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European Commission

László ANDOR

European Commissioner responsible for Employment, Social Affairs and Inclusion

A Social Maastricht – a stronger social base for a more competitive EMU

Lecture at Maastricht University/Maastricht, 26 November 2013

Good morning, Ladies and Gentlemen,

It is a great pleasure for me to join Professor Ritzen in today's Ambassador's lecture.

'Could you be part of the lost generation?' This is how this lecture has been announced. I tend to conclude that you feel this might be the case.

We are indeed faced with a dramatic employment and social situation in Europe.

More than 5.5 million people under the age of 25 are unemployed in Europe today.

Even worse, over 14 million people under the age of 29 are neither in employment nor education nor training. This is like the population of Denmark and Austria combined.

Some parts of Europe notably in the South really resemble an economic desert nowadays, at least in terms of youth opportunities. But also in better off countries such as the Netherlands, we see that in some neighbourhoods of the big cities youth unemployment is well above 50%. This is unsustainable.

Our economies today are not generating enough opportunities for people to find work or start a business, and many youngsters end up emigrating.

A lot of this has to do with Europe’s macroeconomic framework, notably an incomplete monetary union, where troubled countries cannot adjust monetary policy and have a very limited fiscal space. I will come back to that.

But to launch a process of economic reconstruction, it is of course not enough to agree on better rules. We need to act now for the young people that become available for the labour market today.

The step from education to the labour market is a crucial one, and success or failure at this stage of life has a big impact on a person’s whole career.

Therefore the European Union has recently agreed on a comprehensive scheme called the Youth Guarantee.

Under this scheme, business, social partners and public institutions are asked to work together to ensure that everyone under 25 gets a quality offer of a job, continuous education, apprenticeship or traineeship within four months of leaving school or becoming unemployed.

The scheme was agreed in April and governments are now drawing up implementation plans that should be ready by the end of the year.

We are talking about quite radical and structural changes in the way public institutions and business work together.

Making the Youth Guarantee happen also requires a serious public investment from national resources supported by European funding such as the European Social Fund. This is not an easy message in times when finance ministers struggle to consolidate budgets and convince financial markets that all debt will be repaid.

But if we do not ensure that our young people get a job or remain fit for the labour market, the costs will be much higher later on.

Economic production is based on capital and labour. In the 21st century, this means highly skilled labour. But unfortunately, we are in the process of losing the skills, employability and therefore the productive potential of a big part of your generation.

We are incurring this real economic loss while our overall workforce is ageing and shrinking and while we would in fact need to maximize both the employment rate and boost productivity growth in order to maintain GDP growth and continue to improve living conditions.

Individual young people suffer from fewer opportunities in life and the whole society will lose out. But not only in economic terms: Lack of support to our young generations also risks undermining the democratic functioning of our societies and Europe as a whole. Youth unemployment is not connected from the big picture which is the crisis in the euro zone.

This brings me back to the more systemic issues that Europe is confronted with.

Ladies and gentlemen,

The biggest challenge Europe faces today is to tackle the growing divergence in the economic, employment and social situations – and recovery prospects – across Member States, especially in the euro zone.

In the monetary union – and especially its third stage, i.e. currency union – countries affected by an economic shock cannot unilaterally devalue or inflate debt away, and national fiscal policy is heavily constrained by the jointly agreed rules. Currency union membership has huge advantages, but it also removes important adjustment mechanisms from the governments' hands.

The original design of the EMU, finalised 20 years ago here in Maastricht, has been shown to suffer from serious flaws. The absence of a lender of last resort and central fiscal capacity for the currency union are the main ones.

The fact that economic adjustment in today's EMU operates mainly through the labour market means that unemployment and social crises risk developing to a greater extent within a currency union than outside, unless they are anticipated and addressed by the currency union on a collective basis. This is why the Maastricht design of the EMU is considered by many critics not to be very 'social'.

Moreover, employment and social crises in individual countries have negative economic impact on the EMU as a whole. The theory of "spill-over effects" of fiscal measures and structural reforms is rather well-known. It points to the fact that situations or actions might generate some effects beyond national borders.

