Speech: Europeans want and deserve a monetary union with a human face
European Commission - SPEECH/13/62 28/01/2013
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European Commissioner responsible for Employment, Social Affairs and Inclusion
Speech: Europeans want and deserve a monetary union with a human face
ETUC Madrid Conference "Celebrating the past, looking to the future"
Madrid, 28 January 2013
Ladies and gentlemen,
It is a pleasure to be here with you, to celebrate the 40 years of the ETUC, and to kick off a serious discussion about Europe’s social dimension.
The title you chose is about the past and the future. But, let me start by saying a few words about the present. Where are we now, at the beginning of 2013, with the experience of more then five years of a devastating financial and economic crisis in Europe?
If you look at our barometers, the main financial market indicators, there are some signs of confidence coming back. However, while this is happening, we can only hope that real economic growth returns in the second half of the year.
With a second recession in many EU Member States and a slow down elsewhere, unemployment today is at a record high level. While we have achieved progress towards common standards and targets, what concerns fiscal and current accounts, there has been polarisation between the financially stronger and weaker European countries in terms of their employment performance and social situation.
The Employment and Social Developments Report gave a detailed picture about all this. The level of youth unemployment and the dynamics of long-term unemployment are particularly worrying, and the risk of poverty is on the rise.
Thus, inequality was bound to become one of the major discussion topics of the World Economic Forum last week. Also in Davos, Chancellor Angela Merkel concluded that giving a helping hand to unemployed young people is perhaps the most important task we have in Europe.
It is, indeed, not enough to be sorry about unemployed young people, or about young people that are not in employment, education or training (the NEETs). Forceful action is needed, by introducing youth guarantees as proposed by the European Commission last December in the Youth Employment Package. This would mean that all young people under the age of 25 should receive a good quality offer of employment, training or apprenticeship within four months after becoming unemployed or leaving education.
This also needs to be supported by an appropriate decision by the European Council on the Multiannual Financial Framework, the long-term budget of the EU. Prioritising job-creation, investing in human capital and particularly the implementation of the youth guarantee requires a robust and visible European Social Fund with secure funding in the next programming period.
The ESF is and must remain a strong pillar of the social dimension of the long-term EU budget, just as it has been instrumental in the short-term crisis response.
The reality of the EMU today is one of an economic, employment and social crisis, growing divergence between Member States and increasing polarisation within societies. Reaching the employment and poverty targets of the Europe 2020 Strategy from here will be more difficult than what we all thought in 2010,when it was launched. But it must be clear for all what is at stake.
High unemployment, declining household income and lack of economic opportunities have a negative impact not only on debt/GDP ratios but also on future employability and productivity of today’s unemployed, affecting economic competiveness across the EMU.
Allowing high unemployment and social dislocation to continue is bad politics and bad economics. The EU institutions and the Member States need to work much closer together in order to boost investment, generate growth, and restore social convergence.
Ladies and Gentlemen,
Europe and its people are paying too high a price for the crisis and the consolidation effort. But, make no mistake about it: this crisis is not a result of some natural disaster.
The failure to regulate finance, ignorance about the risks of economic bubbles, ambivalence about the need for adjustment and reform after the crash, self-deception about the state of the banking system, hesitation to use all available instruments of monetary policy, and backpedalling from earlier commitments paved the way to this quagmire.
For a response to a crisis, speed is a decisive factor. However, too many have been too slow to understand that behind individual country failure there is a systemic problem in the EMU, and some even allowed local and regional considerations to take hostage the common European crisis response. Some still deny that there is actually an EMU crisis.
You have asked me to address our main priorities for a social Europe and I will be very clear: the main priority - in order to address the current crisis and to prevent future ones, is to rebuild the EMU, and particularly to develop a social dimension for the monetary union and define the role of social dialogue in that.
Let me first explain why I think so. This requires a quick assessment of the system as a whole. I will then turn to some concrete elements of what we can consider the social dimension of the EMU.
The crisis in Europe has lasted longer than in the rest of the world. This is mainly due to the fact that we entered the crisis with an inappropriate model of monetary union, one with many hidden weaknesses. The inherited monetary union was designed mainly by central bankers 25 years ago, and it lacked some key dimensions that would have been necessary for proper functioning and sustainability: the economic, the fiscal and the social dimensions.
Creating a single currency after various stages of monetary cooperation in the European Community was not a wrong idea. This allowed the EU to exploit the potential of its single market, stabilise its modest budget and cement the political alliance among its Member States. However, the infantile model of EMU was lacking instruments to prevent the rise of destabilising imbalances, the capacity to respond to financial crises and shield ourselves from speculative pressures, and it was also lacking the mechanisms to ensure that all the participants can preserve their growth potential, or regain it when necessary after a crisis.
