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European Commissioner responsible for Employment, Social Affairs and Inclusion
Youth, jobs and Europe
Lecture at Trinity College
Dublin, 15 February 2013
Ladies and gentlemen,
It always gives me pleasure to be back in academia, if only for a short time.
I want to thank the Trinity College, and in particular the Dean of the Faculty of Arts, Humanities and Social Sciences, for their kind invitation and for the tour of the College which I just enjoyed.
The topic you have suggested for me today is “Youth, jobs and Europe”. I have no doubt that this lies at the heart of most young people’s concerns, especially here in Ireland.
You are rightly concerned about your individual future on the job market, and about what you can do to improve your employment prospects.
So I want to talk to you about the action the European Union is taking to make sure young people get jobs.
But I suppose that, as students and academics, you are also concerned about the future of the European Union and the euro area more broadly.
That is why I also want to share with you some thoughts on the future of European integration, and in particular on strengthening the Economic and Monetary Union.
I want to discuss ways in which growth, employment and the social situation can be better taken into account as we reinforce coordination of budgetary and structural policies in Brussels.
And I also want to touch upon the issue of dealing with what economists call differentiated or “asymmetric” shocks among the Member States of a currency union.
Here the question is how to prevent that shocks in some parts of the Economic and Monetary Union can unleash a huge financial, economic and social crisis like the one we are living today.
Youth unemployment crisis
Ladies and gentlemen,
As young people in Ireland, you are well aware of severity of the current crisis.
The latest figures — for December 2012 — show 5.7 million unemployed young people under 25 across the EU, with over 3.6 million in the euro area.
That amounts to a youth unemployment rate of 23.4% for the EU and 24% for the euro area.
Here in Ireland the total unemployment rate for the whole population in December was 14.7%.
These are the percentages of people who don't have a job, are looking for one and cannot find it.
I understand and share young people’s concern, anxiety and also anger.
And I think most people in my generation and older generations understand that it is young people who represent the future of our economy and society. Our collective future depends on young people’s skills, ideas and abilities, and on whether they get an opportunity to apply and develop them in the labour market.
Investing in young people is therefore a moral imperative, a social necessity and simple economic sense.
EU action to support young people
The EU has paid a lot of attention to young people's unemployment and drop-out from the labour market.
The Europe 2020 Strategy for smart, sustainable and inclusive growth, which was adopted in 2010, includes among its five headline targets three that concern improving educational performance, boosting employment and reducing poverty and social exclusion. Progressing on all these targets depends on what opportunities we create for young people and what investments we make in them.
What we do for young people will also determine the success of our effort to innovate our economies and be ahead of the curve in technological development.
But the crisis has continued to drag on, and we have been moving away rather than towards these targets.
So, in December 2011 the Commission adopted a Youth Opportunities Initiative calling for a stronger partnership between governments, businesses, trade unions, EU institutions and other players to tackle the situation.
It set up Action Teams of Commission and national officials, who met a year ago in the eight worst-affected countries to look how EU funding could be used faster and better to help young people get jobs.
As a first result, funds worth €16 billion from the European Social Fund and the European Regional Development Fund have been reallocated so they would benefit at least 628,000 additional young people compared to the original funding plan.
And last December the Commission proposed a Youth Employment Package involving further practical initiatives.
It proposes new instruments to tackle the short-term and structural employment problems facing young people.
The focus is on supporting the transition from education to work. This means reducing the high numbers of those neither in employment nor in education or training (the so-called NEETs), and equipping all young people with the skills and experience they need to get a job.
The Youth Employment Package has four main elements.
First, a Council recommendation for a Youth Guarantee.
A Youth Guarantee means that each Member States should establish a scheme to ensure that all young people up to 25 years of age receive – within four months of becoming unemployed or leaving the formal education system:
Such Youth Guarantees will need to be based on close partnerships between public institutions and other players, including local and regional authorities, schools, businesses and trade unions. Turning the Youth Guarantee into reality requires early intervention and activation, and making full use of EU funding.
Youth Guarantees will cost something in the short term, but this will be much lower than the cost of doing nothing.
Think about the cost of a young person neither in employment, nor in education or training.
There is of course the cost of any unemployment benefit paid. But there is a much greater cost in terms of the economic value the person could have created if he or she was at work, and which would have been seen in earnings, taxes and company profits.
These economic costs of young people's disengagement from the labour market are estimated to amount to 1.21% of EU GDP — an annual loss to the Member States of €153 billion! These are findings of the European Foundation for the Improvement of Living and Working Conditions, or Eurofound, which is based here in Dublin.
The second point of the Youth Employment Package is a European Quality Framework for Traineeships.
Traineeships are an excellent way of passing smoothly from education to the world of work.
But all too often, employers use them to replace permanent jobs.
A Quality Framework for Traineeships would encourage companies to offer a real chance to acquire experience and learn on the job under fair working conditions.
The Commission will present a legislative proposal on this by the end of the year.
The third point is a European Alliance for Apprenticeships to improve the quality of apprenticeships and the number on offer.
There is evidence that dual vocational training systems — where young people work and study in parallel — facilitate the transition from school to work.
