Investing for a job-rich recovery in Europe

László ANDOR — European Commissioner responsible for Employment, Social Affairs and Inclusion

University of Edinburgh / Edinburgh, 12-11-2012 — /europawire.eu/ — Ladies and gentlemen,

Thank you for the invitation to the Edinburgh University. I am very pleased to have been given the opportunity to address you on a subject of great importance and timeliness: investing for a job-rich recovery in Europe.

The macro-economic situation in Europe continues to be extremely challenging.

A number of Member States are in a double-dip recession and labour markets are in a crisis not seen in the EU for at least two decades.

What is more, the outlook is not getting better. The European Commission’s Autumn forecast, presented on Wednesday, projects GDP growth in 2013 to be only 0.4% in the EU27 and 0.1% in the Euro area. Employment in the EU27 is projected to fall by -0.8% this year and by another -0.5% next year.

Europe was experiencing a mild recovery in 2010 and early 2011, but for more than a year now, growth has been zero or negative, and unemployment in the EU27 has risen from some 23 million in mid-2011 to nearly 26 million at present, and it is projected to rise still further during next year.

The number of long-term unemployed has also increased since last year and reached 10.7 million, which accounts for 4.5 % of the active population.

And a particularly alarming aspect of joblessness in Europe is youth unemployment which stands at a historical high of 22.8 % as of September 2012.

It is becoming increasingly obvious that growth will not pick up in the absence of a credible solution to the systemic crisis of the Economic and Monetary Union. Austerity measures and far-reaching structural reforms have been undertaken by most European countries, but have not been sufficient to achieve stabilisation in financial markets or decrease sovereign bond yields for the so-called peripheral countries. Actions of the European Central Bank have helped a great deal, but no bond-buying programme can – on its own – assure financial markets about the irreversibility of the euro when the underlying economic developments across the Economic and Monetary Union are so different.

And of course there is a negative feedback loop, because those countries whom the financial markets do not trust need to pay high interest rates on sovereign debt re-financing, their enterprises face high risk premia, and economic recovery is consequently that much difficult to achieve.

Five years of the crisis have taught us that the Economic and Monetary Union needs to integrate much more, and by this I mean not only the current 17 members of the euro area but all those Member States which have committed to adopting the euro in the future.

Important steps are being taken to create a banking union where financial sector rescue and restructuring would not be left up to financially weak sovereigns, but there would be a Single Supervisory Mechanism and on that basis also a possibility to recapitalise banks directly from a common European pot – in this case the European Stabilisation Mechanism.

But there needs to be a discussion also on an integrated budgetary framework for the EMU, including a common fiscal capacity that could help stabilise the EMU in cases of asymmetric shocks. Given existing levels of debt and intense pressure from the financial markets, it is becoming increasingly difficult for individual Member States to absorb economic shocks on their own. They cannot easily run budget deficits as a way to maintain demand in the economy.

National budgets have traditionally been equipped with an automatic stabiliser function, meaning that during a crisis, lower tax revenues or higher mandatory expenditure would help restore demand and help the economy recover, at the price of a fiscal deficit. National automatic stabilisers, together with coordinated stimulus efforts under the so-called European Economic Recovery Package have also helped Europe in the first few years of the crisis.

But Europe had entered into the crisis in a vulnerable shape, with already high levels of public debt in many cases. In the absence of common debt issuance, many Member States needed to consolidate their budgets before recovery could take hold, because the trajectory of their national debts appeared not to be sustainable.

Consequently, we have seen from about 2010 onwards that the cushion which national automatic stabilisers have provided for the economy has become much thinner, and the protection afforded by welfare states to economically vulnerable people has also become much more modest.

Many Member States have been forced to cut spending or increase taxes in an attempt to tackle the systemic crisis we are facing.

But unfortunately, so far these efforts have not generated the confidence which had been hoped for. Fiscal consolidation on its own did not, and probably could not, provide an answer to the systemic problem facing the Economic and Monetary Union:

What to do and how to effectively exercise collective action in order to restore growth and reduce the debt-to-GDP ratio when the competitiveness, the fiscal position and the socioeconomic situation of the EMU Member States is so different?

The unemployment figures I mentioned at the beginning are not only worrying because they are high, but also because disparities in unemployment rates have widened between the better-performing EU countries on the one hand and the “peripheral” countries on the other hand.

There is now an all-time record gap of 20.6 percentage points between the EU’s lowest (Austria, with 4.5 %) and highest (Spain, with 25.1 %) unemployment rates.

The persistently worsening employment situation represents the biggest worry for European citizens and governments; especially that financial situation of many European households has drastically deteriorated.

Child poverty is becoming an issue for a growing number of households because of insufficient earnings from parental work and inadequate support to households with children.

