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European Commissioner responsible for Employment, Social Affairs and Inclusion
Speech: Living standards in Europe and the importance of social investment
IPPR event “Revitalising social Europe”/
London, 26 February 2013
Ladies and gentlemen,
My warm greetings to you all, and my thanks to the Institute for Public Policy Research for their kind invitation, and to the Royal Commonwealth Society for hosting this event.
I am grateful for the chance to speak about living standards and the importance of social investment in Europe in the aftermath of the crisis.
I appreciate the chance to outline the basic idea behind the Social Investment Package that the Commission adopted last Wednesday.
And I applaud IPPR for calling on policymakers to consider the benefits of Social Europe for British workers and businesses.
Impact of crisis on living standards
Let me start with the impact of the crisis on people’s standard of living across the EU, and especially here in the UK.
The European Commission conducts analysis regularly on the economic and social situation in the EU. The latest Employment and Social Developments in Europe report was published last month. Our Dublin agency, Eurofound also provides very important work. The data published in the European Quality of Life Surveys assess the objective circumstances of European citizens’ lives and how they feel about their lives in general.
What we have seen in these analyses, unfortunately, is a reverse in the previous trend towards a reduction in the number of people at risk of poverty and social exclusion.
At the start of the crisis, unemployment rose and the number of jobless households increased.
But then the risk of poverty and material deprivation began to rise.
By 2011 around a quarter of the EU population was at risk of poverty or social exclusion.
Here in the UK, that risk is slightly below the EU average, and has even declined moderately compared to 2008.
Disposable household income fell by 3% on average in real terms across the EU from 2008 to 2011.
That fall was dramatic in some countries: in Ireland, it was 10%, in Greece 16.5%, and in Latvia 22%.
Here in the UK, it was 0.5% up, thanks partly to the fact that in the early phase of the crisis, households were protected from the full impact of the downturn by a rise in social welfare spending.
But while the average income held up well in this country, in others households fared better.
In Germany, average household income rose 2% over that period, and the Nordic member countries did even better, including Sweden where it went up 7%. So, if we compare the trends of Ireland and Greece to the data of Germany and Sweden, we can see how extreme the polarisation of employment performance and social conditions has been in Europe!
Another measurement of living standard is the severe material deprivation rate.
This measures the percentage of the population whose living conditions are severely constrained by a lack of resources — for instance, not being able to pay housing or utility bills or keep one’s home warm.
Here in the UK, that rate is much better than the EU average, but there are signs that it has deteriorated slightly — by 0.6 percentage points from 2008 to 2011.
Financial distress among households, which is measured as the percentage of the population who have to draw on their savings or go into debt to cover expenses, has also gone up noticeably in the UK.
It went up 5.5 percentage points here, compared with around 4 percentage points across the EU.
Social Investment Package
Ladies and gentlemen,
What I believe this shows is that the UK is grappling with more or less the same problems as the other Member States.
It has done better than many since the onset of the crisis, but others have done even better.
It bears out President Barroso’s State of the Union address last September.
This is what he said:
It is precisely those European countries with the most effective social protection systems and with the most developed social partnerships that are among the most successful and competitive economies in the world.
I want to make two points about that statement.
First, if President Barroso is right, then there is a close correlation between well-designed social spending and competitiveness.
In the current climate, governments seek to consolidate their budgets and boost growth at the same time.
This makes social welfare spending a prime target for cuts, which is why it is important to spend not more, but more effectively.
Conversely, cuts in non-social public spending need to be made carefully, because ill-advised cuts can simply aggravate the situation.
For instance, putting public workers out of work may reduce public spending on wages, but it will increase public spending on welfare benefits as well as resulting in a loss of tax revenue.
There is a risk of going into a downward spiral that frustrates the whole aim of budget consolidation.
Policy needs to take the longer-term challenges into account — like population change and the need to reduce pension expenditure by extending working life and raising the retirement age.
This means — and this is my second point — that some sound social spending must be viewed not as remedial action to compensate for social disabilities or to correct a dysfunctional labour market, but as a positive investment in the future. This is investment for prosperity, as a recent report of the LSE Growth Commission rightly pointed out. An investment in the future that is on a par with education, training in skills and accident and disease prevention.
