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European Commission: building blocks towards economic growth

European Commission - MEMO/12/497   27/06/2012

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European Commission

MEMO

Brussels, 27 June 2012

European Commission: building blocks towards economic growth

On 28th and 29th June, EU leaders will come together at the European Council to agree on a comprehensive package of measures to boost growth and jobs in the European Union, a "Compact for Growth And Jobs".

This package builds on significant measures taken by the European Commission in recent years. Since the launch of the Europe 2020 Strategy two years ago, the Commission has introduced a number of initiatives to help overcome the crisis, kick-start growth and create more and better jobs in the EU. At this defining moment for European integration, it is time to step up a gear in creating a smart, sustainable and inclusive EU economy.

This note gives an overview of the initiatives that the Commission has tabled and that are expected get full support from the European Council through the adoption of the Compact for Growth and Jobs.

Some of these initiatives are outlined below:

Europe 2020 Strategy

Europe 2020 is the EU's long-term growth strategy which was proposed by the Commission and endorsed by the European Council two years ago. This strategy basically identifies the engines of EU growth for the decade, focusing on new solutions and structural reforms. Based on the principles of smart, sustainable and inclusive growth, Europe 2020 sets out five key targets in the areas of employment, research and innovation, education, poverty reduction and climate/energy. This strategy remains valid and should help Member States to pull in the same direction for the benefit of all. Its implementation is crucial to boosting our growth potential. Progress in implementing the Europe 2020 goals is driven forward through the policy coordination mechanism that is the European Semester.

Country-specific recommendations

Each Member State should implement the Europe 2020 strategy at national level, through annual reform program reflecting its own challenges. On the basis of its analysis of Member States' national reform programmes (on economic and employment policies) and their stability and convergence programmes (on budgetary strategies), the Commission issues every year 28 sets of Country-Specific Recommendations – for the 27 Member States and for the euro area as a whole. These recommendations outline the measures we believe should be taken to achieve the stated policy goals, in areas such as product and labour markets, pensions, education and tax systems, as well as budgetary policies. The 2012 CSRs were published on 30 May and should be endorsed by the European Council on 28-29 June. They will then be formally adopted by the Ecofin Council in July.

"2-pack" laws [ECFIN]

These two draft regulations further strengthen the coordination of budgetary policy in the euro area. They were tabled by the Commission on 23 November 2011 (see MEMO/11/822). They build on the "six-pack" rules, which entered into force on 13 December 2011 (see MEMO/11/898).

The first draft regulation aims to further improve fiscal surveillance by establishing a common timeline and common rules to allow for more active prior ex ante monitoring and assessment of the budgets of euro area Member States. This early assessment would allow better prevention of fiscal deviation in one Member States, and its possible consequences on its economic partners. The second draft regulation aims to improve surveillance of the most financially vulnerable euro area Member States.

The "2-pack" is currently being scrutinised by both the European Parliament and the Council of Ministers. The Commission is working towards a fast approval of an ambitious version of its draft laws.

Deepening the Single Market [MARKT]

Since the adoption of the Single Market Act on 13 April 2011, the Commission has delivered the 12 key legislative proposals promised (see IP/11/469 and MEMO/11/239, see also IP/12/187) and a further 30 complementary actions to boost growth, jobs and confidence in the single market. It is crucial to finalise the negotiations on these 12 key "levers" by the end of this year.

As a result, over 21 million businesses and 500 million consumers in Europe would benefit for example from a single market for venture capital, simpler accounting requirements and cheaper access to patent protection across Europe. It will be easier for citizens to get their qualifications recognised and seek a job in another Member State. It will also be easier for goods to circulate and for service-providers to operate cross-border, thanks to further harmonisation of rules and standards and actions aimed at removing persistent and unjustified restrictions to the provision of services. New approaches on dispute settlement will help consumers to take more advantage of the opportunities offered by the digital single market with a boost in e-commerce which could be worth up to EUR 2.5 billion.

Ensuring that the Single Market delivers depends not only on solid regulation but also on a change of approach in its governance. For this purpose, various practical tools and networks have been created over the years. In its recent Communication on "Better Governance for the Single Market", the Commission is proposing to focus efforts on sectors with the largest growth potential (see IP/12/587 and MEMO/12/427). In 2012-2013, the sectors identified are services and network industries, where the Commission calls on Member States to commit to zero tolerance for late and incorrect transposition of Directives. The Commission, for its part, will provide enhanced transposition assistance in order to smooth out potential problems.