It is quite clear that not only action, but also lack of action can have spill-over effects. For example, high youth unemployment in Spain and Greece is certainly bad for The Netherlands. Young unemployed people do not earn and spend, which affects the internal demand also in other countries; and their loss of skills is aggravating the differences in competitiveness across Europe.

The Commission has been a strong and consistent advocate of addressing the social aspects of the on-going economic crisis and has promoted the idea of socio-economic convergence throughout these years.

In 2010, we put forward the Europe 2020 Strategy which treats inclusive growth, increase in employment and reduction in poverty as essential elements of a smart and sustainable economic model.

When it comes to the Multiannual Financial Framework for 2014-20, the Commission’s proposals closely reflected the Europe 2020 Strategy and we have been fighting for a strong social dimension of the EU budget. I am glad the European Parliament has gone a long way in supporting us with their final agreement last week on this package.

We will have in the coming years a strong and modernised European Social Fund, but also a continuation of the European Globalisation Adjustment Fund and a new Fund for European Aid to the Most Deprived, which provides emergency assistance to those in greatest need.

All these instruments represent collective action at the EU level and they are based on transnational fiscal transfers that are in the enlightened self-interest of all the Member States of the Single Market.

In the European Semester process, employment and social policy-makers have been involved alongside those responsible for budgets and for the balance of payments.

Most recently, the Commission adopted a Communication on the social dimension of the Economic and Monetary Union. We will analyse and address key employment and social challenges in the EMU systematically, and involve social partners more closely in economic policy-making.

This brings a 'more social' Maastricht a step closer, but what is required is a credible macroeconomic framework that would finally give economic players confidence that all EMU countries will actually return to growth and that they all have an acceptable future inside the monetary union.

Without such a long-term prospect, household demand will keep falling and companies will continue to be afraid or unable to invest in the periphery.

To the extent that the divergence between the core and periphery of the euro zone has become structural over the past five years, we need structural solutions to overcome it, such as a banking union, re-industrialisation and resolution of unsustainable debts.

Moreover, and this has been known for a long time – and directly tested in Europe already in the 1970s and early 1990s –sustainable and well-performing monetary cooperation requires solidarity between the participating countries and that this means fiscal transfers in one form or another.

Automatic stabilisers at the transnational level could be an instrument that could help our monetary union deal with future economic crises in a way that minimises output loss and social hardship.

They could play an important role in preventing a short-term asymmetric shock from unleashing longer-term divergence within the monetary union – something which we have not achieved in the past five years.

To put it simply, automatic fiscal stabilisers at the EMU level could make it a lot cheaper to deal with future economic crises because action would be taken quickly, based on pre-agreed parameters.

This would make the monetary union more resilient to future shocks.

This is also why the Commission has clearly envisaged in our blueprint, which we adopted exactly one year ago, that an EMU fiscal capacity with a shock absorption function needs to be considered as part of the long-term design of the monetary union.

Our technical work in this area will continue and the political momentum for such reforms will hopefully also become more favourable as the discussion continues.

Ladies and gentlemen,

The communication on the social dimension of the EMU also highlights the importance of labour mobility. In the EU free movement is a fundamental right of citizens and labour mobility is an asset for the economy. Labour mobility alone will not resolve the great balance in the Eurozone but it is definitely part of the solution. Despite the fact that research institutes and also the OECD give strong evidence on the economic benefits for the individual and society of the free movement of workers, some start to put into question this fundamental right.

If there are abuses or a race to the bottom in working conditions we need to act, of course. But closing down our borders again will definitely not be the solution.

The Commission is working on a number of initiatives that will improve the functioning of a genuine European labour market with better quality of work and better quality of life. We will further help modernising EURES, the network of public employment services and the new generation of ERASMUS will continue to prepare our young people for working abroad or in a European context.

Ladies and gentlemen,

Let me, in closing, come back to the original question. Are you part of a lost generation? Not necessarily! But only if economic recovery picks up and we take bold measures such as the youth guarantee and redesign the Economic and Monetary Union to promote more convergence and equity.

Looking at the names on Facebook of those registered for this lecture, European integration and the possibilities to freely move in Europe are part of your daily reality. We should not forget how much we have achieved and continue building a better Europe for all.

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