enough to make the difference between a disappointing and a very satisfactory economic performance for the Community economy as a whole.
Its emphasis on policies directed at accelerating growth is a positive aspect of the Cecchini study. However, in another respect, the study is flawed. I have in mind here the disturbing failure to estimate or even deal substantively with the question of the distribution of the aggregate gains among member states or regions. The report by DG II states that this was not attempted. It may be claimed that this was not the aim of this particular research project or covered by its terms of reference. The only answer to this is that it should have been and the report is diminished in value because of this limitation.
The Commission report suggests that neither economic theory nor relevant economic history can point to any clearcut pattern of likely distributional advantage or disadvantage. They say that theories of vicious circles of divergence of regional fortunes resulting from market integration exist but that so also do alternative theories, including important recent developments in the analysis of trade between industrialised countries, that point to more balanced or indeterminate outcomes. The also suggest that small countries have proportionately the biggest opportunities for gain from market integration and that, in any case, policy instruments such as the Structural Funds, exist to provide an insurance policy to help initial losers recover.
I certainly do not wish to suggest that the internal market programme will necessarily or automatically have adverse effects for a country such as Ireland. What I do say is that our historic experience demonstrates that if the cohesion dimension in the overall policy approach is inadequate, we and member states like us may not reap our fair share of the benefits expected from the 1992 programme. In every debate we have had in this House on the effects of the Single European Act, since it was first signed in 1985, I have consistently stressed this issue which is of vital importance to us.
The report in our view is unsatisfactory in two ways. It gives too little attention to the question of regional and national distribution of the aggregate gains from market integration. It therefore avoids analysing all of the major issues of the effects that will flow from completion of the market. Cohesion is now a Treaty obligation to be taken into account in all Community policies and I want to emphasise that this obligation must be acknowledged in and must animate all Community studies and measures concerning the economic future of the Community. Cohesion is now one of the most central objectives of the Community and must be constantly and vigorously pursued.
The second unsatisfactory feature of the report is that we cannot fully accept what it says about the potential distribution of gains. The recent work on international trade shows that although the total potential benefits of trade to the European Community as a whole are greater than was conceived in the traditional trade theory, these benefits will not automatically be shared evenly unless there are countervailing measures and policies. The Cecchini report creates the impression that the trend of thinking in economics is towards the view that the gains from integration are automatically more certain and more evenly distributed. This is not our view of how thinking is developing and we will be pressing the need to ensure that cohesion must be at the forefront of all Commission thinking and action in developing the internal market. This means that all decisions by the Community affecting a less-developed economy such as ours must take full account of the extent to which these decisions will accelerate or hinder cohesion.
I would recall that the Single European Act inserted a series of articles on economic and social cohesion into the Treaty of Rome. As a consequence of Article 130 A, there is a Treaty obligation on the Community to develop and pursue its actions leading to the strengthening of its economic and social cohesion and to aim in particular at reducing disparities between the various regions and the backwardness of the least favoured regions. Article 130 B provides — and this is of particular importance in the present context — that the cohesion objectives set out in the Treaty are to be taken into account in the implementation of other Community policies and of the internal market. It is essential that the Commission take the steps necessary to ensure that the cohesion dimension is systematically taken into account as early as the design stage of Community policies and that it is not grafted on later as an addendum to be dealt with solely through the operation of the Structural Funds. Such an approach would have ensured that the cohesion and distribution aspects were given their proper place in the Cecchini research project.
Deputies will recall the Declaration made by Ireland on the occasion of ratification of the Single European Act. We intend to ensure that this is acted upon at Community level. It may be helpful if I recall the indications given in the Programme for National Recovery that the Government:
are committed to the objectives of the Single European Act to perfect the Common Market, narrow disparities in economic development and living standards within the Community and to strengthen Europe's capacity in science and technology,
are anxious that Ireland should play the fullest part possible in the completion of the internal market, subject to full account being taken of the possible serious difficulties for this economy from an insensitive application of some of the proposals involved and also to market-opening measures being matched by more effective Community action to achieve greater economic and social cohesion.
This insistence on appropriate parallelism is conditioning the Government's position in the negotiations currently in train on the Commission's proposals for a comprehensive reform of the Structural Funds, pursuant to Article 130 D of the Treaty, inserted by the Single European Act. Following the success of the European Council meeting in Brussels on 11-12 February, the Commission tabled a revised version of its proposals for a regulation on 23 March last. This proposal which reflected the agreements on the Structural Funds reached in Brussels has been under examination since then in a council working group and in COREPER. Very important issues are involved, including the list of less-developed regions, the criteria for the share-out of the expanded resources of the funds between the five major objectives and among the Objective 1 regions, including Ireland, the definition of the tasks of the Social Fund and the detailed provisions on the intervention rates to apply within the framework set by the European Council.