The Commission is also proposing measures to improve the way the services sector works, which is vital as the Services Directive accounts for more than 45% of EU GDP and must play a strategic role in promoting economic growth (see IP/12/587 and MEMO/12/429) , in particular in business services, construction and tourism. Based on the assessment of the progress made by the Member States on the implementation of the Services Directive, an economic analysis shows that its implementation will generate an additional 0.8% of EU GDP over the next 5–10 years. This figure could rise to 2.6% if Member States show more ambition in opening up their services covered by the Directive.

This year marks the 20th anniversary of the single market. As a follow-up of the Single Market Act, the Commission will propose a second set of actions by the end of 2012 to further reduce market fragmentation and eliminate remaining obstacles to the movement of services, innovation and creativity. The "Single Market Act 2" foreseen for adoption in Autumn 2012 will include new drivers for growth, competitiveness and social progress. The Commission will also organise the "New growth" week in October 2012, including the second annual Single Market Forum, with a view to sharing views on the future of the single market in an inclusive way.

For more information:

Single Market Act: http://ec.europa.eu/internal_market/smact/

Booklet Single Market Act: Together for new growth

Digital Single Market [CNECT]

Several important steps, some with immediate impacts, have been taken in the past year including a new mobile roaming regulation (see MEMO/12/316), a regulation to harmonise eSignature and makes eIDs interoperable (see IP/12/558) and plans to increase eCommerce (see IP/12/10). These actions support the digital economy which is growing by 12% each year.

Further regulatory action is needed to enable a real Digital Single Market. High speed broadband, such as that proposed through the Connecting Europe Facility (CEF, see IP/12/583) is the foundation, and cloud computing the architecture for this development.

An EU cloud computing strategy, building on proposed new Data Protection rules, will be released in the coming weeks to enable two million new jobs in Europe by 2015.

Further actions will follow to create harmonised rules for Copyrights, ePayments, eProcurement, eInvoices, and internet security.

Building a Digital Single Market is about ensuring Europe has long-term competitiveness. The combined weight of current and future proposals is essential for keeping manufacturing in Europe, making healthcare sustainable, reducing public deficits and more. These harmonised rules make possible the standards, interoperability and common legal practices that generate increased productivity, just as the 3G mobile standard enabled Europe to lead the €250 billion a year global mobile industry since the 1990s.

Regulatory Burden

The EU's growth strategy Europe 2020 highlights the importance of improving the business environment, including through smart regulation and the reduction of regulatory burdens, in order to make European enterprises more competitive at global level. Last November, the Commission launched an initiative to minimise the regulatory burden, specifically for small and medium-sized enterprises (SMEs) and to adapt EU regulation to the needs of micro-businesses (see IP/11/1386). SMEs play an important role in economic growth, accounting for 99% of all businesses and providing more than two thirds of private sector jobs. Unleashing their growth potential can only be of benefit to the EU economy.

One should note that Commission's action to reduce regulatory burden has started in the previous decade. In January 2007, the Commission proposed an Action Programme aimed at lightening the administrative burden on businesses, with a target reducing the administrative burden stemming from EU legislation by 25% by 2012. It was endorsed by the European Council in March 2007. Improving the business environment by cutting red tape is a joint objective which can only be achieved through shared responsibility of the EU Institutions and the Member States.

The European Commission has already proposed measures that reduce red tape by up to a third, or more than €40 billion. For example, a Commission proposal to introduce VAT e-invoicing could represent €18.4 billion in savings for the 22 million taxable businesses in the EU (see IP/10/1645), and a Commission proposal of February 2009 introduces an exemption for micro-businesses from accounting rules, thereby helping to make potential savings of around €6.3 billion (see IP/09/328).

Energy Market [ENER]

Member States are committed to complete the single energy market by 2014. To be operational, the internal market requires the legal certainty which will favour investment in generation as well as in infrastructure, in renewables as well as in energy efficiency.

The EU laws on energy internal market are at the core of this legislative framework. They include key provisions for proper functioning of the energy markets, setting new rules on unbundling and facilitating the cross-border investments.

The renewable energy directive has set binding targets for each Member State which will translate into the overall raise in the use of renewable energies by 20% by 2020. The recent Commission Communication on the Renewable Energy Strategy already explores the policy options for the integration of renewables into the European system beyond 2020 (see IP/12/571).

