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European Commissioner responsible for Employment, Social Affairs and Inclusion
Strengthening the European Social Model
Conference "Progressive Paths to Growth and Social Cohesion. A Future Agenda for Eastern and Central Europe"
Vilnius, 11 November 2013
Ladies and gentlemen,
I extend my warm greetings to you all and I thank the Friedrich Ebert Stiftung and Das Progressive Zentrum for their invitation.
This conference is taking place at a very interesting time.
The political landscape of Europe is changing.
National elections took place in the last two months in Germany, Austria, Luxembourg and the Czech Republic, and they all resulted in a shift of power towards the same direction.
And next year Europeans will elect their representatives to the European Parliament for the new legislature.
Altogether, this political process will set the tone for the foreseeable future by defining how key decisions will be taken within an overall political framework.
The EU institutions operate under democratic control, but not in the same way.
As we saw it again in the recent years, 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 for five years the political footprint of the time when they are elected. This is why the current phase is so crucial.
I believe Europe needs a political framework for the next period which allows the European Social Model to strengthen. However, strengthening cannot happen without rethinking our social model, and it will not succeed if we do not address the problems of the underlying economic model at the same time.
This is why first I would like to discuss the reconstruction of the Economic and Monetary Union in Europe, then elaborate on the European Social Model, and close with some remarks specifically focusing on Central and Eastern Europe.
Ladies and Gentlemen,
The reconstruction of the EMU has to speed up.
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 concept 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.
Through great sacrifice in the recent years, the integrity of the eurozone has been preserved. However, how the EMU can deal with cyclicality and asymmetry are two key questions still unresolved. And, the two seemingly theoretical problems seem to aggravate each other in practice.
Major financial imbalances and the unevenness of the recovery were main reasons for Europe to fall into a second recession in 2011. And, on the other hand, the economic downturns of the recent years have made the very asymmetric eurozone even more imbalanced.
Overlooking these problems can lead to complacency for which Europeans may pay a high price again.
The EU today is experiencing a modest and fragile recovery. However, a sustainable recovery can only come if the strategy includes major steps towards a new model of the 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.
And the EU as a whole cannot live together with the uncertainty, which is associated with the eurozone membership of some weaker Member States – in the absence of appropriate regulatory and solidarity mechanism.
In other words, the relationship between core and periphery has become the key question in the EMU, and therefore within the whole EU today.
It has already been true for the Single Market that 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.
The reconstruction of the monetary union means strengthening governance but also solidarity, developing regulation but also a fiscal capacity. It means that an EMU 2.0 must replace the flawed Maastricht model that had originally been designed by central bankers.
The reconstruction of the EMU is on the table of practically everybody today. The Banking Union is almost a consensual element of the new EMU 2.0. The design of its three elements is relatively advanced.
What concerns 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 strong openings 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.
And, very importantly, the social dimension of the EMU must be strengthened too, including by a greater involvement of the social partners (organised employers and employees) in economic policy making on both national and EU level.
As you know, the Commission has presented a Communication on this subject in October 2013.
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.
It should be recognised by all that 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 I made a proposal for a stand alone scoreboard of key employment and social indicators of relevance to the smooth functioning of the monetary union.
Social imbalances and the loss of potential for convergence should be considered among the reasons that can destabilise a monetary union.
The scoreboard will help provide a timely policy response based on closer coordination of Member States’ employment and social policies.
The first version of the scoreboard will be published in the Joint Employment Report on 13 November, along with the Annual Growth Survey.
It will contain the following social and employment indicators:
In a new analysis on the basis of the scoreboard, and in the search for the right policy answers, the social partners have to be better involved.
Existing procedures for consulting the social partners at EU level could be made more effective and used to greater advantage. The aim is to achieve stable, transparent consultation of the social partners throughout the European Semester procedure.
The October Communication also highlights the importance of labour mobility within the EMU. However, we cannot assume that in today's Europe labour mobility alone can resolve all these imbalances and asymmetries.
Further discussions on the social dimension of the EMU can also expand to issues like automatic stabilisers in the monetary union, including partial pooling of unemployment insurance among the participating countries.
Our aim with the EMU reconstruction, and in particular with the strengthening of the social dimension, must be to restore the Member States’ potential for growth and socio-economic convergence.
European Social Model
Ladies and gentlemen,
The long financial crisis has caused serious damage to our social model, and a large amount of adjustment has taken place as a result.
