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László Andor

Commissioner for Employment, Social Affairs and Inclusion

"Towards a Social Investment Pact within EU economic governance"

EPP Group Hearing on "Social investments as a response to the crisis"

Brussels, 8 March 2012

Madame Jazłowiecka,

Honourable Members,

Ladies and gentlemen,

Thank you very much for your invitation to this hearing, and congratulations on the initiative you have taken in elaborating a report on "Social investments as a response to the crisis".

I believe that this report – and this hearing – are putting the finger exactly on the right topic given the employment and social challenges Europe is facing. We are entering a second recession, but we also have to deal with longer-term structural challenges such as demographic change, transformation into a greener economy and increasing social inequalities.

The Europe 2020 strategy has been developed to address both the crisis and the longer-term challenges, and social investment is essential in delivering it.

Social investment and European economic governance

Last week I was in the inter-parliamentary committee meeting between the European Parliament and the national parliaments, discussing the priorities of this European Semester.

There was quite a broad consensus in the meeting on the need to go beyond fiscal discipline and to address sustainable growth, job creation and social progress as core objectives of economic policy.

The conclusions of the informal European Council meeting in January and of the summit last week also made it clear that fiscal consolidation needs to be growth-friendly and smart, and that it has to go hand in hand with action to foster growth, competitiveness and employment, in line with the Europe 2020 Strategy.

In current discussions on fiscal consolidation, the emphasis is shifting, quite rightly, to the adjectives "growth-friendly", "job-friendly" and "smart", and a more balanced concept is emerging. There is also a growing understanding that actions with a short-term focus must not only be reconciled with medium-to-long-term priorities, but that policies and actions with different time horizons must reinforce each other.

The notion of "social investment" is at the heart of this realisation and should be guiding us in thinking about smart fiscal consolidation. In this context I very much welcome the proposals that have been made for a "Social Investment Pact".

Towards a "Social Investment Pact"

The European social model is based on the idea that we live together as a society, and that solidarity, equal opportunities, and social justice are important drivers of sustained economic prosperity and of our future as a society.

This means indeed that we have to project ourselves in the long term and aim for social progress. The European social model needs to be modernised, but its central concept must be preserved.

The notion of the European social model underpins our long-term strategies. It was the case of the Lisbon Strategy, and it remains the case with the Europe 2020 Strategy. The objectives of smart, sustainable and inclusive growth are mutually reinforcing and depend on each other.

Social investment has many forms, including active labour market policies, education and lifelong learning, social inclusion measures, support to active ageing, and fight against discrimination and poverty. The commonality lies in the proactive character of these investments and in the fact that they prevent much larger economic and social costs from arising in the future.

Social investments bring both economic and social returns. Inclusiveness of labour markets and societies is key for the growth potential. It improves the supply side of the economy as well as aggregate demand. But social investment is also crucial from a more narrowly fiscal point of view, as it can prevent larger future expenditure that would be incurred due to further increases in unemployment, exclusion and poverty.

It is certainly smart to invest early rather than to pay later for the consequences of non-investment, especially if we know that Europe's working-age population is shrinking. Social investment should therefore be at the heart of smart fiscal consolidation strategies.

We know very well that automatic stabilisers and (limited) discretionary measures have played an important role in supporting household incomes and aggregate demand in the first stages of the crisis. The Commission's review on Employment and Social Developments in Europe in 2011 provides good numbers on this.

But we also know that growth has weakened and the outlook worsened since the middle of 2011 and that the fiscal room for manoeuvre is more limited. It is therefore critical that we operate with the social investment mindset.

We need to think about cost-effectiveness of expenditure, but not just in the short-term. Considering longer-term economic and social returns and opportunity costs in our budgetary policies is crucial, and it is also what the financial markets are ultimately concerned about.

It is therefore critical that Member States make sure that fiscal consolidation does not undermine growth-enhancing expenditure and social investment, such as education, active labour market policies, and social inclusion actions. Europe needs to pursue a real investment strategy, and Europe 2020 gives us the right basis for that.

Role of social investment in delivering the priorities of AGS 2012

Ladies and Gentlemen,

The Annual Growth Survey and the Joint Employment Report for 2012 identify five main priorities in the employment and social field:

  • Our first priority should be to step up efforts to increase the job-creation capacity of the economy.

  • Second, tackling the issue of youth unemployment is on the top of the agenda and our "action teams" have been looking into all possible policy actions and funding adjustments to deal with this problem.

  • Third, long term unemployment requires targeted active labour market measures to prevent unemployment from becoming structural and to halt the rise in social exclusion.

  • Fourth, the efficiency of social protection systems should be stepped up to ensure they continue to act as buffers against poverty and social exclusion, and to prevent further increases in inequality and risks of social unrest. This should be underpinned by active inclusion strategies.

  • Lastly, education and training systems need to be modernised and made more effective. We also need early-intervention policies that prevent and redress early school-leaving.

To achieve these priorities in an adverse economic context, we need social investment and we need to be efficient. Therefore we need to identify clearly what works and what can be improved. Suggestions have been made for a "scoreboard of social investment indicators", and this could indeed help in ensuring that we invest in the right areas and with maximum cost-effectiveness.