Joblessness among young people is significantly lower in Member States with extended work-based learning programmes.
Such systems in Austria, Germany or Switzerland help both the economy and the labour market to function well.
So the idea is to share the know-how with other Member States.
The European Alliance will hopefully help disseminate good practice in this area.
It will promote national partnerships to develop successful apprenticeship schemes, common curricula for various occupations and systems for recognising apprenticeships followed in another country.
The fourth point in the Youth Employment Package aims to improve labour mobility for young people across Europe by opening up access to more job opportunities.
This will involve transforming EURES, the network of European Employment Services, into a more flexible, demand-driven recruitment instrument.
The goal is that people and companies get greater assistance with placing jobseekers into vacant jobs beyond national borders.
We have also started to run targeted mobility schemes for young people in the form of small-scale, tailor-made recruitment campaigns that will address particular vacancies in certain occupations, sectors or Member States. The pilot project is known as Your first EURES Job.
Apprenticeships and traineeships in another country that are linked to a job will also be facilitated by EURES.
The European Council meeting last week came out strongly in favour of the Commission’s Youth Employment Package.
The Heads of State or Government expect the Council to adopt the recommendation on a Youth Guarantee soon, and the Irish Presidency will seek a decision already at the meeting of Employment and Social Affairs Ministers on 28 February.
The Heads of State or Government also called on the Commission to soon finalise the Quality Framework for Traineeships, to establish the Alliance for Apprenticeships, and to make proposals for the new EURES regulation.
Very importantly, they also agreed on a new Youth Employment Initiative to support the measures set out in the Youth Employment Package, and in particular the Youth Guarantee.
This initiative will involve €6 billion for the 2014 to 2020 period and will be open to all regions with a youth unemployment rate over 25%. €3 billion of this will be additional support on top of what would already be financed by the European Social Fund.
It is clear that investment in Youth Guarantee schemes should make a priority if we are talking about fixing national budgets in a smart and growth-friendly way.
The Youth Guarantee would clearly generate a positive economic return. Helping all young people to get a labour market experience is as important as good education, and we need to make that investment.
Strengthening the Economic and Monetary Union
Ladies and gentlemen,
I mentioned that I also wanted to say something about what the European Union is doing to tackle the crisis of the common currency and to avert a similar crisis in the future.
We know that our present economic and social crisis started with a financial and private debt crisis originating in the financial sector, to a large extent across the Atlantic.
But it quickly became a euro-area and sovereign-debt crisis when the shortcoming in the euro area’s original design became apparent.
25 years ago when the Economic and Monetary Union was being designed, many critics argued that it did not make sense to establish a currency union without a central fiscal capacity. Today we are living the proof of that argument.
A successful currency union needs a risk-sharing capability, such as an automatic fiscal transfer mechanism to redistribute funds to countries affected by asymmetric shocks. A mechanism that helps the affected economies to undertake the necessary reforms and investments, and restore growth.
Here in Ireland you are all too aware of the efforts being made to consolidate public finances.
You also probably know about work to strengthen economic governance and budget surveillance through the European Semester, the so-called Six-Pack, Two-Pack, and the Fiscal Compact.
You know that Ireland has been receiving emergency financial assistance from the European Financial Stabilisation Mechanism and the European Financial Stability Facility.
And you are probably also aware of more recent moves to create a banking union, starting with a Single Supervisory Mechanism centred around the ECB, and of discussions about the conditions on which troubled banks could be directly recapitalised from a common pot of money, the European Stabilisation Mechanism, as opposed to all the bailout risk being borne by national budgets.
All of these efforts are part of the European rescue umbrella or already constitute fresh foundations for a stronger European Union.
But what I want to focus on today is where unemployment, poverty, evictions and other key social phenomena enter the equation.
We need to think about how we make sure that as we coordinate fiscal and structural policies in a strengthened Economic and Monetary Union, we actually fix the employment and social crisis that is literally pulling Europe apart.
Because we have a currency union of 17 countries, and 25 or soon 26 are committed to be part of this currency union at a certain point, giving up their own monetary policy and following strict rules on fiscal policy.
But this currency union does not have a long-term future if there is continuing divergence between Member States that do well in terms of growth and jobs, and Member States plagued by recession, unemployment, steadily falling household incomes and rising poverty.
The euro zone crisis has made it all too clear that the Economic and Monetary Union — designed mainly by a group of central bankers in the late 1980s and early 1990s — lacked the instruments needed to deal with macro-economic imbalances among increasingly interdependent Member States.
The so-called convergence criteria were put in place in the 1990s, requiring stable exchange rates and setting limits on inflation, interest rates and government deficit and debt for countries that wanted to be part of the euro.
But the governance mechanisms of the EMU were unable, for example, to prevent housing bubbles that later led to bailouts and austerity. Financial regulation was weak. And in general, the currency union was not able to make sure that its member economies develop in a healthy, sustainable and balanced way. For example, real wages were going sharply up in the countries receiving huge capital inflows, while they were simultaneously falling in countries accumulating large surpluses.