The energy efficiency directive, just agreed by the European Parliament and the Council, aims at stepping up Member States' efforts to use energy more efficiently at all stages of the energy chain – from the transformation of energy and its distribution to its final consumption (see MEMO/12/433).

In addition to legal safeguards, and especially in the times of economic uncertainty, for development the cross-border market needs also financial incentives. The energy part of the Connecting Europe Facility will finance projects which fill the missing links in Europe's energy backbone. It has proposed that €9.1 billion would be invested in trans-European infrastructure (see IP/11/1200 and MEMO/11/710).

Innovation: an investment in growth and jobs [RTD]

The European Commission's Innovation Union strategy is boosting competitiveness and jobs through better financing and improved framework conditions for innovation. The current EU research framework programme, FP7, is investing €55 billion in research and innovation over seven years, including direct support to around 17.000 SMEs. The FP7 Risk-Sharing Finance Facility (RSFF) is leveraging more than €10 billion of private investment for innovation together with the European Investment Bank, including at least €1 billion for SMEs. Also under FP7, public-private partnerships are putting Europe at the fore of key technologies like innovative medicines, green aircraft, nanoelectronics and embedded computer systems.

The Commission will present recommendations in July on completing the European Research Area (ERA), with the aim of optimising pan-European research and innovation, removing barriers to the circulation of researchers and ideas throughout Europe and strengthening university-business links. EU Member States are now working together on 10 joint research programmes to tackle major challenges, such as treating Alzheimer's disease, and are investing in 48 priority research infrastructures, such as on clinical research, biodiversity and solar power. 10 of these infrastructures are now being implemented, with a further 16 due to start this year.

The Commission has proposed to increase EU-level innovation funding to €80 billion in the next budget under Horizon 2020 (see MEMO/11/848). This new, simplified programme will bring together all EU level support from research to market, and create new opportunities for fast-growing, innovative firms.

For more on Innovation Union see:

http://ec.europa.eu/research/innovation-union/index_en.cfm

For more on Horizon 2020 see:

http://ec.europa.eu/research/horizon2020/index_en.cfm?pg=home

European Patent Reform [MARKT]

The European Council of 28-29 June should reach a final agreement on one of the most important and long-awaited dossiers to foster innovation: the introduction of a truly European patent system, with a unitary patent for Europe and a common patent court. This proposal on the table is based an enhanced cooperation (see IP/11/470). Council reached agreement on everything, except for where the Court headquarters will be located.

Once approved, the Community Patent will make it simpler and cheaper to patent innovations in Europe, in particular for small and medium-sized businesses. It will introduce a unitary patent for 25 Member States on the basis of one application and without additional administrative hurdles. Spain and Italy, which are not participating in this enhanced cooperation, can opt to join the new regime at any stage after the new system is introduced, as foreseen in the Treaty.

The patent will be an important step in bridging the gap that exists between the EU and the US or China: obtaining patent protection in all countries of the EU costs up to € 36000, compared to € 2000 in the US and only € 600 in China.

A simplified patent system in Europe is essential to foster innovation and investment in research and development in Europe. For instance, the simplified translation arrangements for the unitary patent will allow patent applicants to save up to 80% of the current costs and to use more resources for research activities.

For more information:

http://ec.europa.eu/internal_market/indprop/patent/index_en.htm

EIB's capital [ECFIN]

With the European Investment Bank (EIB), the EU has a powerful own institution to support growth and employment. The EIB, with a lending capacity several times the size of the World Bank, has played an important role in tackling the crisis since 2008. But, it is reaching the limits of what it can do with its current capital. To enable the EIB to do more for growth and jobs, its capital needs to be strengthened, i.e. its paid-in capital needs to be increased by its shareholders, the Member States. President Barroso has called such an increase since his 2011 State of the Union (see SPEECH/11/607).

An increase of the Bank's paid-in capital by €10 billion would enable the EIB to increase its lending by €60 billion over the next three to four years, which, in turn would, attract financing from other sources for a total investment of €180 billion for new projects. In addition, the Commission and the EIB propose to use the EU budget to leverage EIB group financing capacity through risk-sharing instruments. It is possible to build on schemes already developed for research and innovation and with the project bonds for infrastructure, as well as for small and medium-sized businesses with the help of Structural Funds.

President Barroso and EIB President Hoyer wrote to the members of the European Council suggesting such an increase of EIB capital on 21 June (see MEMO/12/470).

