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Commissioner for Employment, Social Affairs and Inclusion
Tackling poverty and inequality in the EU: the way forward
Conference "The Europe 2020 poverty target: lessons learnt and the way forward"
Brussels, 9 October 2014
Ladies and gentlemen, Honourable Ministers,
We have listened to you today with great interest. Today's discussions have not only helped us locate where we are on the Europe 2020 objective to reduce poverty, but has also given us a better understanding of why we are where we are, and what needs to be done to better deliver on our commitment to improve social outcomes.
Where are we?
124 million people at risk of poverty or social exclusion in the EU is a record-high number since the EU exists. And there were 7,8 million less than four years ago. This trend triggers the question whether Europe is still a model for prosperity and welfare for the rest of the world?
For some, poverty is something terrible that happens to others. But for all those 124 million of people in poverty, life is a daily struggle: to put a hot meal on the table or to find a warm shelter for the night. For many others it is a trade-off between two necessities: buying the medicines the doctor prescribed or paying the rent.
For all of these citizens, poverty is a daily struggle for dignity.
I therefore welcome the intention of the new President elect of the Commission to evaluate any policy proposals from the Commission against the standards of our Charter of fundamental rights which protects the right to dignity.
But poverty is also bad for the economy. Rising inequality and poverty generate income polarisation which depresses aggregate demand.
Poverty harms social cohesion and growth because it is a waste of human potential, a strain on the public purse, and it means the EU economy does not function as well as it could. One example: the UK Social Mobility and Child Poverty Commission calculated that child poverty alone costs the UK £29bn a year.
This figure combines the direct cost to the state in extra spending on benefits and lost tax revenue, the extra spending on services to deal with the consequences of child poverty, and the lost earnings to individuals.
It must also be mentioned that there are strong and growing divergences between Member States in terms of the social situation, as well as the various policies in place that impact on social outcomes.
This should remind us that the poverty divide is a threat to the economic performance of the Economic and Monetary Union because no Union can function if its members drift apart. This is why the Commission and Member States agreed on a scoreboard of key employment and social indicators capable of tracking the social and employment divergences and helping to calibrate the policy response.
Why are we where we are?
This has been highlighted by many speakers today: for many Europeans the state of our economy and living standards is a source of concern that rises above all others.
The impact of the recession is real and it is widely felt. More than 6 million jobs have been lost in the EU since 2008 and material deprivation has increased substantially in the hardest hit countries, especially among the young. The rising in-work poverty abates the attractiveness of work as a main source of income for workers and their families. Child poverty increased significantly in 19 MS lowering the ability of 26 million poor children to benefit fully from their childhood and education.
Yet, some believe that the crisis and the austerity policies did not increase poverty and social exclusion. That these outcomes are attributable mainly to the lack of structural reforms and ineffective safety nets.
Of course some of this is true: those of our Member States who have made commendable structural welfare reforms managed to better weather the crisis and the effects it had on people.
What is equally true though is that the unemployment and in particular the long-term unemployment is the most powerful driver of poverty and social exclusion. And there is no doubt that the crisis and the internal devaluation applied in many Member States without prior social impact assessments provoked a deep and long economic contraction that led to the closing of factories, the reduction of wages and welfare programs as a way of adjustment to the falling national income.
No social welfare system in the world can cope with such pressure and for such a long period of time. Yet, poverty should not become a tolerated collateral consequence of fiscal adjustments.
There is a common belief that growth and employment are the best cure against poverty and therefore all policies conducive to growth should be pursued, whatever it takes.
There is some truth in the first part of this statement and none in the second. Of course increasing the work intensity of households will lift many of them above the poverty line.
Yet, two remarks of caution:
As usual, things are more nuanced and complicated. I will try to dig into the issue in order to reach two other factors – among others of course - which explain why we are where we are.
The first one is the role of inequality and the second relates to the role of social protection.
Let's discuss inequalities first.
In some of our Member States the total equivalised income of the richest 20% of the population is more than 6 times that of the poorest 20%.
