Ms Catherine Day:

I hope that meetings such as this and other meetings that are planned will help to create an understanding of the semester. The semester is the normal way that Europe does business. The programme is an extraordinary response to an extraordinary situation. Ireland is now back in the normal mainstream but because we are in a common currency area and as we have seen during the crisis, the decisions taken in one country have a direct and sometimes very damaging effect on another.

The norm will be that countries in the euro area will pool their decision-making much more tightly. The members are correct to ask what is happening in other countries and we have had some very interesting debates. All of this is evolving. I have said this is the fourth time we have been doing what I have described and we have gradually developed a better way of interacting with member states. The chart I have to hand shows that three times a year we have a bilateral meeting with the member state to avoid surprises. We should be sharing our analysis and examining last year's recommendations and discussing with member states what they have implemented, why they have not implemented certain measures and whether they have done certain things in a different way.

Our approach has given rise to quite a lot of discussion in various member states. Let me give the committee two examples. Two years ago we recommended to Belgium and Luxembourg that they take another look at their wage indexation systems. We felt they were very rigid and causing them to lose competitiveness, both inside the European Union and internationally. Their first reaction was that their systems were part of their way of working based on social partnership and they questioned why the Commission should be telling them why they should revisit their systems. However, the fact that the Commission had put the spotlight on this matter led to a year-long debate, particularly in Belgium. Instead of just assuming its system was a natural part of the landscape, Belgium started to examine why the Commission was focusing on the matter. The Belgians, in acknowledging they had a competitiveness problem, asked whether the indexation system was a part of it. At the end of the year the Belgian authorities did not completely follow the Commission’s recommendation but came up with changes to the system that took away the problem about which we were worried. They found a way of keeping the structure overall, while tackling the competitiveness problem. In such cases there is a movement from a position in which countries ask why the Commission is picking on a certain subject to having a debate. This leads to an understanding of why the Commission adopted its position and a realisation that the matter needs to be addressed.

This year the Commission decided it would carry out an in-depth review of Germany. When we decided to do so, there was much comment in the German press questioning whether the Commission had gone mad. Considering that Germany has a strong economy and not had problems, it was asked whether the Commission wanted to make Germany less competitive because other member states were less competitive. It was asked whether the Commission was trying to drag Germany down. This was not the case at all. We wanted a serious analysis of the consequences for a country like Germany of having a big surplus. Of course, it is more comfortable to have a budgetary surplus than a budgetary deficit, but we asked what the right policies would be for Germany as a country and also for Germany as the leading economy in the eurozone. Is there a way in which Germany can craft its future economic policies so as to have a positive spillover for other member states and avoid negative spillovers? There was a big debate in the German press for two or three weeks and many eminent German economists argued different points. Very quickly, however, an awareness developed to the effect that the Commission had a point and that Germany had to have the debate.

These are just two very concrete examples of how our approach works, although it may not be immediately obvious. The way we are working together is helping member states to focus on issues on which they need to focus. We wanted to use our approach more to help member states to tackle together issues that they would face such as raising the retirement age. If every country has to do it, why do we not discuss it and determine where there is best practice? We must ask whether it is easier for countries in a currency union to make moves together rather than alone?