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Speech: The Europe 2020 Strategy beyond the crisis

Commission Européenne - SPEECH/14/263   31/03/2014

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European Commission

Check Against Delivery

László ANDOR

European Commissioner responsible for Employment, Social Affairs and Inclusion

The Europe 2020 Strategy beyond the crisis

Conference in the Think Tank CIVISMO

Pamplona , 31 March 2014

Ladies and gentlemen,

I am very pleased to be here today and share my views with you on the main employment and social developments in the European Union in the light of the Europe 2020 Strategy.

Europe 2020 reminder

As you know, Europe 2020 is the European Union’s ten-year strategy for social and economic development that was launched in 2010.

From the outset, this Strategy has aimed at more than just overcoming the economic crisis. Its ambition was to address the shortcomings of our growth model and to show how we should confront key longer-term challenges such as natural resource constraints, climate change, demographic and technological change, and globalization.

In short, the Europe 2020 Strategy was designed to provide a basis for policies that would help create conditions for a smart, sustainable and inclusive growth.

The Europe 2020 strategy was designed both to coordinate Member States' socio-economic policies and to promote socio-economic convergence within the EU as a whole.

To this end, the Strategy established five headline targets at the EU level, which Member States then reflected in their national targets.

You can see from these five headline targets that the economic model articulated in the Europe 2020 strategy goes decisively "beyond GDP" and contains strong environmental and social dimensions.

The objectives of smart, sustainable and inclusive growth have also been supported by seven ‘flagship initiatives’ launched in 2010.

These flagship initiatives provide a framework and a list of actions. Through them the EU and national authorities would mutually reinforce their efforts in the areas of innovation, the digital economy, employment, youth, industrial policy, poverty reduction, and resource efficiency.

The Europe 2020 strategy is implemented and monitored in the context of the European Semester, the yearly cycle of coordination of economic and budgetary policies.

Every autumn the Commission puts forward the Annual Growth Survey, setting out the main EU-level policy priorities for the year ahead. These orientations are then discussed with the Parliament and agreed with the Council and European Council. Each spring, Member States base their National Reform Programmes on the Europe 2020 Strategy and the annual priorities. The Commission then proposes in late May or early June a set of country-specific recommendations which are discussed and collectively adopted in the Council and endorsed in the European Council.

Europe 2020 as the basis for the new EU budget

Besides shaping EU employment and social policies, Europe 2020 has also served as strategic reference for the use of EU funding for the 2007-2013 period, with a number of changes to the funding programmes having been introduced in response to the crisis.

Moreover, Europe 2020 has been the framework for the design of EU funds' priorities for 2014-2020. This means that EU-level and national funding priorities for the next 7 years must be fully aligned with Europe 2020 objectives. In practice, this also means that the annual country-specific recommendations are backed by funding.

I am pleased to say today that the Commission has succeeded in ensuring a strong social dimension in the new EU budget. In particular, the European Social Fund will dispose of more than €80 billion in current prices to invest in employment, education, social inclusion and modernisation of public administration.

Ladies and Gentlemen,

As we approach the middle of the decade, it is important to seriously reflect on how the Strategy and the associated policy coordination process have performed so far.

Therefore the Commission published on 5 March a Communication taking stock of the Europe 2020 strategy and the EU's performance vis-à-vis the targets.

The Council and European Council have had first discussions on this basis, launching a review of the Europe 2020 strategy that will continue throughout this year and will be completed only after the new European Commission has taken office.

It is very important that the mid-term review of Europe 2020 coincides with the institutional transition at the EU level. The conclusions which the new European Parliament and new European Commission will draw from the mid-term review will most likely constitute the basis for their policy initiatives during the first years in office.

The review will therefore take quite some time, and it will be a broad and inclusive process.

In the coming weeks, the Commission will invite all Member States and relevant stakeholders to contribute to a public consultation which will focus on two aspects: first, drawing lessons from the first years of implementation of the Europe 2020 strategy; and second, providing input to shape the EU's post-crisis strategy.