Over the last couple of years citizens got used to reading in newspapers about the rising shares of corporate profits in national income. Of course business needs to grow and shareholders have legitimate expectations to receive a higher return on their investments. But so do workers regarding their wages, which contrary to profits, fell in many parts of the EU.
How does this relate to the poverty increases ?
The stagnation of the real value of wages and their decoupling from the growth in productivity holds up the social upward mobility of workers and drives forward inequalities.
In an economy which contracts, the more income grows at the top, the less it is available for the lower and middle classes. When inequalities between the top and the bottom ends of the income ladder grow, this creates more poor people in the process.
But we have to acknowledge that the EU scores better in terms of inequalities compared to other parts of the world.
We must therefore continue using our taxation and welfare policies with greater emphasis on social investment than in the past to reduce inequalities created by the labour and assets markets.
This brings me to the role of social protection.
Europeans value social security because it protects them against economic hazards. And they are right: without social protection nearly half of all Europeans would be living in poverty. Yet, the three key functions of welfare policies – investment, automatic stabilisation and protection - were weakened due to the fiscal constraints and protracted recession.
Social protection is a powerful economic instrument capable of smoothing the impact of economic shocks on people and of distributing them more equally across income groups, generations and time.
But I want to stress that our social protection systems need to be fiscally sustainable. We should not make future generations pay for our welfare. At the same time it is a matter of fact that the crisis did not arise because of overblown welfare systems: it originated in deregulated financial markets and bankers running amok.
This also means that in addition to making our social model sustainable, we have to reform our business model as well.
What needs to be done?
1. On the target
Ladies and gentlemen,
The poverty target is part of the socio-economic model the EU should pursue.
Thanks to the target, the question is no longer: 'do we need to cater for the social dimension of the EMU' but indeed the question has shifted to : 'Are the instruments and the funds we have enough to do the job?'
The target facilitated the introduction in the ESF of a minimum share for funding of social inclusion actions for the period 2014-2020. In 2010, few would have thought that could have been possible.
I would like to warn against easy solutions for reforming the target. Despite the impact of the crisis, any downward revision of the EU level targets or of national targets would send out an unfortunate message of reduced ambition.
While the co-existence of three indicators that measure the poverty reduction progress is not the best solution, it is the politically accepted compromise today. The target - with its three indicators - delivered what it was meant to do: shed light on the quality of our economic, taxation and social policies. It is not the target and the indicators that will reduce poverty and inequalities. It is the policies and the actions that will deliver on this.
The target therefore must remain a pillar in the strategy but a ‘seismic shift’ is required in the ambition levels of Member States – it is a fact that the sum of the 28 individual commitments to reduce poverty do not match the common EU ambition to see 20 million less poor people in the EU as a whole by 2020.
If poverty decreases elsewhere in the world from Latin America to Africa, Europe cannot and must not lag behind.
2. On our policies
Our economic policies need to be fiscally sound, poverty-reduction friendly and deliver growth and jobs through more investments. They need to more accurately take into account the effects they produce on people and societies. Discussions on poverty reduction in the EU should also permeate the meeting rooms of EU Finance Ministers.
Our policy mix needs to be more inclusive and be guided by the Treaty objectives related to social progress. This calls for an integrated and coherent approach between all policy areas - social, employment and economic policies- as well as a closer cooperation between all levels of government, social partners and civil society.
We should not focus too heavily on any single policy in isolation but put in place a comprehensive strategy to avoid that the EU becomes poverty-generating, low-skills, low productivity and a low-wage economy.
Our welfare policies need to be effective and promote social investment approaches that enable everyone to work and participate in society. In our Social Investment Package we emphasized the importance of sound social investments across the life-cycle.
But policy advice and commitments need to be accompanied with a road-map for poverty reduction at the EU level. We have started doing this with the country-specific recommendations which pay more and more attention to the issues of poverty reduction.
The outgoing Commission launched a public consultation on the review of Europe 2020. This will enable the next Commission to base its work on our discussions today. I want to thank each and every person in this room for being here today and contributing to the debate.
At the same time I want to call on each and every decision-maker in this room and beyond to spare no effort in the fight against poverty and social exclusion. If poverty declines worldwide, there is no reason why it should be increasing in the EU.