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C 330 E/114 Official Journal of the European Communities EN 21.11.

2000

(2000/C 330 E/127) WRITTEN QUESTION E-0273/00


by Paulo Casaca (PSE) to the Commission

(7 February 2000)

Subject: Theoretical basis of Eurostat’s PPP data

In its reply to question E-2218/99 (1) the Commission takes the view that using PPP in Community rules in
countries which have adopted the euro is ‘completely correct’ and a reflection of ‘current practice’.

Can the Commission quote a single reference from economic theory which supports the practice of using
PPP in order to compare the GDP prices of countries which use the same currency?

(1) OJ C 219 E, 1.8.2000, p. 124.

Answer given by Mr Solbes Mira on behalf of the Commission

(30 March 2000)

International comparisons of gross domestic product (GDP) in real terms are only possible if the following
three conditions are met: the definition of GDP must be the same, GDP must be expressed in the same
monetary unit, and it must be evaluated at the same price level.

GDP estimates, both for Member States and for other countries, generally meet the first condition but do
not meet the other two because they are expressed in the national currency and are evaluated in
accordance with the prices of the country in question. The use of purchasing power parities (PPPs) allows
these last two conditions to be met.

It seems therefore that where two Member States share the same national currency, or where this currency
has a fixed and intangible parity with another currency, PPPs are still useful because in this case the first
two conditions are met but the third (price levels) is not always.

Moreover, even if price differences were to diminish in future (price convergence) as a result of the internal
market and European monetary union, the experience of the United States or of Belgium and Luxembourg
shows that significant differences between regional or national price levels could continue to exist for a
long time.

Similarly, PPPs are used to compare the GDPs of countries such as the United States and Argentina, even
though the Argentine peso has a fixed peg to the American dollar (1 peso = 1 $). In the United States, the
use of regional PPPs was recommended for poverty comparisons. In addition, the Federal Government uses
PPPs to carry out cost-of-living adjustments for its employees who work in different places of employment
throughout the United States.

It therefore seems that the realisation of European monetary union in no way eliminates the significance of
the use of PPPs at European level; on the contrary, these will continue to represent a valuable economic
tool.

(2000/C 330 E/128) WRITTEN QUESTION E-0274/00


by Paulo Casaca (PSE) to the Commission

(7 February 2000)

Subject: Use of PPPs for the purpose of regional policy

In its reply to question E-2218/99 (1) the Commission takes the view that the use of PPPs in Community
rules and, in particular, in the rules relating to regional policy is ‘completely correct’ and reflects ‘current
practice’, and it backs up this view by claiming that its methodology is accepted by the OECD and the UN.