Strategy "Europe 2020": The significance of qualitative growth for employees in Europe

From 12 to 13 November 2013 took place in Leuven a working group about “Strategy "Europe 2020": The significance of qualitative growth for employees in Europe”, organised by ACW / VCWV - Ter Munk (ACW / Vlaams Centrum voor Werknemersvorming - Ter Munk - vzw) with the support of EZA and of the European Union. 30 representatives of workers’ organisations from Belgium, Germany, the Netherlands, Roumanie, Italy, Spain,France, Luxembourg were present at the working group.

What was the most important aspect of the seminar?

The European Union is at a crossroads and is living through the worst crisis of its history. It is time to further encourage a common understanding of what Europe needs, and find solutions to pave the way out of this exceptional situation. With their fourth autonomous work programme, European social partners intend to address the most essential issues at stake in order to foster better functioning labour markets and reach the EU 2020 employment rate target of 75% in order to create more and better jobs. This objectif should be part of a broader perspectif of qualitative growth.

Why was the seminar important just now?

The last few years have revealed the inherent weaknesses of the European economies and have led to severe tensions in the integration project. Such tensions have paralleled the longer-term debate about the future of the European economies, the capacity of the Member States to foster economic and social progress, and the EU’s ability to safeguard European standards of living.

All these challenges are now at the top of the agenda and need answers at the supra-national, national, and sub-national levels. In particular, the EU needs to strengthen economic recovery. Yet this recovery has to be consistent with a ‘quality’ path, improving the sustainability (not only from a financial and budgetary point of view) of economic growth. The seminar aims at shedding light on these key questions for the future of Europe. It aims at assessing the state of the debate and its main traits. ‘Sustainable and qualitative’ growth is here put forward as the key label that summarises the main traits of the economic plan the EU should define and implement.

Seminar results

1. Another macro-economic strategy: more investments through national budgets

As far as short-term measures are concerned, many suggest that priority should be given to stabilising the economy through measures aimed at increasing aggregate demand in the system and coping with the growing divergences within the Eurozone.

There is growing awareness that an approach based narrowly on fiscal austerity will affect employment, while also failing to cut fiscal deficits significantly. Economies with a more growth-oriented policy strategy show better performance in terms of jobs, investment and financial stability.

In order to stabilise the economy and implement a strategy which is more consistent over time symmetric macro-economic policies in the Eurozone are needed: countries that have stabilised their debt ratios (notably, Northern European countries) should be allowed to spend more, thus enhancing the growth potential of the whole EU. Addressing competitiveness problems without provoking a deep and long recession will require measures that boost productivity and achieve price moderation in deficit countries, and a recovery in wages in surplus countries after a number of years in which wage rises lagged behind productivity.

However, while growth packages for stimulating demand in the short run appear necessary, their quality and their long-term impact should be carefully assessed. Goals for more growth should specify more growth of what and for what. If the objective is to put Europe on a path towards sustainable and qualitative growth, growth-enhancing investments should target those areas which have the highest potentialities in this respect, since – besides improving material living standards and contributing to the increase of economic competitiveness- they also contribute to improving social cohesion, environmental quality and other dimensions considered relevant for citizens’ well-being. From this perspective, education and training, research and development, technological innovation, environmentally sustainable modes of production and consumption, care services and other services aimed at improving people’s quality of life are all key areas on which resources should be concentrated if the EU is to make the transition to a sustainable and qualitative growth model. In this framework, social protection systems should play a pivotal role in ensuring the ‘inclusiveness’ of the new growth model. Investments in social policies – aimed at helping European citizens to acquire the skills and competences necessary for coping with economic and social transformations and providing adequate protection against the social repercussions of the transition, while safeguarding the financially sustainability of social protection systems- should be considered as a priority. The EU can strengthen its influence by revising its budgetary policy and developing greater fiscal capacity.

2. EU automatic transfers: the case of a common unemployment insurance scheme

Analysts have stressed how the lack of an EU fiscal capacity has been a major problem in the construction of the EMU. The Maastricht Treaty gave full responsibility for stabilisation to national budgets, but, especially after the Great Recession, member states’ budgets are very vulnerable and have little scope for fiscal stabilisation. In other words, until debt levels are reduced, only a limited degree of stabilisation can be achieved through national budgets.

Among the options proposed is the setting up of a common unemployment insurance system for the euro area. The scheme would transfer funds directly to the member states’ citizens without any major political interference. The scheme would be financed by employees and employers through social contributions. Employees would pay part of their wages into a European unemployment insurance scheme and would receive compensation payments from this fund in the case of unemployment. Protection would be basic (below the level provided by current national insurance programmes) and limited to a particular time period. Member states would be able to top up such a basic protection through their own social security schemes (and in line with their own social standards). European workers would thus receive protection based on the mix of a basic EU system plus national top ups. Projections have shown that such a scheme would mobilise about 55 bn euros per year (0.75% of the annual euro area’s GDP) and this could be funded through social contributions of about 1.7% of gross wages .

The system would have important advantages:

The scheme would be an automatic stabiliser with direct effects on the countries most affected by economic recession and unemployment (countries with an economic downturn would receive net payments).

The transfer would have a direct impact on domestic demand. Payments would be made directly to private households (rather than to the member states) with limited risk of political manipulation.

At the same time, the scheme would be potentially consistent with the principle of distributional neutrality, in that it would benefit different countries in different periods. Simulations have shown that using this scheme after the launch of EMU would have benefited Germany, which suffered economic difficulties in the first years of the EMU, and southern European countries (like Spain), which have had difficulties in the wake of the Great Recession since 2009.

The scheme would not result in either additional labour costs or additional resources to the EU budget. The scheme would be financed through social contributions: additional resources for the European scheme would be off-set by a parallel and equivalent reduction in the resources for national unemployment schemes.

Administrative costs would be limited, in that European unemployment insurance would be processed by national social security bodies.

At the same time, there are also some potential drawbacks. First, the scheme would address cyclical crisis but not the structural deficiencies of the member states in economic difficulties. Secondly, institutional differences in the design of social security schemes and labour markets at national level could limit its impact.

Resolutions

Four main alternative paths for a true sustainable qualitative growth:

-the first path suggests a more balanced strategy, where policy priorities and governance instruments are more balanced and consistent with a multi-dimensional and encompassing definition of growth;

-the second path involves the use of national resources (while respecting current budgetary constraints and rules set by the EU): member states with few budgetary tensions (creditor countries) should be allowed to pursue a more expansionist fiscal policy in order to boost internal demand;

-the third path requires the activation of EU resources for investments in sustainable qualitative growth, among other things, through a more effective use of structural funds;

-the fourth path consists of the launching of pan-European automatic stabilisers (e.g. EU unemployment insurance) i.e. pragmatic ideas for a more growth-oriented approach. Both national and EU resources should be used in line with the sustainable qualitative growth perspective: investing in the green economy, education, and redistribution.