Following the public consultation, the Commission will present its proposals for the review of the Strategy in early 2015.

That's why our discussion today should already take place in the spirit of the mid-term assessment of the Strategy.

Progress towards Europe 2020 targets

So, where are we today with the implementation of Europe 2020?

Overall, progress in reaching Europe 2020 targets has been unsatisfactory. Obviously, this is for a large part due to the fact that the economic crisis has lasted much longer than expected back in 2010 and has made reaching the Europe 2020 targets more difficult.

The employment rate headline target (75% by 2020 for the 20-64 years of age group) will be extremely difficult to achieve.

In 2010, the employment rate was 68.5% and it went down to 68.4% in 2012. The distance to the EU target is therefore about 6.6 percentage points – in other words, around an extra 16 million people would need to be employed for the target to be met.

Seen from a longer-term perspective, it is obvious that the increases in the employment observed in the middle of the last decade were interrupted and reversed by the deep and protracted economic crisis.

The employment rate for the 20-64 age group, in the 28 countries of today's EU was 66.6% in 2002, 70.3% in 2008 and – as already mentioned – fell to 68.4% in 2012.

This is a very bad development, also if we consider Europe’s demography: our workforce is ageing and shrinking, meaning that we need to have a progressively larger part of the workforce in employment in order to maintain economic growth. Unfortunately, we instead have rising numbers of unemployed and inactive people.

This slide behind me shows the divergence in reaching the employment targets by Member States.

Employment rates in the EU have continued to fall last year, except for older workers.

But job losses have not been evenly distributed and low skilled people, third-country nationals and temporary contract job holders have been most affected.

Segmentation in the labour market remains an acute problem, as shown by low transition rates from less to more protected forms of work and gender gaps in pay, employment and hours worked.

The next slide shows the unemployment rates in the member States. As of January 2014, the number of unemployed people in the EU has been around 26.2 million which is 10.8% of the workforce.

Unemployment grew rapidly in 2008-9 and then again from mid-2011 till mid-2013 as a consequence of the second dip of the recession in Europe. Since the middle of last year, it has stopped rising, but it is not yet falling.

At the same time, divergence among EU labour markets is increasing. The gap between the lowest and highest unemployment rates, respectively in Austria (5%) and Greece (26.7%), is now well above 20 percentage points.

Here in Spain, unemployment has recently stabilised at the very high level of approximately 26%.

But that figure conceals large regional differences. For instance, with 18% unemployment, Navarra is doing relatively better than most other Spanish regions.

Figures for Spain published in February are slightly encouraging. They show that 60 000 more people were in employment than a year ago.

Long-term unemployment in the EU28 started to decline in 2005, and was on the downward trend till 2008. However, after the crisis hit and unemployment started to surge in 2008, the long-term rate started to increase in 2009.

As I already mentioned, Europe’s labour markets finally showed signs of stabilisation in 2013. However, while inflows to unemployment seem to have come to a halt, outflows from unemployment stagnated as hiring activities of firms are subdued.

Consequently, long-term unemployment continued to head up in 2013. Due to the prolonged crisis it now affects 5% of the active population (labour force) in the EU. In other words, again 45% of the unemployed have been unemployed for more than a year.

Similarly to long-term unemployment, youth unemployment has been a major concern in recent years.

The labour market started to improve for young people in 2005-2007, in terms of lowering unemployment. But since then young people have been hit hard by the crisis.

Monthly developments in 2013 and in January 2014 indicate stabilisation in youth unemployment. Still, youth unemployment, with the rate at 23.4% in January 2014, affects 2.5 million young women and 3.1 million young men aged 15-24.

However, youth unemployment affects EU countries very unevenly. Youth unemployment rates range from 7.5% in Germany to almost 60% in Greece and 56% in Spain. And differences between regions may be even wider than between the Member States.

High and long-lasting unemployment coupled with the impact of fiscal consolidation makes the fight against poverty extremely difficult, if not impossible.

