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European Commissioner responsible for Employment, Social Affairs and Inclusion
Reconstruction in Europe
Conference “Beyond Austerity: Building European Solidarity”/
Brussels, 17 September 2013
Ladies and gentlemen,
Five years after the worldwide financial crisis began we are desperately looking for good news.
We recently learned that the second Eurozone recession has ended. The second quarter of 2013 saw overall EU GDP growth turn positive.
The latest unemployment figures confirm that joblessness has stopped rising in some countries — including Spain, Portugal and Ireland.
But caution is needed. The recent improvements are minor, and the situation is still very shaky.
More than 26.6 million jobseekers are still without jobs in the EU. Of those unemployed people, more than 5.5 million are under 25.
What is most alarming, behind these figures, is the widening gap between North and South, centre and periphery.
Moreover, favourable external conditions for European consolidation may end soon, as the US Federal Reserve is edging closer to monetary tightening, and an emerging economy financial market correction looms.
What conclusion should be drawn from this picture? For me, the conclusion is that the strategy of muddling through the Eurozone crisis has run its course.
It is not enough to speak about various elements of a systemic solution to the Eurozone crisis. The systemic solution must urgently begin to be implemented in practice.
This means that EMU 2.0 must replace the flawed Maastricht model that had originally been designed by central bankers.
The reconstruction of the monetary union means strengthening governance but also solidarity, developing regulation but also a fiscal capacity.
Any system can only be as strong as its weakest link. That is why the reconstruction of the Greek economy is a fundamental question today. To see why the current situation is unsustainable requires a closer look of what has been happening there so far.
Ladies and Gentlemen,
Since the Greek Economic Adjustment Programme was launched in 2010, a large number of ambitious — but socially very difficult — measures have been implemented.
These have included cuts in the public-sector wage bill and pensions, indirect-tax increases and far-reaching pension and labour-market reforms, including a thorough redesigning of the wage-setting system and the adoption of measures to fight undeclared work.
A lot of difficult decisions have been taken by the Greek Government in coordination with other EU governments and the Troika, and their impact on Greek society has been very severe.
After more than three years of adjustment, the Greek economy continues to contract, and unemployment and the number of households reporting financial distress are at a record high.
In this period, a huge amount of support measures had to be implemented in order to ensure that the Greek patient actually survives the operation.
Most of the policies to shore up the stability of the economy and the labour market are underpinned by EU funds.
For the period from 2007 to 2013, Greece has received a total of 20 billion euros of Structural Fund financing. The European Social Fund has accounted for over 4 billion euros of that amount.
Much ESF support has been directed at the effects of the crisis, in particular to:
EU funding has also provided support for the reform of institutions and systems necessary to ensure the market can function properly.
For instance, the ESF is supporting the reform of Greece's public employment service.
A minimum income scheme is also being considered to address the social emergency in Greece and close a key gap in the social safety net.
Given the dramatic labour-market situation, Greece is also introducing a major public-works programme with EU support.
Furthermore, in response to excessively high unemployment among young people, Greece undertook extensive reprogramming of its ESF operational programmes at the end of 2012.
And in January 2013 it endorsed a National Youth Action Plan that involves 517 million euros of EU funding, of which 466 million come from the European Social Fund.
Another noteworthy action is the development of the social economy. This is a new endeavour in Greece and deserves our firm support, especially in these difficult times.
These support measures should not only be seen as part of a short term response, but also as part of a longer term reconstruction process. As a matter of fact, this is what we need now.
We need to ensure not simply that Greece and its people survive the operation, but also that the country and its economy can be rebuilt.
What Greece needs today is not a third bail-out, but a proper reconstruction plan, which inevitably starts with a significant debt-relief, and continues with programmes that bring fresh investment.
Ladies and Gentlemen,
We all know that the Greek financial and social situation is the most extreme within the EU, but Greece is not alone with these daunting problems.
A sustainable recovery can only come if the strategy includes major steps towards a new model of the monetary union.
The reconstruction of the EMU is on the table of practically everybody today. It has been widely recognised that the status quo cannot last. The only options are reconstruction or deconstruction.
Since the first report of the four Presidents (June 2012), it has become a standard to call for Banking, Fiscal and Political Unions – all pre-conditions of a deep, genuine, sustainable and legitimate monetary union.
Some of us have added the necessity of a Social Union too, given the social consequences of the current crisis, and the need for better integrating employment and social policies into the EU level architecture.
The Banking Union is almost a consensual element of the new EMU 2.0. The design of its three elements is relatively advanced.
When it comes to the Fiscal Union, the key elements have been identified, providing options to deal with past as well as future debts.
With all due respect to central bank independence, it is also commonplace now that a currency cannot function without a lender of last resort, and in the last two years the ECB has made some important steps towards that function.
These elements by far do not exhaust all the possible considerations for a stronger monetary union, particularly if we also think about further strengthened economic governance, revenue policy, and the external representation of the single currency.
Very importantly, however, in June 2013 the heads of State and Government stated quite clearly that the social dimension of Economic and Monetary Union should be strengthened, and the necessary steps discussed in the coming period.
As you know, the Commission will be presenting a Communication on the subject in October.
