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Speech by Joaquín Almunia

European Commissioner for Economic and Monetary Affairs

Europe: the best way towards Social Justice in the Global World

Austrian Chamber of Labour
Brussels, 24 October 2006

Ladies and Gentlemen,

I am very grateful to the Austrian Federal Chamber of Labour to give me the opportunity to address a topic which attracts considerable attention these days and that will be central in the debate that Heads of State and Government will hold next Thursday at Hampton Court.

The informal European Council will take place in the midst of a political crisis that has come up following the negative results of the French and Dutch referenda a few months ago. These results indicate the existence of a profound “malaise” among many citizens and not only in these two countries. Large sectors of our voters are disappointed, among other things, because of the dismal economic results and the social uncertainties that have characterized Europe during the last years.

As a consequence, the lack of confidence of consumers and investors affects domestic demand and induces defensive attitudes, making more difficult to implement the reforms needed to tackle globalisation and the ageing of population.

The national governments as well as the European institutions are not being able to carry out a clear strategy to overcome this deadlock. Therefore, the citizens have serious concerns about prosperity and solidarity in a global economy and are waiting for responses from their leaders.

Europe, the EU institutions as well as its member states, are faced with fundamental choices. The debate on the direction to follow must take place but, above all, decisive action is needed. Leaders are expected to do what is needed to reach full employment and strengthen social cohesion. And they should send a clear message spelling out the actions that they want to adopt at the EU level, breaking the image of a paralysed Europe. Above all, there is a lack of leadership.

This is why the European Council next Thursday is so important. The meeting will not adopt written conclusions, but is a unique opportunity to build a new social and political consensus for economic reform based on social justice.

And, in so doing, is a unique opportunity to convey the message that Europe is not useless to face the main challenges of our time. And that the European leaders are seriously committed to win this battle.

This being said, what action is needed?

The main challenges facing Europe are well known: globalisation and ageing. Both challenges are pure facts. In the absence of action, they will turn into threats and will undermine the foundations of our social contract. The good news is that the responses to them are in our hands.

Globalisation offers increased business opportunities for EU firms. For instance: while imports from China have grown of 70% in the last five years, EU exports to China have increased of 87%.

The positive side of globalisation is that it exerts a competitive pressure to modernise, innovate and move up the value chain. It allows goods and services to be produced in the most efficient way and improve the allocation of resources. The dark side is that it does have costs in particular sectors and in the regions where these sectors are concentrated. Specific actions are therefore needed to assist affected workers, like the Adjustment Fund proposed by the Commission last week.

But those specific actions are collateral measures. The key words to seize the opportunities opened up by globalisation are adjustment capacity and ability to innovate. Both are at the heart of the renewed European strategy for growth and jobs, the so-called Lisbon Strategy.

To increase the adjustment capacity, action is needed both at national level, making labour markets more reactive, and at European level, completing the internal market, in particular for services, telecoms, energy, and financial services. To foster the ability to innovate, we first need to create an environment that champions innovation, with higher expenditure in research and development, support for excellence in our universities, a closer relationship between universities and business, and a strong effort in the qualification of human resources.

The challenge of ageing is of a different nature. While globalisation is happening at an extraordinary speed, ageing is a slow trend, with no deep impact from one year to another, but in the long term it can drastically alter the solidarity between generations, and in particular the ratio between active and non-active people on which our social model is built.

According to the latest Eurostat’s estimates, the old-age dependency ratio is projected to double in the EU from 24% today to almost 50% in 2050. This would imply increased expenditure on pensions and health care and a reduction of labour supply that would limit seriously the potential for economic growth.

In order to avoid such a negative scenario, action is urgently needed in three directions.

The first one is to get more people to work, starting with the 19 million unemployed in Europe. Active labour market policies are essential to this end. On the other hand, employment rate in the EU is well below the one in the US and in Asian countries. If, like stated in the Lisbon Strategy, we raise the employment rate in particular for women and young people, we will partially offset the huge number of persons retiring from the labour market in the forthcoming years.

Let's not forget also that, in this context, immigration is definitely an opportunity to expand the labour force, provided that we are able to better manage legal migration at European level, taking into account the absorption capacity of our societies.

Secondly, by raising productivity growth in Europe we will be able to produce a higher output with the same labour force, or even with less people employed. To this end, we ought to ensure that our best resource, the human resource, is well prepared and skilled. That means a higher investment in education and in life-long learning. A more intensive use of technology will also move up productivity.

