Europe needs to give assurances on improving social conditions

Former Commissioner for Employment, Social Affairs and Inclusion László Andor argues that reductionism within the social agenda has to be avoided and that we need to be better prepared before the next economic downturn.

The Dutch presidency
The Dutch presidency is quite ambitious in the social domain: addressing social dumping in the context of the Posting of Workers Directive, and bringing it to critical questions like wage setting. However, it can benefit from a relative common ground of many social democrats within the EPSCO Council and the long standing experience of Minister Asscher, aided by the previous Luxembourgish leadership of Nicolas Schmit. 

Tackling social dumping is indeed a challenge. While abuses should be tackled and rules enforced, the Posting of Workers Directive -covering a specific minority of labour mobility- should be legally balanced. The worker in this specific situation is sent to another country on a temporary basis, and he/she remains the employee of a company in the country of origin. Therefore, by applying all wage agreements and social security rules of the host country, the concept of posting would lose its meaning. Fairness has to be defined by looking at the issues from all angles.

Besides, it is important to see that the social agenda is not only about concerns with social dumping. See a broader context of working conditions. The Dutch presidency could play a great role here, at least regarding the timing of specific initiatives. A long term strategy on health and safety was for example launched two years ago, which needs to be filled with actual directives from the Commission. This is an area which sometimes faces difficulties from the side of SMEs and chambers of commerce in the member states with the argument that the EU is overregulating. Creating a level playing field on the basis of best practices, however, is also in their interest.

Juncker’s social triple A
The EU needs to look at the many sources of rising poverty on the Eurozone periphery in order to achieve a social AAA. The Juncker Commission focuses on rolling out ESIF and EFSI, accelerating the Youth Employment Initiative and on relaunching the Social Dialogue. Commissioner Thyssen will soon come with a Mobility Package and this is all about ambition.

What is lacking in my view is a new commitment to the 2020 Europe strategy. Launched at the beginning of the Barroso commission it set out a high ambition in the social domain, concerning high employment rates and the reduction of poverty.  The new commission has been encouraged to follow-up from halftime onwards, including by the EESC. (This means a lot also beyond the targets, since e.g. the MFF was also aligned on the 2020 priorities.)

For citizens it is important to see where the EU wants to bring Europe in the area of social conditions. It is not just a question of statistics but about the main political objectives and the whole purpose of the EU. So the EU has to be able to give assurances that it helps improving social conditions, especially when it concerns employment opportunities and the ways out of poverty.

Concerns of reductionism in the non-optimal currency union
Employment is a complex matter and EU policy should not to be reduced to one factor, whether it is a focus on skills or labour mobility, or cutting red tape that supposedly would stimulate hiring. A reductionist view among experts and policy makers can undermine existing instruments and the development of the social dimension of the EU, and in particular the Eurozone.

For example, a one-sided focus on labour mobility as a solution to economic downturn is far from satisfactory. True, in such cases there can be excessive unemployment in one country and much more labour demand in another. However, simply asking Portuguese and Spanish youth to go to Germany or the Netherlands would not work and won’t be legitimate either. First, many of them won’t be welcome in Germany and the Netherlands or simply go to Latin America. Secondly, it is typically the more productive ones who leave, shifting the system towards a brain drain. Finally, by stressing mobility only you’ll give the message that their country won’t recover. An imbalanced Europe could become even more imbalanced.

Boosting mobility is only fair if we also do more for the recovery of depressed regions. With more than one year now behind us with the experiments of the Juncker investment plan, some flexibility with EU budget rules and European Central Bank quantitative easing, we can see that neither of these will provide the full solution to existing problems. There is a need for more action beyond these.

In my view the next crucial step is towards a fiscal capacity, and ideally some form of automatic stabilisers. The argument that member states first need to reform and have better institutions before creating a risk sharing capacity is misguided. They are two different things. The first falls in the domain of macro-economic imbalances within a country that requires structural reforms to improve its growth potential.  The latter concerns imbalances not in individual countries, but the Eurozone, and is about minimising the negative effects of an economic crisis for the benefit of the EU as a whole.

Structural reforms are not substitutes for stabilizers. As economists agree, (short term) fiscal stabilizers are needed within a currency union as countries are unable to devalue in case of asymmetric shocks. And a fair system of ex post corrections would also create more confidence in ex ante policy coordination (of structural reforms).

The future of the E(M)U
I would not agree that a proposal for automatic stabilisers is too ambitious and unrealistic. For a sustainable currency union (in the long run) you actually need mutualisation of public debts, Eurobonds and various other public finance schemes. So limited fiscal risk sharing is a modest step with clear positive economic and social impact.

Tuesday May 3^rd  we discussed in the Parliament three directions of thought and three models that have been designed and scrutinised by economists.  One is a counter-cyclical income stabilisation scheme for member states, the second is a reinsurance model for the unemployment funds of the member states, and the third a partial pooling of unemployment benefit schemes. The economic impact of the first was found somewhat ambiguous, but there can also be combinations out of the pure models.

The upcoming Slovak presidency is keen to have this debate and to try to come up with a proposal following a conference in July. Nobody seriously believes that the EMU today is on a sustainable footing. The Commission, Council and Parliament should follow up on the Five Presidents report in a meaningful fashion. The EU should not go into the next economic crisis without the euro being repaired and prepared.