Project Bonds Initiative [ECFIN]

On 19 October 2011, the Commission tabled a legislative proposal for a Project Bond Initiative with the twin objective of reviving project bond markets and helping the promoters of individual infrastructure projects to attract long-term private sector debt financing (see IP/11/236 and MEMO/11/707).

The Commission will launch a pilot phase in 2012-2013, within the current Multiannual Financial Framework. It is based on an amendment of the Trans-European Networks (TEN) Regulation and the Competitiveness and Innovation Framework Programme Decision and will draw on the budget lines of these programmes up to a total of € 230 million. The proposal is due to be voted by the European Parliament and Council of Ministers in July. The total budget amount of €230 million will be combined with EIB financing. Taking into account the multiplier effect and credit enhancement, the Commission estimates that, in the pilot phase, the project bonds could mobilise up to €4.6 billion of investment. The Project Bond instrument will form an integral part of the Connecting Europe Facility for 2014-2020.

Using Structural Funds [REGIO/EMPL]

In the field of Cohesion Policy, which is the EU's key investment policy for growth, the European Commission has paid out since April 2009 a total of €11.25 billion in advances to cash-strapped Member States to be able to quickly invest in growth enhancing projects.

Furthermore, since 2011, a possibility of lowering the national co-financing rate by 10 percentage points has been offered to the so called programme countries, receiving special macro-economic assistance (currently Portugal, Romania, Latvia, Ireland and Greece), to make it easier for them to pay the matching funds in order to realise projects. (see IP/11/942) To accelerate decisions on project realisation, prior approval has to be given by the Commission only for projects over a total value of €50 million (this threshold was €25 million Euro until June 2010).

Procedures have been simplified in several ways to facilitate project realisation and special administrative assistance has been given to new Member States to help them to adapt their administrative systems to EU rules. Commission action teams sent to the 8 Member States with the highest youth unemployment (Greece, Ireland, Italy, Latvia, Lithuania, Portugal, Slovakia and Spain) from February to May 2012 have helped Member States to reallocate EU structural fund spending worth some €7.3 billion that stands to benefit over 460,000 young people in these 8 countries (see MEMO/12/100, outcomes of the action teams).

In Greece a public list of 181 great priority projects has been set up, equalling a total investment value of €115 billion, which will create up to 110 000 new jobs (see IP/12/549).

EU Budget for Growth and Jobs [BUDG]

The Commission's proposal for the 2014-2020 financial period aims to focus future EU budgets even further on job-friendly economic growth. Though the overall ceilings are a freeze on the agreed 2013 ceilings the proposal for the next Multiannual Financial Framework (MFF) calls for increasing those areas that can boost Europe's economy (see IP/11/799).

Sustainable economic growth starts in our towns and regions. The substantial amounts for economic, social and territorial cohesion (€376 billion for the whole period) will be more closely linked to Europe 2020 objectives. New conditionality provisions will ensure that EU funding is focussed on results and creates strong incentives for Member States to ensure the effective delivery of the Europe 2020 objectives. Partnership contracts will be concluded with each Member State to ensure mutual reinforcement of national and EU funding.

A new fund, the Connecting Europe Facility, aims to boost the pan European value of infrastructure projects (see IP/11/1200). With € 50 billion at its disposal, it includes a preliminary list of transport, energy and ICT projects that bring more interconnectivity across Europe. These growth enhancing connections will provide better access to the internal market and terminate the isolation of certain economic "islands". The Connecting Europe Facility offers opportunities for using innovative financing tools to speed up and secure greater investment than could be achieved only through public funding. The Commission will promote the use of EU project bonds to bring forward the realisation of these important projects.

Investment in research and innovation in the next seven years will be significantly increased. A common EU strategy called "Horizon 2020" worth €80 billion will boost Europe's global competitiveness and help create the jobs and ideas of tomorrow. It will gather all projects in this area to eliminate fragmentation and make sure EU -funded projects better complement and help coordinate national efforts (see MEMO/11/848).

The Commission also proposes to strengthen programmes for education and vocational training. In order to overcome the fragmentation of current instruments it proposes to create an integrated programme of €15.2 billion for education, training and youth, with a clear focus on developing skills and mobility.