Thirdly, we have to adapt social systems to the financial challenge of ageing, starting by ensuring sound public finances and lowering the level of public debt in those countries where the situation today shows some concerns from the sustainability point of view. This is an issue that we have seriously taken into account in the reform of the Stability and Growth Pact. We recognize that structural reforms of pension systems can have a short term negative impact on public finances and, if it is the case, it should be considered in the assessment of a Member State fulfilment of the rules of the budgetary discipline.

I fully realise that I am not unveiling anything radically new. The need for change was recognized as early as March 2000 with the launch of the Lisbon reform process.

Why are we, therefore, still repeating this message? The answer is clear: simply because a lot remains to be done.

The European Council of last March already pointed out this state of play and gave a new impulse to the Lisbon Strategy, endorsing its objectives and main targets, and at the same time adapting its delivery mechanisms to ensure a better record in the next years.

What is then the purpose of the debate launched with the occasion of the special summit of next Thursday?

As I said before, a significant part of the population is afraid of the consequences of the economic reforms needed to cope with globalisation and to improve competitiveness, because they think that they will bring less employment security and the dismantling of the social systems.

Against this background, Europeans leaders must reassure the public opinion that the status quo is not an option, and that the structural reforms required to respond to global challenges not only are the way to cope with the changes that are taking place in the world, but the best strategy to bring progress and social justice for everyone.

This is not a rhetoric statement. European common values are not an obstacle but an asset in the globalised world. There is a broad consensus about the fact that the European way of reconciling economic performance and social cohesion is a key asset to ensure sustainable development and build a decent world for generations to come.

Nordic countries are the best example in this sense. High standards of social protection, a high level of taxation and environmental responsibility are perfectly compatible with economic growth, low unemployment and sound public finances. Year after year, Nordic countries are at the top of the various world rankings, on competitiveness, on GDP per capita, on human development or on quality of life.

But there are different opinions regarding the role that the European institutions should play in that regard. What tasks should the European Union undertake to tackle globalisation while preserving the main features of our social paradigm? Do we need to continue developing the internal market as it was conceived? What about the euro and the Economic and Monetary Union, under the present circumstances? Which is the purpose of the European integration today? The answer to these questions varies.

On the one hand, for example, a recent pamphlet issued by Gordon Brown considers that given the global dimension of the challenges we are facing, we are obliged to accept changes in some core elements of the european integration process. As an implicit consequence of this opinion, one of the effects of globalisation would be to water down the EMU framework, weakening one of the most powerful engines of our political project. Others state that after the successive enlargements, the European identity bears little resemblance with the original one and that the weaker the political components of the European project, the lighter will be the social elements of it.

But there are, on the other hand, strong arguments in favour of strengthening the economic and monetary union as a crucial tool to cope with the global challenges. And, accordingly, to stick up in favour of the reinforcement of the political aspects of the European integration, including its social dimension.

The existence of EMU, and of course the existence of the European Union as a result of fifty years of regional integration, is an excellent asset for Member States and its citizens in a globalised word. The possibility of a coordinated action of 25 countries, the success of the single currency, the reality of a single market of 460 million people and, above all, a common set of social and humanistic values, are an invaluable advantage in the hands of the Europeans. The macroeconomic and financial stability achieved thanks to EMU, the existence of a framework for budgetary discipline, and the coordination of economic policies, will continue to play a crucial role providing a sound base for a European strategy for growth and jobs.

I do believe that, on these grounds, European leaders can build a new social consensus for economic reform and put in motion the agenda for change agreed in Lisbon for the benefit of everyone.

Turning the present mood of uncertainty into a climate of commitment for change will also ease an agreement on the Financial Perspectives, providing Europe with the means to realise its ambitions.

Finally, I would like to seize the opportunity that the Austrian Federal Chamber of Labour offers me to address a significant representation of social actors, to conclude my intervention by stressing the importance of social dialogue to succeed a process of reforms.

Social dialogue is a distinctive feature of the European social model. It is a key tool to maximise the benefits of reforms for everyone. It is also essential to find flexible solutions to adapt common principles agreed at European level to the reality of each Member State or region.

Social dialogue has therefore a significant role to play in the response to global challenges. To find, for instance, practical arrangements to reconcile family duties with work, a prerequisite to raise the employment rate. Or to achieve effective labour markets that offer both flexibility and security.

To conclude this intervention, let me recall that the European Union has successfully met the challenges of the last fifty years. As I said earlier, the good news about the new challenges of globalisation and ageing are that the responses to them are in our hands. Together we are in a better position to meet them and ensure full employment and social cohesion, now and in the future.

The Commission has delivered its ideas for change. Now, we expect from European Heads of State and Government a clear commitment to preserve our common values through reform and modernisation of our policies. After the summit, all social actors will have to contribute to deliver a better future for all.

Thank you very much.

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