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European Commission

José Manuel Durão Barroso

President of the European Commission

Speech by President Barroso at the Conference on Restoring Socio-Economic Convergence in Europe

Opening speech/Brussels

10 October 2013

Dear President of the European Council, Herman van Rompuy,

Dear Commissioner Andor, dear László,

Ladies and gentlemen,

First of all, dear László, let me congratulate you and your cabinet and your services for organising this very timely conference. I would like also to praise your commitment to this social agenda and what you have been doing to promote it in the European Commission and in the European Union.

I would also like to very sincerely thank Herman van Rompuy for his presence and for the leadership he has shown in the European Council, supporting precisely this agenda at the level of Heads of State and Government.

Before I start my speech I want to share with you the sadness I felt this morning when I heard of the passing away of Wilfried Martens. A great Belgian statesman, a great European, a true social Christian who was so committed to the values of the European Union, following the path of the founding fathers of our union, like Robert Schuman, Konrad Adenauer, Alcide De Gasperi. And I would like to share with you this moment of sadness. I think we will miss him, not only in the European People's Party, he was one of the most influential figures over the years in that party, one of the biggest European parties of which he was the current President, but also in Europe. In Europe today more than ever we need men of conviction in European values like Wilfried Martens.

Ladies and Gentlemen,

From its inception, European integration was always a way to close gaps: gaps between its Member States, differences between regions, disparities between rich and poor.

In the current treaty, the Lisbon Treaty, this goal is specified as such: 'The Union shall… work for… a highly competitive social market economy, aiming at full employment and social progress… It shall combat social exclusion and discrimination, and shall promote social justice and protection... It shall promote economic, social and territorial cohesion, and solidarity among Member States.'

To be an ever closer union - not just in the political or institutional sense but in terms of its economic, social and societal dynamic - that is the expressed goal of the European project. The European project is about cohesion and solidarity.

We know that today we are, however, in many ways further removed from reaching these goals. But we have to see also the reason behind this situation. The fact is that some of our Member States are going through a painful but unavoidable adjustment process to correct major imbalances that were accumulated for many years. And the crisis has turned around a number of positive economic trends of the years before, it has weakened the social resilience of several of Member States, it has sharpened differences between regions and most critically, it has undercut governments' power to remedy them.

So we should understand that there are now risks for our social model. And our response to the crisis was, and should remain, also a way to secure the future of this model in light of the changing European and global circumstances.

I want to underline a point that I believe is of utmost importance. The social dimension is not a new, additional strand, something that we add to what is, let's say, the core of Europe. The social dimension is an inherent part of the European project and of all that we have done over the years. We pursue an ambitious social agenda for all our Member States. The Europe 2020 agenda has given social issues top priority among the European economy strategy for smart, sustainable and inclusive growth. We have today headline targets and policy actions for raising the employment rate, reducing early school leaving, increasing tertiary education levels, and lifting at least 20 million people out of poverty. Let me underline this because it was not evident at the time that we reached agreement at the European Council on this. I think it is no secret for anybody that several governments were opposed to this idea on the basis of subsidiarity arguments. But at the end, following an initiative of the European Commission, there was a unanimous support also to include these very specific social targets in the Europe 2020 agenda endorsed by the European Council by all the Heads of State and Government. Let me also recall some of our recent initiatives, such as the Employment Package, which sets out the way forward for a job-rich recovery, the White Paper on Pensions, presenting a strategy for adequate, sustainable and safe pensions and the Youth Employment Package.

And with the Communication on Strengthening of the Social Dimension of the Economic and Monetary Union, approved just last week, we want above all to make sure that our governance structures are strengthened with a view of better prevent and monitor lasting disparities that might threaten our stability and ultimately our social market economy.

Ladies and gentlemen,

11 of Europe's Member States are in the top 30 of the World Economic Forum's Global Competitiveness Index and the best performers, like Finland, Germany, Sweden and the Netherlands, are also among those with some of the highest levels of social expenditure. So if we get the balance right and efficiency is guaranteed, the 'highly competitive social market economy' we aim at is not only possible but even plausible. And we can see that is there is no contradiction, contrary to what some people argue, between very advanced competitive economies and strong social mechanisms, and a strong welfare state. It also happens that those European countries with the most effective social protection systems have the most developed social dialogue partnerships. And indeed, some of these countries are among the most developed and rich in global terms.