There is probably consensus today that the letter E – Economic – was missing from the actual functioning of the EMU in its first decade. Economic governance remained underdeveloped until the recent period. Amidst wrong rules and incentives, some Member States missed opportunities to diversify their economies. Large-scale misallocation of resources here, stubborn inactivity there, and substandard public administration in many countries resulted in slow productivity growth in just too many regions.
Genuine economic governance is now needed to ensure that all countries and regions within the EU remain competitive. The problem with the infantile monetary union is that, in the absence of better instruments to boost competitiveness, deficit countries are forced to apply too high a degree of internal devaluation. This, first of all, has just too high short-term social costs within the country in question. And secondly, if applied by several countries simultaneously, internal devaluation weakens demand for the whole community and pulls it back towards recession. The short-term sacrifice too easily turns into long-term damage.
A genuine economic dimension of the EMU needs to ensure that peripheral countries can improve their competitiveness in the framework of common strategies. Industrial policy, support and stimulus for innovation and resource efficiency have to be mentioned in first place, exploiting fully the relevant flagship initiatives of the Europe 2020 strategy.
There is today also consensus about the need for tighter fiscal policy coordination within the EMU. Fiscal expansion was the right answer to the recession in 2009, and fiscal consolidation is the logical strategy at the time of the recovery.
In a monetary union, where we have centralised, one-size-fits all monetary policy, the continuation of full national fiscal sovereignty is controversial. Fiscal policy is bound to be more closely coordinated at EMU level, but this needs to be coupled with fiscal solidarity. As a first step, the negative feedback loop between bank debt and sovereign debt has to be broken.
Mutual support has proven indispensible for short term stabilisation when the financial markets stopped lending to more vulnerable Member States. In my view, mutualisation of the financial risk for public budgets is the most logical and inevitable requirement for long-term sustainability.
Ladies and gentlemen,
Stricter fiscal discipline, responsible business and a stronger competitiveness and growth model are, of course, crucial components of a deeper and more resilient Economic and Monetary Union. However, we also need to ensure that this system can deliver to the citizens what they want: the chance and concrete opportunities of upward social convergence.
In defining and implementing its policies, the EU is to take into account requirements linked to the promotion of a high level of employment, the guarantee of adequate social protection, the fight against social exclusion and a high level of education, training and protection of human health.
Upgrading the monetary union and ensuring social cohesion in Europe cannot be two separate projects. The EMU itself needs to have a social dimension. Until now, however, its elements have not been properly defined. Though we have been working on some related elements for some time, the Commission has started to reflect broadly and deeply on this question after the 2012 December European Council.
In my view, the social dimension of a genuine EMU must be understood as an ability of the EMU’s rules, governance mechanisms, fiscal capacity and other policy instruments to ensure that economic efficiency and social equity are pursued at the same time.
This requires that fiscal objectives are reconciled with employment and social ones in the decision making process, and that there are institutional guarantees to limit the real economic and social costs of fiscal discipline enforcement. Such a social dimension must involve the social partners.
In order to build a social dimension, we can further develop our current monitoring tools (those of the Employment and Social Protection Committees) into a scoreboard of employment and social indicators through a systematic and exhaustive analysis of employment and social developments.
The existing macroeconomic surveillance framework can be supplemented by reinforced social surveillance of fundamental indicators such as the unemployment rates, the number of young people not in employment or education, gross household disposable income, risk of poverty rates and also in-work poverty.
All those phenomena affect people’s (re-)employability and productivity, economic performance as well as social cohesion, but they can also develop into serious social imbalances affecting the stability of the EMU.
Another important element for a social Europe could be about basic social standards and benchmarking of key measures to address employment and social imbalances. Let's think, for example, about the youth guarantee, as a possible social benchmark.
Other standards would need to be taken into consideration notably about active labour market policies, adequacy of pensions, access to health care, or lifelong learning.
For a genuine social dimension, the possibility of transfers at the EMU level needs to be considered seriously, particularly since our analysis has concluded that automatic social stabilisers have weakened, or even stopped being effective on the national level.
A fiscal capacity would be able to strengthen the sustainability as well as the legitimacy of the EMU, by addressing asymmetric shocks and mitigating the social consequences of adverse economic developments. One can think about both conditional and automatic fiscal stabilisers.
The EMU governance, including its social dimension, would need to be sufficiently reinforced through the introduction of social standards and solidarity mechanisms that could provide more extensive support for preventing and addressing employment and social imbalances that affect the stability of the EMU. Here, conditionality would underline the primary responsibility of the Member States themselves for their own long-term competitiveness and convergence.