However, in order to emerge stronger from the crisis, policy action also needs to take a more systematic character and lead to a reconstruction of the European Social Model itself.
Here I would like to highlight which in my view require specific attention in the coming period.
1. National welfare models have to be upgraded towards a greater capacity of social investment.
National welfare states have suffered, particularly after the implementation of fiscal adjustment programs during the debt crisis.
The Social Investment Package of the Commission (February 2013) 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.
The SIP also provides guidance about role of EU financial instruments in boosting social investment, including the European Social Fund and the smaller Programme for Employment and Social Innovation (EaSI).
In discussions about social investment, it is important to stress that the modern welfare state is not just about spending. As Professor Anthony Giddens says it in a recent interview, "it’s a mistake to separate the economic side of the European Union from the social side. A lot of what occurs in a welfare system is relevant to economic productivity. This is true of education, for example, and it’s also true of public health and many other areas."
2. Pension reforms and active ageing policies have to respond effectively to the demographic transformation of Europe.
Europe's population is ageing and our workforce is shrinking. Reforms of social security and a more robust regulation of the financial sector therefore need to deliver adequate, sustainable and safe pensions for all.
The 2012 White Paper on Pensions of the European Commission outlined key actions in this area, including ensuring the portability of occupational pensions.
Continued investment in life-long learning as well as occupational health and safety will boost the employability of the older workers.
More needs to be done for improving the awareness of the younger workers about the importance of long-term savings, and about the risks of inactivity.
Early next year, a Commission conference on pensions will take stock of the progress that has been made since the adoption of the White Paper.
3. The implementation of the EU Youth Guarantee should improve school-to-work transitions significantly.
Labour market reforms in the past years have tended to emphasise flexibility. The Youth Guarantee will help strengthening the security of employment for young people, which also helps to maintain the employability of young people in the longer run, by avoiding losing skills and morale.
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 is not a stand-alone project, but part of a broader agenda. 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.
A major European conference tomorrow in Paris will again highlight the importance of the Youth Guarantee, and express the highest level political support for its implementation.
4. Opportunities offered by the development of a social economy should be better exploited.
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. In some countries these economic activities provide as much as 10 per cent of the GDP.
The development of the social economy, whose actors can pursue economic, social, and often also environmental goals in parallel, requires grass root activities most of all, those cannot prosper without a supportive environment. The regulatory environment has to be supportive, and very often financial support is needed too.
The potential of the ESF 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. An EU conference in January in Strasbourg will bring many social economy stakeholders under a common tent.
5. Mobility in the EU will provide more opportunities but only if we ensure that the benefits are distributed fairly.
The elimination of the barriers, existing social imbalances and greater student mobility will in the future lead towards greater labour mobility.
It has to be ensured that in the process we strengthen the connections between geographical and social mobility, and close the doors for social dumping.
Mobile workers need to be better informed about existing vacancies. Host societies, but also the mobile citizens themselves need to feel more secure about the new conditions.
At this stage, mobile EU workers are net contributors to the public budgets of the host countries, but there is a need for greater transparency and better understanding.
Therefore, in the coming weeks, the Commission will adopt a Communication on the mobility of EU citizens and their families, and their access to social assistance and social security benefits in the host countries.
We are working on a new proposal to upgrade EURES (the EU advisory and information network), and next Spring the Commission will adopt a Labour Mobility Package, covering also revised social security coordination.
Central and Eastern Europe
Ladies and Gentlemen,
At the time of the European elections next year, the Member States in Central and Eastern Europe, including the Baltics, will mark the tenth anniversary of their membership in the European Union.
It will be a time for evaluation but at the same time for setting new priorities as well. I would like to propose some progressive priorities here.
1. The enlargement strategy of the Eurozone has to shift away from the internal devaluation bias and towards inclusive growth.
Fast Eurozone accession has been a success for some smaller economies, but we have to see the social cost of such strategies, and their limited transferability. This applies to the Baltic states in particular.
Some of the conditions that made abrupt fiscal consolidation and internal devaluation possible are specific to the Baltic states and cannot be found in many other Central and Eastern European countries (such as small open economies and a large degree of public acceptance of austerity measures).
In addition, Baltic countries have not escaped unscarred from the crisis. Their population has paid a high price. Long-term unemployment went up, and it will be a big challenge to get these people back into the labour market. Latvia remains the most unequal country in the EU, as measured in income differences.