Boosting Employment [EMPL]

The Employment Package (see IP/12/380 and MEMO/12/252) presented by the Commission on 18th April provides a medium-term agenda for EU and Member State action to support a job-rich recovery. In particular, the Package urges Member States to focus on job creation in sectors such as health care, information and communications technologies and activities related to cutting pollution and reducing carbon emissions. It also urges Member States to shift taxation away from labour and on to products that harm the environment. Under the Package, the Commission will continue to urge and help Member States to make better use of EU funds - especially the European Social Fund, which invests in people's skills, education, job-search support and inclusion. The European Social Fund directly creates some 2 million jobs per year on average and helps to create further jobs indirectly by training.

Labour Mobility [EMPL]

The Commission aims to encourage mobility within a genuine EU labour market.

To improve labour mobility, progress needs to be made on removing legal and practical obstacles to the free movement of workers, and the Commission has made proposals to improve, for example, the portability of pensions (see MEMO/05/384), the tax treatment of cross border workers or awareness of rights and obligations.

To improve the matching of jobs with job-seekers so that one country's unemployed people can meet with vacancies in other countries, based on skills and experience, the Commission intends to transform the EURES job seeker portal into a true European placement and recruitment tool and foresees (as of 2013) innovative online self-service applications to provide users instantly with a clear geographical mapping of European job offers. Since 21st May, thanks to the pilot project "Your First Eures Job", young people aged 18-30 from any Member State that are looking for work in another Member State can obtain information and help for their recruitment, as well as seek financial support for their application or training. In its initial phase "Your First Eures Job" will aim to improve cross-border mobility for 5 000 people.

Tax Policy [TAXUD]

Taxation has traditionally been seen primarily as a revenue raising tool. However, the impact that it also has on the economic competitiveness, on jobs and on growth is equally important.

In the 2012 European Semester, the Commission focussed on how Member States could make their tax systems more growth-friendly e.g. by shifting taxes away from labour and focussing more on environmental taxes (see Country-Specific Recommendations).

At EU level, the Commission has proposed the Energy Tax Directive (ETD), which would support this shift, drive the green economy and support the EU's climate and energy goals. (see IP/11/468). If implemented, ETD could lead to 1 million new jobs by 2030.

To create a better environment for businesses, the Commission proposed the Common Consolidated Corporate Tax Base in March 2011 (see MEMO/11/171). This would make cross-border business much cheaper and easier, with a single set of tax calculation rules and a one-stop-shop system. Other recent EU initiatives to create a more competitive business environment include that on double taxation (see IP/11/1337) and the new VAT Strategy (see IP/11/1508).

An EU Financial Transactions Tax, which looks set to progress through enhanced cooperation, could be an important tool for raising new revenues, contributing to greater financial stability and helping to restore confidence in banks (see IP/11/1085).

In order to re-capture the billions of euros lost to tax evasion and fraud in the EU, the Commission has put forward a series of concrete measures to be taken at national, EU and international level (see IP/12/697 and MEMO/12/492), and will bring set out a common approach against tax havens and aggressive tax planners by the end of 2012.

The proposal for an enhanced EU Savings Tax Directive, and mandates for stronger savings tax agreements with 5 non-EU countries (see MEMO/12/353) are currently on the table in Council, with the Commission urging their rapid adoption as key tools to improve the EU stance against evasion.

Trade [TRADE]

External trade is a key driver for Europe's economic recovery plan. Opening markets by picking up the pace of Free Trade Agreements (FTAs) is therefore central to achieve economic growth and jobs. Despite Europe's efforts to conclude the Doha round, progress at the multilateral level is very slow. Hence the EU has expanded its efforts to open new FTA negotiations and conclude those currently under-way: the EU-South Korea FTA marks its first anniversary on 1st July 2012, having contributed to an increase in EU exports to Korea of 16% in 2011. Commissioner De Gucht has set a priority of trying to conclude negotiations with Canada and Singapore, the gateway to South East Asia. In that region, the EU is also negotiating with India and Malaysia and has recently launched trade negotiations with Vietnam (see IP/12/689). With China the EU is looking at opening negotiations on an investment agreement and the Commission will soon seek a mandate from EU Member States to launch negotiations with Japan. With a view to create a transatlantic trade area, US President Obama, Commission President Barroso and European Council President Van Rompuy have recently welcomed the progress of the interim report of the EU-US high-level working group on jobs and growth (see MEMO/12/462). This year, trade deals have been concluded with Peru, Colombia (see IP/12/690) and Central America this year; and negotiations are ongoing with our Latin American partners in Mercosur. We are also deepening our engagement in our neighbourhood, both South and East, where we have recently completed an ambitious agreement with Ukraine.


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