I am convinced that, for economic, social and political reasons, EMU-level fiscal transfers with an automatic stabiliser function will also need to be developed, as foreseen in the Commission’s Blueprint. For example, in the form of EMU level unemployment insurance, this would constitute direct expression of EU support to citizens in need.
Possibilities of involving social partners in the governance of such stabilizer instruments should be explored.
Ladies and gentlemen,
I have often said in the recent years that the EU must emerge from this crisis with more, and not less social dialogue. This I believe is particularly relevant now, when we not only need to build the social dimension of the EMU, but also confront the phoney arguments of Eurosceptics aiming at greater economic competitiveness through weakening social legislation. The forthcoming Industrial Relations Report will explore some of the key challenges and trends in this area.
I am convinced that the involvement of the social partners in the European Semester should be further strengthened and become codified. I have been working on this for one year now and made some concrete proposals in the Employment Package adopted last April. The Employment Ministers, in the Council of Ministers, have been very clear on that point too. We need the social partners to be more involved in setting priorities and shaping and implementing employment policies.
Specific social dialogue arrangements are currently explored with social partners (fully respecting their autonomy) in order to address relevant issues of specific importance for the EMU, such as wage developments and their links to competitiveness, domestic demand and social cohesion.
Building on the Commission’s suggestion, the first EU tripartite exchange of views on wage developments -- with national social partners -- will take place at a special meeting of the Employment Committee on 1 February 2012.
This exploratory meeting will generate a reflection on the economic, employment and social implications of wage developments across Europe, and contribute to enhancing social partners’ input in European economic governance. It will also provide an opportunity for the EU institutions to benefit from the national social partners’ expertise.
The Tripartite Social Summit in March offers an opportunity to discuss the social dimension of the EMU. It will be the time to discuss the new elements of a genuine EMU and the involvement of national social partners.
The social dimension of the EMU is crucial for the legitimacy of the European project but also – given the deep integration of our policies - for the legitimacy of Member States policies.
Proper functioning and public acceptance of the EMU can only be guaranteed if steps to strengthen discipline, solidarity and legitimacy are taken simultaneously.
Legitimacy partly comes from the process and partly from the outcomes. It is about institutions, but also about politics and values. The lack of economic opportunities, particularly for the young and long-term unemployed, and rising inequalities undermine social cohesion and trust.
National governments and the EU as a whole are losing legitimacy in the eyes of many workers and other citizens by failing to deliver what is expected from them, i.e. broadly shared prosperity and equal opportunity to improve one’s situation. This may even translate into political instability at the national level, but also at EU level, where economic and social divergences can generate disunity.
If the Member States agree to pool more financial, budget and economic sovereignty, this inevitably calls for a clear framework for social coordination and convergence. Otherwise, it will only lead to more fierce competition between the Member States, lowering of social standards and the jeopardising of the social model.
Fixing the monetary union and the business model of Europe are the most important tasks if we want to achieve a sustainable recovery. However, this does not mean that the European social model does not need adjustment, upgrading, and modernisation.
There are reasons to review social security as well as social protection in the EU. One year ago, the Commission adopted a White Paper on Pensions, in order to help Member States to address the challenges of long-term demographic transformation and the short-term financial crisis. We have outlined a number of proposals to improve adequacy and gender equality, and to protect workers' rights.
Let me also draw your attention to the next initiative to be adopted by the Commission in this coming February – the Social Investment Package. This initiative will provide guidance to Member States on increasing efficiency, effectiveness and adequacy of social protection systems, with a focus on social investment.
One of the most important functions of social protection systems is to strengthen people's capabilities and skills, protect them from the risk of poverty, and incentivise their participation in the labour market when they are in working age. This implies putting greater focus on policies such as childcare and early learning, education and training, active labour market policies, housing support, rehabilitation and health services.
With this Package, we aim at strengthening the role of social investment. This should help Member States in implementing the Europe 2020 Strategy and the European Semester, using the EU financial instruments with better result and, in particular, to meeting the employment and poverty targets.
Ladies and gentlemen,
The EU's goals are economic prosperity and social progress. A well functioning single currency can only be an instrument that serves these objectives. Europeans want and deserve a monetary union with a human face.
We must not allow the eurozone crisis to tear apart the EU into two halves: one with job-rich growth, and another one with a jobless recession and the constant threat of social unrest.
We must not allow those at the bottom of society pay the highest price for the moral failure and misconduct of others on the top and in the shadow economy.
We must not allow a malfunctioning monetary union alienate the EU from our workers, our youth, the majority of the citizens in some of its Member States and all those who look at us in the outside world with a lot of concern, and sometimes with horror.
We need bold ideas and also bold action if we really want to leave behind the misery of the recent years. I have here presented my ideas, and now I would like to hear yours.