Closer coordination of employment and social policy is needed in the monetary union, as well as better detecting and addressing major employment and social challenges within the European Semester procedure.
In a currency union, countries cannot devalue the exchange rate and need to abide by the fiscal rules agreed. In the event of a shock, their individual margin for manoeuvre is limited.
Member States cannot be expected to absorb a 10-20 per cent GDP loss whenever a crisis comes.
But it is in the collective interest to ensure that unemployment, inactivity among young people, poverty and inequality do not spiral out of control in any Member State.
Worsening social problems in individual Member States need to be tackled before there is excessive waste of human capital for Europe as a whole.
This is why we plan to draw up a self-standing scoreboard of key employment and social indicators of relevance to the smooth functioning of the monetary union.
Such a scoreboard that includes indicators of the rate of unemployment or of young people not in employment nor in education or training (NEETs), household income, poverty and inequality, would help provide a timely policy response based on closer coordination of Member States’ employment and social policies.
Social imbalances and the loss of potential for convergence should be considered among the reasons that can destabilise a monetary union.
Unfortunately, in today's EMU with a Fiscal Compact but without trans-national fiscal transfers, the fiscal policy framework works pro-cyclically and does not facilitate adjustment to asymmetric shocks.
The only remaining adjustment mechanisms are loss of population through emigration, and internal devaluation, with all its adverse effects on aggregate demand, human capital and social cohesion. If these existing ways to restore competitiveness prove more painful than currency devaluation, we cannot assume that the commitment to the single currency can last forever.
In the absence of an appropriate regulatory and solidarity mechanism, the EU as a whole cannot live with the uncertainty associated with the Eurozone membership of some weaker Member States
Make no mistake about it: this is not only a question about Greece. The relationship between core and periphery has become the key question in the EMU, and therefore within the whole EU today.
This holds true for the Single Market, where countries on the periphery cannot compete on quite the same terms as those within Europe’s industrial heartland. It is even truer in the monetary union. Both regulatory and solidarity mechanisms must be reinforced.
Our ultimate aim must be to restore the Member States’ potential for growth and socio-economic convergence.
Only this can help us make good the principles enshrined in the Treaty, in particular:
Ladies and gentlemen,
In the last five years, we experienced too little social progress, and too much social damage.
The damage caused by the crisis has been assessed in the recent years, and action has been taken on many fronts.
What I would like to argue today is that this policy action also needs to take a more systemic character and lead to a reconstruction of the European Social Model itself.
National welfare states have suffered, particularly after the implementation of fiscal adjustment programmes during the debt crisis.
The Social Investment Package of the Commission provides guidance to Member States to modernise their national welfare systems, to use the available resources more effectively, in order to tackle such issues as child poverty or homelessness.
However, it should be clear that within a monetary union, with single fiscal rules and other uniform policies, some of the welfare instruments can only be rebuilt on the level of the community. This very much applies to unemployment insurance. For this reason, we will explore in a conference on the 11th of October, thanks to the Bertelsmann Foundation, what options exist for such automatic stabilisers to be built up on the level of the EMU.
The Council Recommendation on establishing a Youth Guarantee, and the introduction of the related Youth Employment Initiative with funding of 6 billion euros provides a good example of how the Union can take collective action to tackle a major employment and social challenge collectively and on the basis of a clear policy benchmark.
The Youth Guarantee will help strengthen the employment security of young people, which also helps to maintain the employability of young people in the longer run, by avoiding losing skills and morale.
By focusing on the NEETs and offering them vital training or apprenticeships, our modernised public employment services can also contribute to the fight against youth poverty.
Other parts of the reconstruction effort are more bottom-up but of course require a supportive environment. For example, the “social economy”, which includes cooperatives, mutual societies, non-profit associations, foundations and social enterprises, provides a wide range of products and services across Europe and generates millions of jobs.
The potential of the European Social Fund and other EU financial instruments should be exploited better within the Member States in order to develop more social enterprises and a broader social economy. A conference in January in Strasbourg will bring many social economy stakeholders under a common roof.
We also need to step up the social partners’ involvement and participation in EU policy debate and decision-making. Social dialogue in Europe is an asset we cannot afford to lose.
Existing procedures for consulting employers' and employees' organisations at EU level could be made more effective and used to greater advantage.
The aim would be to achieve stable, transparent consultation of the social partners throughout the European Semester procedure.
Involving and consulting the social partners at national level is also vital and further development is needed here.
In fact, in a few countries like Greece or Hungary, we speak, together with the ILO, about the need to rebuild social dialogue.
Ladies and Gentlemen,
This is a make-or-break period for European reconstruction. It is about the reform of the EMU and also about the future of Social Europe.
National elections will soon be taking place in Germany, Austria, and the Czech Republic.
And next year Europeans will elect their representatives to the European Parliament for the new legislature. The stakes are indeed very high.
Those elections could help set the tone for the foreseeable future by shaping the overall political framework and allowing key decisions to be taken.
The political balance in the Council changes whenever elections produce new governments within the Member States. On the contrary, the European Parliament and the Commission preserve the political footprint of the time when they are elected.
Europe needs a political framework for the next period which opens the way for the reconstruction not only of the EMU, and its weakest member, but also a progressive reconstruction of the European Social Model itself.