Lower growth expectations, increased disparities across Member States, vulnerability and lack of trust in the political system are threatening social cohesion, economic development and political stability in Europe.

That is why an effective socio-economic governance at both EU and national levels is more urgent today than it has ever been before. This is why the Economic and Monetary Union 2.0 which Europe is trying to build and for which a roadmap should be adopted by the December European Council, needs to have a clear employment and social dimension.

The European Employment Strategy has been an integral element of Europe 2020 since its inception. Since 1997 the European Employment Strategy has been based on monitoring of labour market performance and policy actions of individual Member States, and on peer pressure among them.

However, the crisis has taught us that we need to ensure a closer coordination of employment policies, to ensure good functioning of labour markets and to make sure that the workforce everywhere in Europe can put their skills to productive use, creating economic value and household income. It is for this reason that we have pushed forward for reinforced governance tools to improve this work.

The Commission’s Employment Package of April this year is a response to the urgency of the employment situation in Europe.

It sets out an agenda for building a job-rich recovery and making progress towards meeting the 75% employment target agreed within the Europe 2020 Strategy.

The Employment Package has put forward three ways to deliver better EU governance of employment and social policies:

• First, it called for ambitious and detailed National Job Plans as part of the National Reform Programmes which Member States prepare every year. It has anticipated stronger EU coordination and multilateral surveillance on the basis of performance benchmarking and tracking of reform implementation;
• Second, it called for a stronger involvement of the social partners in the European Semester, and for tripartite exchanges with the social partners on EU wage developments and the implications for domestic demand, competitiveness, unemployment and inequalities;
• Thirdly, it emphasised the need for a closer link between Member States’ employment policies and the way they use funding from the EU budget.

The Employment Package puts forward a new jobs-centred approach where a dynamic European labour market functions as a source of sustainable and inclusive growth.

Let’s not forget that Europe’s workforce is a, if not the, major source of growth, and we need to do all we can to ensure that it realises its potential.

We need to invest in people’s skills, because our present economic crisis in combination with longer-term structural trends necessitates a massive reallocation of human resources within the economy from activities that are not sustainable to those that are.

We need to invest in skills because Europe’s workforce is ageing and shrinking and the only way we can maintain prosperity in the years and decades to come is by increasing employment rates and improving productivity.

And we need to invest in skills because despite today’s serious unemployment situation, there are sectors and occupations in Member States or regions where vacancies are unfilled due to a lack of qualified workers. In order to help orientate skills investments within the EU’s Member States and regions, the Commission will launch an EU Skills Panorama, which will present information from both EU and Member State sources on short- and medium-term skills needs, supply and mismatches.

Ladies and Gentlemen,

I have spoken about stronger socio-economic governance and also the need to align public spending more closely with policy priorities. This has been a leitmotif of the Commission’s proposals for the EU’s budgetary framework for 2014-2020. It is also a crucial point in the run-up to the European Council summit in two weeks which will be devoted to the EU’s multiannual budget. Let me therefore address this in the last few minutes of my speech.

In the current context of austerity measures the EU budget has an important role to play in supporting a recovery, as it is predominantly an investment budget. EU Structural and Cohesion Funds are important resources for investment to boost innovation, improve energy efficiency, improve transport inter-connections, up-skill and re-skill people, help SMEs to develop, and ensure that every person has an opportunity to contribute to the economy and society.

Let me highlight here the role of the European Social Fund, for which I am responsible and which is the EU’s main tool for investment in human capital, labour market functioning and social inclusion.

Between 2007 and 2013, the European Social Fund has been investing €4.5 billion across the United Kingdom. The Fund has played an important role to cushion the impact of the economic crisis, prevent unemployment and reintegrate jobless people into the labour market.

Ensuring that the Social Fund has enough money within the EU’s long-term budget is vital for continued provision of support across the Union to fighting youth unemployment, enhancing people’s skills, adaptability and labour market reforms, modernising education and lifelong learning systems as well as stepping up active social inclusion strategies and making public administration more efficient.

At this moment, it remains unclear what role the ESF will really play in the next programming period, whether it will have a predictable allocation, and indeed, how high or low this allocation will be.

The Commission proposed to allocate 25% of Cohesion Policy to human capital investment. This represents concrete and direct way to ensure that the EU budget – and the Multiannual Financial Framework – underpins these priorities, and to demonstrate that Europe cares for its citizens.

Ladies and gentlemen,

Returning the EU to sustainable growth and job creation is the Commission’s priority number one.

An agreement in November on a strong and focused EU budget, and in December on a roadmap bringing the Economic and Monetary Union finally on a solid footing will be essential for ending Europe’s employment and social crisis.

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