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European Commissioner responsible for Employment, Social Affairs and Inclusion
Strengthening the social dimension of Economic and Monetary Union
Conference of German Länder EU Affairs Ministers on Social Europe
Brussels / 21 March 2013
Ladies and gentlemen,
I am grateful for the chance to share my concern at the employment and social problems besetting the Union and the EU’s efforts to tackle them.
I also appreciate the opportunity to talk to you about the need to strengthen the social dimension of economic and monetary union.
The challenges of population ageing, a shrinking workforce, increasing dependency ratios and changing family patterns, are adding to the pressure on social protection budgets.
These problems vary in intensity across the Union, but there are few countries where their impact is not felt.
I believe no one can ignore their gravity or the dangers they hold for the economy and for society, or their potential to undermine social cohesion and endanger our social model.
Rising unemployment and an increasing number of people below the poverty line can corrode confidence in our institutions and breed support for simplistic or extremist solutions.
They may also jeopardise the European Union’s political achievements.
Five years since the onset of the financial and economic crisis, growth across the EU has slowed and the employment and social situation has worsened.
More and more people are facing poverty, the number of jobless households is rising, along with the number of low-income households in financial difficulty.
Efforts to make public finances sustainable should go hand in hand with action to address social challenges.
That is why we must seek new paths to growth that involve spending in our social systems not necessarily more but more effectively — along with more robust governance and greater competitiveness.
The European Commission’s 2012 Economic and Social Development in Europe review notes a widening employment and social divergence between the EU’s southern and peripheral Member States — which seem to be caught in a downward spiral — and the EU’s northern and central Member States — which are showing greater resilience.
This is partly due to the way the economy has performed overall, but much of the difference in performance is the result of the way the labour markets and social systems have reacted to the downturn.
Countries in northern and central Europe tend to have labour markets that function better.
Their social protection systems tend to be more efficient and more effective as automatic stabilisers.
This divergence is greater within the euro area than among countries not participating in the euro.
Europe’s population is also becoming more polarised between the old and the young, the rich and the poor.
Treaty aims, social market economy and Europe 2020
The picture I have painted seems a far cry from what the Europe 2020 Strategy prescribed.
Overall progress towards meeting the targets is slow and many Member States are simply not on track.
Yet Europe 2020 was designed after the onset of the crisis to generate smart, sustainable and inclusive growth and turn the EU into the sort of Union that Europeans want to live in by 2020.
Its objectives reflect the Treaties’ aims and principles set out in Article 3. This Article makes the important reference in particular to the social market economy, full employment, social progress and a high level of protection.
That is also echoed in Article 9 — the “social clause” — of the Treaty on the Functioning of the European Union.
The Treaties also highlight the fundamental role of social dialogue for the European social model.
It is no coincidence that the Member States performing best in terms of financial sustainability, economic growth and employment all have strong, institutionalised forms of social dialogue.
In fact they probably best illustrate the social market economy that the Treaties support:
Ladies and gentlemen,
In many ways, Germany offers a model. Its performance in economic and social terms is something to take pride in.
Germany's unemployment rate is 5.3% — on a par with Luxembourg’s.
Only Austria does better among the Member States.
Meanwhile, the jobless rate is 10.8% across the EU and 11.9% in the euro area.
But I am as interested in the EU’s overall results as in the Member States’ individual performances.
The question we need to ask, ladies and gentlemen, is how can we all do better collectively to meet the Europe 2020 targets and turn the EU into the sort of Union people want to be living in by 2020.
The current economic crisis shows how dependent the Member States' economies are on each other.
Social and economic problems can spill over to the other countries in the euro area, and to the EU as a whole.
Conversely, if the weaker do better, this will help the stronger do even better too.
The member countries are like a goods train with 27 locomotives coupled together.
If one has a faulty engine, the whole train will go slower.
But if the slowest locomotive can develop more power and take more of the load, then the whole train will go faster.
Yet the Union has done much recently to bolster governance of economic and social policy.
To ensure that Europe 2020 delivers, a strong, effective system of economic governance has been set up to coordinate the EU and Member States’ policy action.
The adoption of the 2013 Annual Growth Survey in November 2012 launched the third European Semester.
It set out the economic and social priorities for the EU in 2013, namely:
I would like here to emphasise that the Commission has invited the Member States to report in their national reform programmes on how they have involved the regions in drafting these documents.
That underlines the importance of the Länder’s contribution to Germany’s National Reform Programme.
Concluding the first phase of the 2013 European Semester, the Spring European Council stressed action to tackle unemployment as the foremost social challenge.
EMU social dimension
The June European Council should bring more clarity on the issue of the social dimension of economic and monetary union.