Baltic countries have also lost a large share of the population to emigration. People left these countries due to lack of jobs, sharply decreased living standards and inability to make mortgage repayments. Many of those that have left and those who are still leaving are the young and educated. These trends can diminish a country’s future economic potential.
2. A general shift towards more human capital investment is necessary.
In the last twenty years, Central and Eastern European countries have received foreign direct investment and created market positions on the basis of relatively cheap labour, depleting the human capital that had been accumulated in pre-transition times. It is time to reinvest in human resources, and the EU support available for this should be appreciated.
Countries like Poland among the new member states are the greatest beneficiaries of EU cohesion policy.
While it is true that Poland needs a better road network and the Baltic nations' prosperity requires better connectivity with the Europe's economic centres, there is also a need for greater allocations to the European Social Fund, and through that towards investment in education, training, modernised public administration, as well as social inclusion measures.
We developed the proposal for the new EU budget, the MFF in order to help Member States achieve smart, sustainable and inclusive growth, and reach their Europe 2020 targets. Maintaining this link between EU level policy and the use of structural funds is of great importance in the CEE region too.
3. Increasing the employment rate needs to be a priority, and strategic importance of gender balance should be understood.
Some of the countries of the region, like Hungary, are among those where the employment rate in the EU has been the lowest. Women's inactivity plays a major role in this.
Since the education level of women is not lower than that of men, female inactivity can also be seen as an economic waste, in addition to being a form of social inequality.
Flexible working arrangements have to develop in order to help the reconciliation of work and family life. Schemes to support female entrepreneurship can be developed too.
There is also a need to fight stereotypes about the role of women in society, and it is important to ensure that women can occupy leading roles in both the economy and politics.
If successful, these efforts can contribute to higher participation rates, greater economic output as well as better fertility rates, in a region where a number of countries have experienced continuous population decline in the past decade.
4. Major efforts should concentrate on Roma integration.
Five countries of the region (Bulgaria, Romania, Hungary, Slovakia and the Czech Republic) are home of about 90 per cent of the EU's Roma population.
In four countries, the share of the Roma in the total population is between 6 and 10 per cent, and in some micro-regions the Roma children make up as much as half of the primary school entrants.
Still, unemployment among the Roma is very high, their life expectancy is much shorter, their education level is lower, and the housing conditions of many is sub-standard. All this is linked to open or covert forms of discrimination and prejudice.
The five countries have also received country specific recommendations from the European Commission in order to make progress with their national Roma integration strategies. However, it is important to ensure that this aspect appears in all major policy frameworks for the same country group.
5. Social dialogue in CEE countries must be strengthened.
Our recent Industrial Relations in Europe report (published in April 2013) charts relations between employers, workers, their representatives, and governments across Europe.
It shows that, while there is great diversity between the Central and Eastern European countries, industrial relations institutions there are generally weak and fragmented.
While some 70% of workers in the 15 older Member States are covered by negotiated agreements at the workplace, the figure for Central and Eastern Europe is only 44%.
Trade union membership is lower in the Central and Eastern European countries, and employers in the CEE region who are members of employers' organisations are also very much less numerous.
The implications are clear: where companies or workers are less organised, they cannot support their interests jointly or make themselves heard effectively.
Some reforms under way are undermining the consensus needed for effective social-partner involvement in adaptation to change.
There is a need to reinvigorate national industrial relations systems in most CEE countries. The social partners’ capacity and structural position needs strengthening. Only thereafter can social dialogue produce sustainable results.
Ladies and Gentlemen,
Two decades ago, in the early phase of the Central and Eastern European transition, but also ten years ago, at the time of EU accession, the hopes and ambitions of economic and social development were key drivers of political change.
Retaining or regaining the potential for upward convergence, or in other words, to be able to catch-up with more developed countries and regions is again a critical question, now with an additional dilemma regarding the monetary union.
Creating a political consensus around a new EU architecture is not supposed to be easy. Finding the right strategy in that context for the Eastern periphery is perhaps even more complex, but this is just the right time for such debates.
We are in a make-or-break period for the reform of the EMU and also for the future of Social Europe. Some of the discussions are extremely complex, also due to a high level of technicality.
However, it is important to remain focused on the principles enshrined in the Treaty, in particular:
This conference can help finding the right answers to the critical questions of this time, while remaining true to the principles of the Treaty.