The Europe 2020 poverty reduction target states that by 2020 there should be at least 20 million fewer people in or at risk of poverty and social exclusion in the EU compared to 2008.

However, as of 2012, there were 6.6 million more people at risk of poverty or social exclusion than in 2008 and estimates show that poverty has risen even further in 2013.

This means that in order to reach the target by 2020, we now need to reduce the number of people at risk of poverty or social exclusion by at least 26.6 million.

This deterioration is certainly due to the crisis, but a stronger commitment from Member States is needed as well. The targets set at national level are not sufficiently ambitious to cumulatively reach the EU-level ambition.

Moreover, our analyses show that in a number of Member States, recent fiscal policy reforms have had a regressive impact, with lower-income groups hit relatively more than others. e.g. Greece in 2010-12; Spain and UK more recently – details in Employment and Social Situation Quarterly Reviews for 2Q 2013 and 1Q 2014

On the other hand, some progress has been made on the education targets. The EU average for early school leavers decreased from 14.2% in 2009 to 12.7% in 2012, while the participation in tertiary education rose from 32.1% in 2009 to 35.7% in 2012.

The Commission's response in employment and social policies

Over the past four years, as the economic crisis evolved, we have put forward a number of – I would say – increasingly forceful employment and social policy initiatives, in order to sustain the ambition of the Europe 2020 strategy.

So what has been the policy response at the EU level, and in particular from the European Commission, to the negative developments?

The 2010 flagship initiative Agenda for New Skills and Jobs was followed in 2012 by an Employment Package and a Youth Employment Package.

With the Employment Package, we have to some extent moved away from the traditional supply-side approach to employment policies, which focused on skills and activation of the workforce.

We have put greater emphasis on measures stimulating the demand for labour, such as lowering taxation and social security contributions on the low-paid, or using targeted hiring subsidies to a greater extent.

The point is that in a downturn, every job saved or new job created pays off in terms of preserved household demand and workforce productivity. Therefore our explicit aim has been to put in place adequate employment policy measures to ensure a job-rich recovery.

In addition, we have developed practical tools to build a genuine European labour market and reinforce the cooperation of public employment services.

At the end of 2012 we proposed a Youth Guarantee as a framework to focus Member States' efforts on the fight against youth unemployment. The policy was adopted with record speed in spring 2013 and endowed with a specific financial instrument, the € 6bn Youth Employment Initiative, with much larger additional resources available in the European Social Fund.

Following the Commission’s proposal, the Member States have committed themselves to giving young people a guarantee of a good-quality offer of employment, a traineeship, an apprenticeship, or the chance to continue their training or education within four months of becoming unemployed or leaving the education system.

Spain is the largest recipient under the Youth Employment Initiative — receiving €943 million in current prices.

Combined with matching support from the European Social Fund, Spain will have at least €1 887 million from the EU budget to spend on the Youth Guarantee.

This should go a long way towards helping this country to tackle its high youth unemployment and mitigate the serious scarring effect which youth unemployment or inactivity have on a person's lifetime prospects.

On the social policy side, building on the European Platform against Poverty and Social Exclusion, the Commission presented a White Paper on Pensions and a Social Investment Package.

The White Paper sets out policy orientations and many supportive measures for the modernisation of pension systems so that they are adequate, sustainable and safe over the long term. It shows ways of balancing time spent at work and on retirement, closing gender gaps, and developing safe and well-performing schemes for complementary retirement savings.

The February 2013 Social Investment Package shows ways in which Member States can use their social budgets more efficiently and effectively in supporting people's ability to actively participate in the economy and society. It advocates investment in quality public services able to support people over their life cycle, starting with better tackling child poverty.

Such social investment helps avoid much higher costs in the future for the individual and society as a whole. The Package also shows how to best use EU funds to support social policy reform and social innovation.

Growing socio-economic divergence

Ladies and Gentlemen,

If we look behind the headline figures on employment and social targets from the crisis years, a key trend to observe is a widening gap between EU Member States.

