EU-Med Finance Ministers want to increase growth and create jobs

European Union Finance Ministers met with their counterparts from the Southern Mediterranean rim in Porto on 15th September to discuss ways to achieve higher sustainable growth and create more jobs. While important challenges remain, in particular high levels of unemployment, a gradual but visible drive for change is currently underway in most Mediterranean countries. Ministers agreed to launch a Euro-Mediterranean Network of Public Finance Experts in an effort to share experiences and best practices in fiscal policy issues.

Portuguese Finance Minister, Fernando Texeira dos Santos, welcomed fellow Ministers to this new format of the Euro-Mediterranean Ministerial meeting which has been held for the first time back to back to an Infomal Ecofin Meeting, by stressing the importance of Euro-Med partnership. “Our discussions demonstrate that we share common challenges and have much to learn from each other in the implementation of structural reforms. We reiterated our commitment to further strengthen our partnership, to build a common space of peace, stability, and economic prosperity, in the spirit of the Barcelona process.” said Minister Texeira dos Santos.

“Our domestic agendas increasingly need to take account of the forces of globalisation and to pursue a vigorous effort to implement the reforms necessary to lift the obstacles to investment, innovation and employment. This is valid for the Mediterranean countries where unemployment, especially amongst the youth, is unacceptably high. But it’s also true for the EU, where an ageing population makes these reforms even more urgent,” said European Economic and Monetary Affairs Commissioner Joaquín Almunia.

The 3rd Euro-Med ministerial meeting exchanged experiences on how to increase the growth potential and the creation of jobs.  Finance Ministers also agreed to launch a Euro-Mediterranean Network of Public Finance Experts, to exchange best practices on sound fiscal policies, a key condition for improving economic performance.  The Mediterranean partners represented were Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Syria, Tunisia and West Bank and Gaza. Turkey was also represented. Ministers focused on public finance and economic reforms as well as on building efficient financial markets. It was the first time the Euro-Med meeting took place immediately and in the same place as the Informal ECOFIN Council.

The Mediterranean countries over the last few years are displaying an improved   economic performance thanks, in particular, to gradual but visible progress in reforms.  In some areas, such as openness to trade, most countries are moving faster than the rest of the world in terms of reducing tariffs. Regarding the conditions for doing business, the region is also reforming at a faster pace than the rest of the world in some areas key to improving the business environment, such as contract enforcement and starting a business.

Economic growth in the Mediterranean partner countries accelerated to 4.8% in 2006, the fourth consecutive year of growth comfortably above 4%; official unemployment, although still high at above 12%, fell for a second year in a row; inflation remained subdued at around 4%; and foreign direct investment (FDI) surged, fuelled in part by high oil surpluses in oil-exporting countries.

However, if high unemployment, arguably the main development challenge facing the Mediterranean region, is to be reduced, further progress is necessary and partner countries should take advantage of the current favourable environment to accelerate reforms. The same is true on the EU side to successfully confront the ageing problem.

Progress has also been made in the fiscal consolidation area. However, high levels of deficits and public debt remain a threat to macroeconomic stability, put pressure on monetary policy, increase vulnerability to external shocks and reduce the scope for higher spending in areas that support growth, employment and poverty reduction. In this regard, and very much like in Europe, budget systems and institutions need to be upgraded in order to improve fiscal outcomes and to increase the effectiveness, transparency and accountability in public intervention.

The Mediterranean partners agreed the following areas deserve particular attention:

1)   further reduce budget deficits and public debt

2)   improving the business environment, notably the independence and efficiency of courts to enforce contracts

3)   fostering intra-regional trade, investment and economic integration, notably through infrastructure and convergence of rules and

4)   upgrading governance, notably by increasing public sector accountability and fighting corruption.

Background

The EU provides significant support, including financial, through the reinvigorated Barcelona process and the European Neighbourhood Policy (ENP). The ENP lifts the existing EU-Mediterranean relations from traditional modes of trade and cooperation towards deeper economic integration, including by opening the prospect of participation in the EU internal market.  The EU contributed roughly EUR2.8 billion a year in financial support to the region for the period of 2003-2006. The support is channelled through the MEDA programme and the FEMIP facility, which finances an annual EUR2 billion worth of projects. Under the 2007-2013 EU Financial Perspectives, the amounts allocated to the European Neighbourhood Policy Instrument, reach EUR12 billion, which represents a 45% increase over the amount currently available for South Mediterranean and Eastern European countries.