We also need to ensure that the best initiatives get a real impact on policies, since only policies can deliver systemic change. This is the ambition that I am developing through the promotion of social experimentation and social innovation in the PROGRESS programme and in the proposal for the future European Social Fund and Programme for Social Change and Innovation.

What can be done in practice with the tools we have?

Ladies and gentlemen,

This brings me to the question of how we can deliver a "Social Investment Pact" with the policy and financial instruments we have.

A lot of the necessary measures and investment decisions have to be taken at national level, but we also have some critical responsibilities and possibilities at the EU level:

  • First, through improved coordination and monitoring of employment and social policies;

  • Second, through our financial instruments; and

  • Third, via policy initiatives that help Member States develop and deliver the necessary actions in the employment and social area.

Let me briefly address these three points in turn.

Better coordination and monitoring

First, we need an improved coordination and monitoring of the employment and social aspects of economic governance.

The new system of economic governance not only steps up fiscal surveillance but also extends to the coordination of fiscal and economic policies and to the prevention and correction of macro-economic imbalances. As the European Council and the EPSCO Council have noted, this needs to be complemented in the employment and social area, especially in the context of the National Job Plans to be developed within the National Reform Programmes.

Further developing coordination and monitoring mechanisms of employment and social aspects is crucial for the ownership and for the balance of reforms. The EPSCO Council, the Employment Committee and the social partners need to be better involved. Social investment needs to be part of this.

The Commission will propose how to improve our methods of work. But the support of the Parliament and of your group will of course be necessary in making it happen.

ESF and other financial instruments

Second, we need to make maximum use of the EU budget, and particularly the European Social Fund, in delivering social investment.

The ESF is the main financial instrument at EU level to support investment in people. It finances active labour market policies, adaptability, education, social inclusion as well as institutional capacity building. The ESF is 100% aligned with the Europe 2020 strategy, and that is one of the reasons why the Commission has proposed a minimum allocation for the ESF in the Multiannual Financial Framework post 2013.

The proposed minimum ESF shares within the structural funds envelope, that is 25% in less developed regions, 40% in transition regions and 52% in more developed regions, are essential for ensuring that there are enough resources for key human capital investments. Speaking about smart fiscal consolidation, these are really core investments, and a minimum allocation for the ESF should clearly form part of any "Social Investment Pact".

Given the current economic and social situation, it is imperative to concentrate our financial resources on getting people into work. The needs on the ground are huge. After a slow start at the beginning of the period, the up-take of ESF expenditure has increased to such a point that we did not have enough payment credits at the end of 2011 to address all the payment claims from Member States.

An increasing number of our citizens are unable to keep pace with the skills requirements arising from economic changes. We risk losing out on the top end of the ladder, but we also see our labour markets becoming more and more segmented, polarized and exclusive.

These are challenges which require a true political and investment strategy. The investment priorities of the European Social Fund are addressing precisely these problems and that is why the Commission has proposed that the ESF should account for at least a quarter of Cohesion Policy funding, i.e. at least €84 billion in the period 2014-2020. This is a minimal share and I hope we will achieve a higher amount in the negotiations with the Member States and the regions.

The same reasoning is behind our proposal for 20% of ESF resources to go towards social inclusion. The risks of poverty and exclusion have only grown during the crisis and we need "activating" social policies to counteract this.

Our proposals are not out of reach for the Member States. The minimum shares proposed are close to the current situation and would only mean a modest increase between the current and the future programming period. But they are crucial to stop a downward trend and match existing investment needs with budget allocations.

We also have other instruments that serve as sources of social investment, such as the European Globalisation Adjustment Fund and the Programme for Social Change and Innovation. There is no time to discuss them in detail here, but our proposals are with the Parliament and the Council.

It is very important that the Parliament, including your group, makes sure during the legislative process that the minimum shares and concentration rules that I just spoke about are preserved, so that we can really speak about an EU budget supportive of social investment.

Policy initiatives

Finally, we can promote cost-effective social investment through EU-level policy initiatives.

Responding to the calls from the Parliament as well as the European Council, my services are working on a reinforced agenda for employment policies that we plan to put forward in April in the form of an "Employment Package". The focus is on job creation measures, better functioning of labour markets, delivering the right investment in skills and improving labour mobility.

A key aspect of the package is also to further strengthen the link between policy and funding, including by reflecting country-specific recommendations in the preparation and revision of operational programmes funded by the ESF. We need to embed social investment in economic governance and this is one of the ways to do it.

Labour market reforms and human capital investment need to go hand in hand, and the Employment Package will in a very tangible way support the course of action advanced in the Annual Growth Survey.

Ladies and Gentlemen,

I am looking forward to the debate. Both Professor Vandenbroucke and Minister Boni are prominent experts and I hope that today's discussion and the Parliament's report will help us to deliver, within the context of European economic governance, a strong social investment strategy. This is something we absolutely need if we are to progress from the current crisis towards the Europe 2020 targets.

Thank you for your attention.

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