This divergence is most visible particularly as regards the overall unemployment rates, youth unemployment rates, and the number of young people not in employment, education or training.

But as the next two slides show, there is also significant divergence within the euro area as regards household incomes and inequalities.

Disposable household incomes – and with them overall domestic demand – have been falling in the south and 'periphery' of the euro area, while they have remained relatively stable in the 'core'.

This means that governments have been less and less able to stabilise this situation through fiscal policies.

A similar picture can be observed in terms of income inequalities: virtually no improvement in the 'core' and notable worsening in the 'periphery'.

In addition, poverty rates have also grown in the euro zone 'periphery' while they remained steady in the 'core'.

Strengthening the social dimension of the EMU

Having seen the evidence about divergence, imbalances and asymmetries in the EMU, the Commission in October 2013 adopted a Communication in order to strengthen the social dimension of the Economic and Monetary Union.

We have made it clear that in a monetary union where Member States no longer dispose of tools such as the exchange rate or independent monetary policy, and where their fiscal policies are heavily constrained by the jointly agreed rules, it is important to coordinate more closely employment and social policies.

In particular, it is in the interest of the whole monetary union that major employment and social challenges in any part of the EMU are detected and addressed in a timely and effective manner.

In practice, this means paying greater attention to employment and social developments at the European level through the European Semester process.

To this end, we have introduced a scoreboard of five key employment and social indicators relevant for the well-functioning of the monetary union:

  • overall unemployment;

  • youth unemployment and numbers of young people not in employment, education or training;

  • real change in gross disposable income of households;

  • the percentage of the working-age population at risk of poverty; and

  • income inequality

This scoreboard was published for the first time in November and clearly shows how persistent socio-economic divergences have built up across Member States, particularly within the euro area, over the recent years. It also makes it clearer where the main employment and social problems lie.

It has been widely understood that the employment and social situation in Southern Europe is one of an acute and deep crisis. But even more resilient Member States have been affected by spill-overs of this employment and social crisis, through reduced aggregate demand and eroded confidence.

We are now working together with Member States to ensure that the scoreboard feeds into the current economic governance system, notably into the process of multilateral surveillance as well as in the formulation of country-specific recommendations.

Strengthening social dialogue

Another important aspect of strengthening the social dimension of the monetary union, and the EU as a whole, is to strengthen – or in some cases rebuild – dialogue between employers and trade unions.

Adequate involvement and participation of the social partners in EU policy debates and decision-making processes is important for designing the right economic policies, and the same applies at national level.

The Commission believes that existing processes of consultation of social partners at the European level (Tripartite Social Summit, Social Dialogue Committee, Macroeconomic Dialogue and Dialogue with the Employment and Social Protection Committees) can be better used and that many improvements are needed in social dialogue at national level, especially in Central-Eastern Europe and in the so-called 'programme countries'.

Strengthening social dialogue is important not only to increase the ownership of policies, but also to enhance the effectiveness of policy coordination at both national and euro area level.

Facilitating labour mobility and preventing new barriers

The deepening of the Economic and Monetary Union also requires a more fully integrated labour market. But enhanced mobility of workers is important within the EU as a whole if the Single Market is to function efficiently.

Greater labour mobility within and across countries can improve the existing mismatches between people's skills and the needs of employers. This can lead to higher employment as well as higher productivity.

Moreover, freedom of movement of workers and citizens are fundamental rights in the EU. It is therefore very important to defend free movement against chauvinist instincts.

We cannot achieve economic recovery and a better social situation by dismantling the

Single Market and depriving people of rights and opportunities.

The Commission has taken a number of actions to support labour mobility, including by strengthening the EURES system which helps jobseekers to find work abroad and companies to recruit from abroad. The legislators have also recently agreed on an enforcement Directive on the exercise of the free movement of workers, which will help ensure that mobile workers are better informed of their rights and have means of achieving redress in cases where they face discrimination. Last but not least, we are also trying to strengthen cooperation between Public Employment Services across Europe, to improve their functioning and interconnectedness.