That is the basic idea behind the Social Investment Package which the Commission adopted last week.
What it includes is:
The Commission emphasizes the importance of social investment, because we believe that within existing budget constraints, Member States need to shift their focus to investment in human capital and social cohesion.
This is why the Social Investment Package also offers guidance to Member States on how best to use EU financial support, notably from the European Social Fund. And this is exactly why the European Social Fund needs a 25 percent minimum share within cohesion policy in the EU budget for the next 7 years!
Ladies and gentlemen,
Social investments today are essential as they help prevent Member States having to pay much higher financial and social bills tomorrow.
The success of anti-poverty policies through social investment are also in the interest of the entire European Union. Support for cohesion and improving the social conditions in countries like Romania and Bulgaria can be a much less controversial option than simply raising borders before poorer EU citizens.
In our interlinked economies, a social problem in one country can quickly become an economic problem for the others.
Social progress in one country means economic growth for the others.
Every Member State should bear this in mind.
The Social Investment Package followed a number of other initiatives, starting with our White Paper on pensions, the April 2012 Employment Package and last December’s Youth Employment Package.
What the Youth Employment Package included was:
You will notice that those measures are all “soft” law, and not legislation. That is a point I will come back to.
Social investment is crucial to efforts to ensure the EU emerges from the crisis stronger, more cohesive and more competitive.
Of course it has a cost. Youth Guarantees, for instance, 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 the cost of any unemployment benefit paid and the much greater lost earnings and taxes.
They are estimated to amount to 1.21% of EU GDP — an annual loss to the Member States of €153 billion! The cost of the Youth Guarantee in all Member States is around €20-21 billion. It is quite a big difference, I think!
Clearly, what matters is looking to the future and avoiding short-sighted policies. Avoiding policies that axe spending in the name of competitiveness and short-term savings, but in reality jeopardise future competitiveness and longer-term prosperity.
It means treading a fine line between reducing spending to improve the public finances and jeopardising the future.
EU social and employment policy competence
Ladies and gentlemen,
I want to come back to the issue of “soft” law and legislation.
As you know, the European Union has limited competence for employment and social policy.
We do have legislation combating discrimination in employment and ensuring that the four fundamental freedoms of the European Union are respected.
That is why we have legislation enforcing and regulating freedom of movement for workers and freedom to provide services, in addition to legislation on free movement of goods and capital.
Freedom of movement for workers obviously results in rights to work and reside abroad, and calls for legislation on the coordination of social security rights.
We can adopt legislation endorsing agreements reached on their own initiative by trade union and employer representatives at EU level.
We have legislation on working conditions, and health and safety.
We also work with the Member States within what we call the Open Method of Coordination in the social protection and social inclusion area.
This involves working with the Member States to design and coordinate policy, sharing experience and applying peer pressure.
So we need to be clear about the distinction between "hard" EU legislation and soft law.
I have just come from a conference at the Institute for Occupational Safety and Health, where I tried to set straight some misconceptions about the cost and administrative burden of EU policy on health and safety at work.
One aspect of employment and social policy legislation that I did not cover is the Working Time Directive.
This is a much discussed piece of legislation which I inherited as part of my portfolio, along with the Posting of Workers Directive, that was also controversial in some quarters.
While working time may not primarily be a health and safety issue, it certainly has an occupational health aspect.
A few weeks ago, I saw a set of short BBC interviews of individuals who were responding to questions regarding the consequences if Britain were not a member state of the European Union.
Among them was a doctor who was very concerned at the effect of long working hours on his capacity to perform his work properly.
He was worried that he might make serious errors of judgment affecting his patients through being overworked and lacking sleep.
Another interviewee was a haulage-company operator.
He was worried about unfair competition from other hauliers from other Member States who did not have to comply with the same rules.
Now, EU social legislation goes hand in hand with access to the Single Market.
One cannot have the one without the other — if you want a level playing-field.
We must work to ensure that employment and social cohesion are given substance in EU policy — on a par with financial consolidation and economic growth.
The recovery must bring jobs and opportunities for people, not just profits for companies and banks.
Social Europe means caring about people and helping them to help themselves.
Social Europe means giving everyone a real chance and beating the crisis together.
This is the direction I urge all Member States to go.