A feature that distinguishes European society from alternative models is precisely the European Social model. And I repeat what I said very often, namely in discussions in the European Parliament, the European Social model is not dead. There are risks, but it is not dead. Undoubtedly we need to continue reforming our economies, we need to modernise our social protection systems in order to make them sustainable, not only because of the reasons of change in international terms of competition but also because of the worrying demographic trends in many parts of Europe. An effective social protection system that helps those in need is not, I repeat, an obstacle to prosperity. On the contrary it is an essential part of it.

Now, we know that the challenges posed by the crisis have led to growing risks of poverty and social and labour market exclusion in a number of Members States. Divergences within and between Member States are also increasing. This not only threatens the prospects of competitiveness of Europe in a globalised world, it also risks widespread negative social and economic consequences as not just individuals, but society as a whole bears the social and economic costs of unemployment, poverty and social exclusion.

Traditionally our welfare systems have contributed to improving social outcomes but they are confronted with the consequences of the financial and economic crisis. The resulting pressure on public budgets and the risk of structural labour market shortages in the future reinforce the need to modernise social policies to optimise their effectiveness and efficiency, as well as the way they are financed. It is essential to ensure the best use of existing resources, both in countries with serious fiscal constraints, as well as in the Member States that have more fiscal space. In this vein the Commission has adopted the Social Investment Package in February 2013, aimed, precisely, at ensuring the adequacy and sustainability of budgets for social policies.

This objective goes hand-in-hand with the overarching aim of restoring public finances back to sustainable levels. This was – and remains – one of the most important issues on our agenda, including our social agenda. Because we know well that an economy based on unsustainable levels of debt cannot unfortunately deliver the social goods we expect. An economy based on debt is as unsustainable in the long run as ever before, while those who need public support the most will end up bearing the burden: pensioners, young people that want to find a job, and also the weakest and the poorest in our societies. I think we must avoid that at all costs.

On average, European governments spend 28 days of the year simply paying off the interests on debts. On average - in some countries it is much more. So every year an entire month is wasted paying back the interests on debts acquired in the past – money that can no longer go to schools or to public health, cannot go to better government services or to finance research and innovation. It is also unfair from a generational point of view, that one generation creates the debt that several other generations will have to pay in the future.

So I really believe that fiscal consolidation is also part of our social agenda, and I am satisfied that we are winning the difficult fight against debt spiralling out of control. We see that countries most vulnerable to the crisis are now doing most to reform their economies and are starting to note positive trends, not only in terms of controlling their chronic deficits but correcting external imbalances and in some cases, starting to see some fragile, ok, but still some positive signs of growth.

For Europe, recovery is within sight. And rebalancing that we lacked before the crisis is now taking place. Of course we need to be vigilant but we have good reasons to be confident and at the same time that we are not complacent. I think it is our duty also to show our citizens that there is hope and that this situation that they are experiencing in many parts of Europe will change.

Maybe even better news is the reason why growth is increasing again. This growth that we are now seeing and that we expect to be confirmed next year is not the result of other accumulations of debt but an indication that structural reforms that these efforts are starting to pay off. And this is also the goal of the Europe 2020 strategy which contains key social and employment targets for all our 28 EU Member States and outlines and coordinates structural reform efforts.

Our social agenda was high on our list of priorities in the European Semester. The last version of the country-specific recommendations, for instance, also included guidelines on poverty and social exclusion for 9 countries, on improving wage setting mechanisms for 7 countries and on education for all but one member state. They are key to improve our socio-economic resilience.

The institutional and policy environment makes all the difference for employment outcomes – hence also for growth and public finances, namely that we are reforming labour markets. That is one reason why some countries have stood the test of the crisis better than others, and why so much attention in the country-specific recommendations goes to active labour market policies, labour market segmentation and participation, notably the issue of the participation of women.

We also know that the efficiency of social systems is hugely important for reducing poverty and increasing equality. An indication of the potential efficiency gains comes from the observation that broadly the same level of expenditure reduces income inequality two or three times more in some member states than others, for instance Finland vs. Greece. Governments' providing better value for money is also, I believe, a social imperative.