The conclusions of that Council provided that the framework regulation on the Structural Funds and the legal instruments covering the other chapters of the package were to be adopted by 31 May 1988. In the current negotiations, the Government are insisting that the framework regulation be speedily agreed in a form that is true to the letter and spirit of the Brussels agreements and that will ensure a major increase in the financial support from the funds to Ireland to help equip the economy to reap a fair share of the gains postulated by the Cecchini study.
Or course, how far these gains will accrue to Ireland will also depend on our state of readiness to avail of the opportunities open to a country so oriented towards exports and to meet the challenges to a country so open to imports. Many different sectors will be affected, not only obvious areas like manufacturing industry and transport but such sectors as construction, the professions, energy and telecommunications. The necessary preparations are primarily the responsibility of the individual companies in the different affected sectors of the economy, of their sectoral bodies and of their representative organisations. The Government have a major role to play both in regard to necessary adaptation in areas that are the responsibility of the Government itself or of the public sector and in promoting awareness and the necessary preparatory steps in the commercial sector of the economy. We have taken a number of steps to those ends.
First, as I indicated in the House recently, the Government have established a committee of Ministers and Departmental Secretaries, chaired by myself, with a brief covering both the steps needed to adjust to specific features of the internal market programme and how best to ensure the most effective use of the increased receipts that will be available to Ireland under the new regime for the Structural Funds. The committee has put in hands a substantial programme of work.
We will be making proposals to the European Commission on how we visualise this committee interacting with the Commission so that we can co-operate to the best possible advantage to ensure that on both sides there is full comprehension and co-ordination in what we are going to meet the 1992 deadline. Such interaction by the Commission should, we suggest, be under the leadership of DG II which is responsible for economic affairs since cohesion is the statutory framework within which the single market is to be achieved.
Secondly, the Government are preparing a campaign to alert the various economic sectors to the implications of the 1992 deadline and to persuade them to make the necessary adjustments in their attitudes, plans and approaches. This campaign will be launched in the near future. It is intended to do so at a major conference for business and other leaders. It is envisaged that the conference will be co-sponsored by the major representative organisations that are party to the Programme for National Recovery.
As I indicated in reply to Questions here on Tuesday last, the campaign is being planned at present, including consultations with the social partners and I can give some indications of our thinking. I mentioned an official launch earlier but in a sense the campaign has already begun, to the extent that I have addressed, for example, the CII and IMI annual conferences, and speeches have been made by the Minister for Industry and Commerce, the Ministers of State for European Affairs and for Trade and Marketing and other Ministers. Business people need not wait for an official launch before getting down to planning for the changed environment. Businesses should start today, if they have not already done so, drawing up their detailed plans for the period between now and 1992.
It is envisaged that the national launch will be followed up by a comprehensive programme of activities that will highlight both opportunities and potential problems and will cover all the sectors that will be affected in a manner appropriate to the varying degrees of dispersion or concentration of the impact and, therefore, of the extent of "outreach" activity needed. For example, a great many firms will be effected in sectors such as manufacturing, somewhat less in financial services and construction, while in sectors such as energy and telecommunications the number of agencies involved is fairly limited.
We do not see the campaign as something to be done by the Government centrally for the various sectors. On the contrary, we see it as a task to be undertaken by the sectors for themselves. Certainly, there will be central co-ordination to ensure that the information is getting to all who need it and that the necessary preparations are taking place; certainly, Departments and agencies will provide information, whether by way of briefings or detailed documentation, but we envisage the delivery of the campaign as being decentralised, primarily through the representative and sectoral bodies of the commercial sector and the Ministers, Departments and semi-State bodies concerned with the different sectors and functions that are relevant. For example, we envisage a substantial role for the IDA, CTT, and SFADCo, including through the European Business Information Centres attached to the latter two bodies.
This ties in with the sectorally targeted approach we intend the campaign to have, with the primary emphasis on giving the necessary information and stimulus to specific sectors and firms and rather less of the generalist type of publicity involved in some aspects of the campaigns in other member states.
Let me say here that while the awareness and preparation campaign in France has been under way since 1986, those in the UK and Germany are really only getting off the ground now, while other member states such as Italy, Denmark, the Netherlands and Belgium are more or less at the same planning stage as ourselves.
I have indicated the steps being taken by the Government in regard to the most effective use of the Structural Funds and to the awareness and preparation campaigns in regard to the measures in the internal market programme. The Government are also proceeding with the steps for the implementation of the programme approach to the use of the Structural Funds, as envisaged under the new regime expected to apply from 1 January next. This is not yet fully agreed, since, as I indicated earlier, the negotiations on the draft framework regulation are still in train, with more provisions to be laid down in the separate implementing regulations which are expected to be tabled once agreement is reached on the framework regulation but which may not be settled until towards the end of the year.
However, while some member states have been concerned that the approach may lean too much towards centralised planning or may involve an undue administrative burden, it appears likely that the provisions about the programme approach will be adopted broadly as proposed by the Commission. These involve, in the first place, each Objective 1 region preparing a regional development plan for the region: in the case of Ireland, this would effectively be a national plan for the State as a whole which remains a single region for the purposes of the Community funds.