You cannot have such divergence for a long time.
And the crisis years also showed us that the Economic and Monetary Union has not been able to effectively address the employment and social crisis that followed when the bubble burst, financial markets panicked, business collapsed in many countries and national governments lost their power to stabilise their economies through fiscal policy.
We all now realise that a single monetary policy applying across the board calls for the pooling of fiscal sovereignty, and that this in turn requires greater legitimacy and accountability of European institutions.
But the Economic and Monetary Union will not have legitimacy unless it deals with employment and social problems. Unless it supports Members that are undergoing a crisis, so that they reform and restructure their economies, make the necessary investment in their people and return to growth.
Ireland has been coming out of the crisis well also because the government has made a lot of effort to stimulate creation of new jobs even as they had to cut the budget.
Overall, however, Europe's response to the sovereign debt crisis has relied to a large extent on the method of so-called "internal devaluation", where troubled countries are asked to cut their budgets and labour costs until they sufficiently reduce their debts and improve net exports.
Such strategy does not necessarily represent the fastest way for the troubled economies to move to sustainable growth. The ratio of sovereign debt to GDP may actually worsen, and sharp internal devaluation can produce a social and political crisis that undermines market confidence in the country rather than restoring it. Fiscal policy is bound to be more closely coordinated at EMU level, but it also needs to be coupled with fiscal solidarity.
A sharing of financial risk to public budgets is the logical counterpart of a more coordinated fiscal policy.
And a genuine Economic and Monetary Union needs to focus on upward social convergence, because big employment and social imbalances among the Member States are certain to lead to instability.
The Treaty on European Union states that the Union:
shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment.
And it also says the Union is to “promote economic, social and territorial cohesion, and solidarity among Member States.”
If those words mean anything, then it is time to start giving them substance, also in terms of how the monetary union works.
The December European Council recognized the need to discuss the social dimension of a genuine Economic and Monetary Union, and an important debate has started.
In my view, the general meaning of such social dimension should be that in the way the EMU is governed, it is able to take into account key employment and social problems in the Member States, and address them. It needs to pursue economic efficiency and social equity at the same time, and respect the social objectives of the Treaty which I just mentioned.
I would like to quote here from the letter of the President of the European Council to the Taoiseach and the Tánaiste on 1 February.
President Van Rompuy pointed out that long-term unemployment is increasing and poverty and social exclusion are reaching alarming levels, which is harmful to social cohesion as well as to economic potential.
These issues are closely relevant for the future of the EMU, he wrote, because:
First, integrated labour markets require converging employment policies. Excessive social divergence can also ultimately threaten the functioning and the stability of the monetary union. Second, a globally competitive knowledge-based economy requires continuous support for our human capital through social investments that allow us to better adapt to change.
In other words, in trying to remedy the problems of monetary union, we cannot ignore a breakdown in social cohesion and loss of opportunities for people to develop their potential.
Building a social dimension of the EMU requires, already in the short to medium term, that the monetary union is equipped with a common budget that helps its Member States undertake key reforms, like for example improving the quality of training systems and bringing more people into the labour market.
But in the longer term, it is clear in my view that the EMU will need to have a capacity to undertake larger transfers between Member States in the event of short-term asymmetric shocks.
We have seen that national automatic stabilisers, like tax and social protection systems, have lost over the past three years much of their ability to help the national economy recover from crisis and mitigate the social impact of an economic shock.
That is unlikely to change because government debt in most of Europe has reached levels where it needs to be strictly controlled, otherwise governments will see their interest rates rising to dangerous levels.
But in that case, the EMU will need to develop automatic stabilisers at the transnational level. One concrete possibility would be to establish a European unemployment benefit scheme, providing a basic payment to an unemployed person for a couple of months, which national governments could top up or extend if they can and wish.
This would help countries that experience a short-term surge in unemployment.
The Commission’s Blueprint for a deep and genuine Economic and Monetary Union of last November raised the possibility of such a stabilisation scheme for offsetting asymmetric shocks.
This could call for negative net payments from a country when its situation is good and positive ones when it is bad. In a way, it would serve as a sort of insurance for each Member State in case it is affected by an asymmetric shock.
Of course, such fiscal transfers would require strong political commitment of the countries and their people to the Economic and Monetary Union, and strong controls against abuse through flawed statistics et cetera.
But my analysis is that the EMU would have greater popular support with this kind of an instrument than if troubled countries are left to adjust predominantly through internal devaluation.
Ladies and Gentlemen,
As Europe debates during the coming weeks and months the future of the monetary union and the way it should be organised, it is crucial in my view that these questions are discussed openly and we do not close eyes before the reality of big employment and social differences that exist in Europe today partly because of the way the EMU was designed two decades ago, with almost no instruments to prevent and deal with a major crisis in the real economy.
It is increasingly clear that European institutions need further reform, so that people across Europe support the pooling of fiscal sovereignty and of decision-making on structural reforms in the monetary union.
But if people are to identify with the way the economic and monetary union works, then instruments to deal with unemployment and poverty and to support human capital development must really be at the heart of the union.
Thank you for your attention.