Ladies and gentlemen,

With last week's communication on the social dimension of the EMU, we propose to strengthen our economic governance architecture by reinforcing the monitoring of employment and social developments within macroeconomic surveillance, by adding new auxiliary indicators to the scoreboard used for the annual Alert Mechanism Report. On top of that we will create a new scoreboard to follow key employment and social developments in order to better analyse and more swiftly identify major problems before they arise.

These elements allow us to get a sharper sense of the social situation, how it has struck differently across member states, and how we can remedy these effects. This, however, can and should be done within the current economic governance structures, namely through the country-specific recommendations.

The need for such a finely balanced approach is visible from the indicators themselves, like for instance:

- 24% of the European population is currently at risk of poverty or exclusion, but while two thirds of Member States see poverty increasing, the other third does not;

- The overall increase of young people not in employment, education or training is essentially due to rising unemployment, and while the dramatic unemployment trend has recently flattened even in the most troubled countries, the figures remain - as we all know – dramatic, and indeed, unacceptable;

- Overall income inequality in Europe did not rise significantly during the crisis, but again we see sizeable increases in a number of Member States, critical problems namely in Southern Europe.

As I highlighted in my State of the Union debate in the European Parliament last month, a lot of the necessary policies can only be developed and implemented at national level. We cannot do member states' work for them. The responsibility remains theirs, as clearly stated in the treaties. But we can and must complement it with European responsibility and European solidarity. And there, I believe, we can and should do more.

And in this sense, we can do more to effectively use European funding to alleviate social distress in countries undergoing deep economic reforms. For the next financial period, the Commission has proposed that member states devote at least of 20% of their European Social Fund envelopes to promoting social inclusion and combating poverty.

The European Union's new Programme for Employment and Social Innovation, the European Globalisation Adjustment Fund and the Fund for European Aid to the Most Deprived are also important instruments that can help.

On top of that, we can do more to promote the mobility of people – notably of workers from one part of the European Union to another - this is one of the four freedoms at the core of the European single market that has materialised the least.

Also important to ensure is the alignment with our vision for a deep and genuine economic and monetary union. As you know our ideas from the Commission were put forward in the Blueprint adopted last November, steps combining more responsibility and economic discipline will be in taken in parallel with more solidarity and financial support. And in the work done by the President of the European Council, also with my cooperation and cooperation of the President of the Euro group and the European Central Bank, we have highlighted the needs also to reinforce the social dimension of the EMU.

One last important aspect of the social dimension of the European Union is intensifying the social dialogue.

Over the last few years we have drawn up stronger economic governance structures and policies for the Economic and Monetary Union, and indeed this work is not finished. Our institutional framework will need to be further updated and made more coherent in the medium and long term. Such a stronger form of governance requires a broader form of consultation as well.

In that context, there is also still room to better include social partners in the decision-making process under the European Semester. For that reason, the Commission has pledged to meet the European social partners each autumn before we outline our basic socio-economic policy priorities in the Annual Growth Survey, as well as debate them with social partners and also their national affiliates afterwards. We will hold technical preparatory meetings before the March Tripartite Social Summit and other high-level meetings, and we want to encourage member states to more specifically discuss all reforms linked to the country-specific recommendations with national social partners.

Indeed, as you know, the European Commission in what was the première invited some time ago the social partners for a meeting with the whole College. The European Council has done also the same. But we want not only this to be symbolic gestures but indeed, to reinforce the culture of social dialogue at European level and also to promote their best practise for what can be done at national level.

Ladies and gentlemen,

I will conclude, noting that the first panel this morning asks itself the question: 'Why does socio-economic convergence in the Economic and Monetary Union matter?'

Let me give already my answer, it is a clear answer. This convergence matters because the path to further economic and monetary union must go together with an enhanced social cohesion, and enhanced solidarity. It matters because we cannot be a union of citizens if citizens don't see the benefits of cohesion in their daily lives and trials. If they don't see the concrete benefits of the European project. It matters because it goes to the heart of what Europe has always been, has always aspired to be, and what Europe must be.

And because it is possible we are and will continue to invest in the social agenda for Europe.

I thank you for your attention.

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