The plan would cover all of the priority objectives set by the European Council for the Structural Funds. It would, therefore, cover measures for long-term and youth unemployment and development of rural areas, as well as the general development and structural adjustment of the region. The draft framework regulation indicates that the plan should include in particular:
a description of the regional development priorities selected and of the corresponding operations.
an indication of the use to be made of assistance available under the funds, the EIB and other financial instruments in implementing the plan.
The Commission envisage the plan as being a relatively short document. The core of it would be the measures which are envisaged in each of the years to 1992 in the areas relevant to the Structural Funds, such as capital investments in roads, telecommunications, energy, industrial buildings and plant and other areas; employment and labour market policy and priority operations planned for long-term and youth unemployment; a description of the rural development priorities and corresponding measures.
In effect, the plan would have to set out a multi-annual expenditure profile in each of these areas, together with a general indication of the type of measures on which the expenditure would take place and the particular programmes which would be prepared to implement the plan. It would also indicate the extent to which Community support is being sought from the Funds, the EIB and the other Community financial instruments.
The Commission will consider the plan we submit and enter into dialogue with us, following which it would decide on what is called the Community Support Framework. This would set out the total amount of aid from each Fund to be given by the Community in support of our Regional Development Plan. Within the framework of the latter, assistance from the Community would be mainly on foot of operational programmes. These are likely to be a mix of national programmes, embracing investments and development initiatives in a wide range of areas, drawing assistance from one or more of the Structural Funds and other Community financial instruments.
In anticipation of these developments, the Government decided last October that preparation should commence so that Irish applications to the Funds would henceforth primarily be in the form of programmes rather than the project by project approach hitherto. This decision was announced by the Minister of State at my Department, Deputy Geoghegan-Quinn, and other Government speakers. Aspects of this approach are currently being considered by the Committee of Ministers and Departmental Secretaries I mentioned earlier.
There have been some suggestions that plans for use of the Structural Funds in the immediate period ahead do not attach enough weight to public transport in the Dublin area. I would have to point out that during the eighties there has been a massive investment of resources in public transport improvements in Dublin, with the construction of the DART at a capitalised cost of about £113 million with the assistance of EC funds as well as a virtual renewal of the bus fleet. Nothing on a comparable scale was done to improve the road system during that period. The most pressing priority now at this stage is to build a ring road around Dublin at a cost of about £120 million over six years, and relieve congestion on the principal roads in and out of Dublin. No possible public transport improvements would remove the necessity to undertake this investment and there is no capital city in Europe that has not ensured a high standard of roads both around it and leading into it. We must not attempt to do everything at once. In the meantime, further improvements in public transport are continuing and I have no doubt that in due course the question of further major investments will return to the agenda.
One of the major issues we will face in the achievement of the Single Market is the harmonisation of taxes. At present, the exact decisions we will be faced with are not clear as much discussion has yet to take place in the Council of Ministers and the views of many member states will have to be accommodated. Our basic stance is to participate fully in progress, but nevertheless the serious implications of complete harmonisation for our public finances and for social policies will have to be taken into account.
Thus, the Government are moving purposefully to tackle the various issues that need to be addressed domestically in Ireland, by the Government itself, by the public sector and by the private sector and to put in place the policies necessary to adjust the economy here to the requirements of the 1992 deadline. We are playing our part to ensure that the Irish people, who have been so strong in their support for the European Community and for closer European integration, should participate fully in the growth brought about by such integration, as set out in the Cecchini study. But I return to the point I made earlier. We are anxious to participate to the fullest extent in the completion of the Internal Market. We intend to be part of developments that can give a major new impetus to growth in Europe and help the Community to keep pace with the US, Japan and the newly industrialising countries in Asia.
The community now has Treaty obligations to promote greater economic and social cohesion, including the implementation of the internal market. The Government look to the Community and, in particular, to the Commission to ensure that the various Community policies promote convergence and not the opposite. We acknowledge the constructive role of the Commission in helping to secure the agreements at the Brussels European Council in February and, since then, in the continuing negotiations on the Structural Funds and in further discussions with the Commission which we hope to arrange, we will be seeking to ensure that this constructive approach will be carried forward in respect of key elements in the internal market programme. In this regard, I am encouraged by the references to cohesion by Commission President Jacques Delors in his foreword to the popular version of the Cecchini study.
To our own people, I want to give a message of realism but also of encouragement. There will be some losses in this process of completing the internal market. There is no question of benefits flowing automatically to us in Ireland. To profit from all the potential advantages and minimise the disadvantages, what we need is a cool, careful assessment of what is involved, a readiness to adapt to change and decisive action to adjust and prepare. The state of our trading balances with the major continental member states should give us the confidence to face up to this new challenge with the conviction that we can bring to our people the benefits foreseen in the Cecchini Study.