The Spring European Council took stock of work under way, but did not yet comment on ideas for strengthening the social dimension.
In the Commission we have been looking into a social scoreboard of key employment and social indicators for detecting social imbalances and triggering collective preventive action before employment and social problems develop disproportionately.
Such a scoreboard would provide greater visibility for the social-policy dimension when taking macro-economic decisions, and strengthen monitoring and coordination of employment and social policy and identify and alleviate major difficulties in good time.
Ladies and gentlemen,
The EU has also taken other steps to tackle unemployment.
In April last year our Employment Package set out practical steps to tackle the employment crisis.
It sent a clear message on the need to focus on job creation, in particular by shifting tax from labour, making more effective use of hiring subsidies and exploiting the potential of key sectors such as ICT, green jobs and healthcare.
It supported investing in skills, identifying the right skills and forecasting labour-market needs more accurately.
To create a genuine European labour market, it called for labour mobility to be improved by removing the remaining obstacles to free movement of workers and transforming the EURES network into a genuine European placement and recruitment instrument.
We followed up the Employment Package with the Youth Employment Package.
The jobless rate for young people in Germany is 7.9%, but it is 23.6% across the EU.
The crisis has severely diminished young people’s employment prospects in many regions of the EU.
Being unemployed at a young age can have long-lasting negative consequences and bring a higher risk of future unemployment and social exclusion.
In late February, the Member States agreed on a Council recommendation to establish Youth Guarantee schemes.
These should ensure that all young people receive a quality offer of a job, continued education, an apprenticeship or a traineeship within four months of becoming unemployed or leaving formal education.
The Youth Guarantee will need financing, but the cost of funding it is much lower than the cost of doing nothing.
The 14 million young people aged 15 to 29 in the EU who are neither in employment, nor in education or training are estimated to cost the equivalent of 1.21 % of EU GDP.
That is an annual loss of €153 billion to the Member States.
The Youth Guarantee will generate a positive return by improving the Member States' longer-term economic situation.
EU funding will also be available to supplement national resources.
The February European Council decided to support the implementation of the Youth Guarantee by earmarking €6 billion for a Youth Employment Initiative.
From 2014 this will be available to regions where youth unemployment is over 25%.
To that end the Commission adopted proposals on 12 March for amendments to the Regulation on the European Social Fund to ensure the funding can be used quickly.
The issue of funding of social policy in general is crucial.
Cohesion policy, and in particular the European Social Fund, have been among Europe's main instruments for fostering smart, sustainable and inclusive growth.
In 2011 alone, more than 13 million people, including low-skilled workers, people with disabilities, minority groups including Roma, and young and older people, took part in Social Fund programmes.
But action to meet the Europe 2020 targets will only be credible if our social investment is sufficient.
That is why we need to allocate at least 25% of Cohesion resources to the European Social Fund and at least 20% of that amount for social inclusion.
Youth unemployment needs proper funding too, and the Social Fund, supplemented by the extra €3 billion in the Youth Employment Initiative, will play a key role.
Unfortunately, we note there is resistance to the idea of a minimum share for the Social Fund.
This does not stop the individual Member States from allocating a substantial share of their Cohesion Policy budget for human capital and bolstering its social dimension.
However, at Union level, the resources available for investing in people, a major growth-enhancing factor, are likely to fall further, as they have in previous programming periods.
Of course, investing effectively is as important as the amount involved.
That is why coherent policy frameworks for EU part-funded assistance through ex-ante conditionality, stronger partnerships, a lighter administrative burden and integrated responses are crucial components of the new Cohesion Policy framework.
Social Investment Package
Our most recent response to the social employment and emergency arising from the current crisis is the Social Investment Package.
It provides guidance on modernising Europe's welfare systems and on the support the EU can offer for the implementation of structural reform.
The idea behind it is that much social spending is an investment with a real return in the future.
The Member States should look at the overall efficiency and effectiveness of their spending, identifying the policies that yield the highest return and, where possible, simplifying benefit administration.
This will help the Member States to come out of the economic crisis stronger, more cohesive and more competitive in the long term.
Ladies and gentlemen,
Not only is the current crisis undermining social cohesion in many Member States, but it is also calling the European social model into question.
The social crisis is breeding disaffection with national and European institutions that could risk unravelling the Union’s achievements.
It is time to give substance to the social clause and the Treaty aims and principles.
We know that it usually takes a crisis for the Member States to bite the bit and take big decisions.
I believe this is the case now and the current debate on the social dimension of Economic and Monetary Union bears this out.
The way economic and monetary union is reformed will be a test for the European integration project as a whole.
I therefore encourage you to take part in the debate.