Cross-country automatic fiscal stabilisers

The last element of the Commission's policy response which I would like to mention today is the technical work undertaken on developing options for automatic fiscal stabilisation schemes that could operate at the level of the Economic and Monetary Union.

One such possible scheme would be to introduce basic European unemployment insurance and a corresponding basic European unemployment benefit.

The idea is that countries – or individual employed workers – would pool the financial risk associated with short-term unemployment, which is a very good indicator of a cyclical downturn.

The purpose would be to help the EMU absorb asymmetric economic shocks in a way that domestic demand and employment are to some extent maintained.

The scheme would of course need to be well-designed, to avoid long-lasting transfers between countries always in the same direction, but there is a growing body of literature showing that this would be possible.

If agreed, such a European automatic stabiliser would represent a mechanism of solidarity between countries and workers that delivers economic benefits for everyone, and also makes Europe politically stronger.

Conclusions

Ladies and Gentlemen,

I have described how Europe is underperforming on its employment and social targets for 2020 and what measures the EU has put into place or is working on against this background.

Now, the question is what conclusions should we draw from the EU's overall bad performance on the Europe 2020 targets so far?

Do we need to rethink the Strategy and its targets as such? Or do we need to think mainly about what policy actions should have been undertaken (or not undertaken), and what we need to do more, less or better in the coming years?

In my view, the disappointing lack of progress on the Europe 2020 headline targets is not a reason to put into question their role and relevance as part of the Strategy. Simply put, it is not the Europe 2020 Strategy that is to blame.

But it is clear that the Eurozone crisis made Europe much more divided than before.

Persistent financial fragmentation deepens economic asymmetries, those lead to polarisation in terms of the employment and social situation, and this divides the EU politically too.

The key point is that we cannot reverse this dynamic with employment or social policy instruments, even if their efficiency can be improved in most cases – as we have tried to achieve with the policy packages I have mentioned.

Reversing the on-going socio-economic divergence in Europe is a question of finance and macroeconomic policy, and the solutions have to be found in the financial and monetary mechanism.

This means improving macroeconomic policy at the EMU level – both in terms of monetary policy and in terms of the EMU's aggregate fiscal stance.

Improved macroeconomic policy should also involve introducing fiscal transfers at the level of the EMU.

It should be clear by now that the reason why the debt crisis has been lasting so long is the absence of a lender of last resort in the EMU or at least of a proper financial settlement mechanism able to resolve the overhang of bad debt.

Due to the shortcomings in the EMU's design, and with fiscal policies heavily constrained, the macroeconomic adjustment process took a form which has an extremely high social cost and should not be acceptable in the EU in my view.

Therefore my conclusion is that lack of progress on Europe 2020 targets should prompt EU leaders not to water down or abandon the Strategy as such, but to step up the policy response. The review of Europe 2020 should be connected with the reconstruction of the EMU.

We need to create new instruments to restore chances for the targets to be reached, even if they would be reached with delay.

More specifically, serious reform of the Economic and Monetary Union is in my view a precondition for a sustained recovery and for the workability of the Europe 2020 Strategy.

The European Parliament and Council have been working hard over the past months to find an agreement on the basic elements of a banking union, notably a single resolution mechanism for systemically important banks.

This must remain a priority, so that we overcome the current uncertainty and fragmentation on Europe's financial markets and the resulting lack of investment in the real economy.

But banking union should not be the last element of a new EMU architecture. To ensure a good performance of the EMU in terms of GDP growth and key employment and social indicators, it is crucial to put in place an automatic fiscal stabilisation scheme operating at the EMU level.

This would enable the EMU to absorb asymmetrically distributed cyclical shocks without obliging the affected countries to go through austerity and internal devaluation and thereby undermining aggregate demand in the whole monetary union, with devastating social consequences.

I hope you find this analysis and these conclusions inspiring, and I look forward to our discussion.

Thank you for your attention.


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