Brussels, 06/07/03/2012

The European Union is in disarray – financially, economically and socially. The sovereign debt crisis shows no signs of abating, the economy is back in recession and the social impact of the crisis is evident: unemployment, poverty, inequality and insecurity are all increasing as citizens continue to suffer the fallout from a financial and economic crisis they did not cause. The European Commission’s economic forecast, already poor when it published the second Annual Growth Survey[[The 2012 Annual Growth Survey package, published on 23 November 2011, consists of the AGS Communication and 4 annexes: Progress report on Europe 2020, Macro-economic report, the Draft Joint Employment Report and a report on “Growth-friendly tax policies and better tax coordination in the EU”.]] (AGS) in November 2011, has deteriorated further with the prediction that the euro-zone economy will contract further in 2012.

Unemployment in Europe remains historically and stubbornly high. As at December 2011, the EU 27 unemployment rate stood at 9.9%, representing over 23.8 million Europeans without a job. The youth unemployment rate is 22.1%, i.e. almost 5.5 million people under the age of 25, an increase from 21% at the same period the previous year. To add to this gloomy picture, it is likely that the number of people at risk of poverty, which already amounted to 23% of the European population in 2010, has increased and will get even worse. The Employment and Social Developments in Europe 2011[[Employment and Social Developments in Europe 2011, European Commission 15.12.11 http://ec.europa.eu/social/main.jsp?catId=738&langId=en&pubId=6176
]] (ESDE) report confirms that the general trend in inequality remains upwards, even in traditionally egalitarian member states. Almost one in ten employed Europeans is at risk of poverty because they do not earn a decent wage which allows them and their families to live in dignity. The gap between labour and capital’s share of national income has also widened further.

Recession and rising unemployment are not the only concerns. The lack of an EU-level democratic process - illustrated by the recently endorsed fiscal compact - undermines the model of EU integration. This will have serious consequences on our social fabric. Workers’ rights, well established collective bargaining systems, institutions of social dialogue as well as the European Social Acquis are victims of financial markets and the wrong EU policies.

Annual Growth Survey 2012: failing to address reality and provide a credible solution to the unemployment and growth crises

The ETUC’s overall analysis of the 2012 Annual Growth Survey is that despite the more nuanced language on fiscal consolidation and the welcome inclusion of tackling unemployment and the social consequences of the crisis in the 2012 priorities, the key messages remain the same: fiscal austerity, structural reforms of the labour market (particularly the adjustment of labour costs to correct macroeconomic imbalances), completion of the single market entailing accelerating further liberalisation of services, network industries and public services, and the promotion of free trade agreements. Essentially, the AGS’ policy recommendations are contradictory and, under pressure from the financial markets and the Troika policy prescriptions, austerity policy orientations will dominate over the social ones.

The informal summit European Council of 30th January 2012 resulted in the endorsement of the "fiscal compact" and a Council orientation statement on growth and employment in advance of the March European Council. For the ETUC however, this was another missed opportunity – despite some indication of a commitment to tackle youth unemployment, the EU leaders failed to deliver substantial proposals to meet the growth and employment challenge.

The deteriorating employment and social situation and the need to halt this downward spiral are recognised by the Joint Employment Report (JER)[[Adopted by the EPSCO Council on 17 February 2012]]. The ETUC acknowledges some positive elements of the JER notably: the emphasis on job creation; the focus on the difficult situation of young people, the low-skilled and the long-term unemployed; recognition of the of the essential role of social services and social protection systems in preventing marginalisation of low income and vulnerable groups; the call for investment in education and training to raise productivity and income levels; and acknowledgment that slowing growth is hampering employment recovery and improvement of the employment rate.

The focus on youth unemployment in the AGS and, subsequently, the informal growth and employment summit (including the Commission’s initiative for youth employment ‘action teams’) is, whilst long overdue, undoubtedly welcome. However, participation rates for disabled and migrant workers, who are among the most vulnerable and precarious of workers, have also been hit hard. The gender aspects of employment and the crisis, the potential negative impact on the gender pay gap (already apparent in some member states) and increasing incidents of pregnancy discrimination, must not be overlooked.

A glaring omission from the European narrative on job creation and job-rich recovery is the absence of a focus on securing quality jobs and decent work , including proposals to address low wages and in-work poverty as well as income inequality. In contrast with the findings of the ESDE 2011, which highlight growing inequalities, the JER gives little attention to this rising trend. Moreover, while the ESDE confirms that decentralisation of collective bargaining leads to earnings dispersion and low minimum wages and, in consequence, to in-work poverty, the JER fails to assess the coherence between the Commission’s recommendations to decentralise wage bargaining and remove indexation systems, and the lack of progress towards the Europe 2010 poverty reduction target.

The ETUC rejects the approach that wages should be used as an instrument of competitive adjustment. Wages need to pursue and create a balance between different goals including income stability for workers, avoiding the dynamics of deflation, defending purchasing power, functioning as an engine for economic growth and ensuring a fair distribution of the benefits of economic progress. For the ETUC, the keys to competitiveness – both within and outside the European Union – are quality and innovation and these are not supported by flexible wages.

Support for banks but only on condition they support investment: The AGS asks Member States to give priority to strengthening the banks’ capital positions and, correctly, warns against banks improving their capital position by unduly restricting lending to the real economy. However, it fails to support this enormously important recommendation by setting up a policy framework to actually organise this.

Mobilising the EU budget for growth and competitiveness: the ETUC supports the better use of the EU Structural Funds to bolster growth and employment creation, particularly to support apprenticeship schemes for young people. Whilst ETUC supports the improved use of the structural funds, these proposals need to go further. On their own, the funds are not sufficient for tackling the crisis and must be linked with economic governance based on investment, solidarity and social integration.

Growth-friendly tax policies and better tax coordination in the EU: this new addition to the AGS annexes follows-up on the European Council’s conclusions of 24 June 2011 that the Commission should report back on progress made in the structured discussions on tax policy issues in the context of the ‘Euro Plus Pact’. The focus on the need for co-ordinated action to tackle tax evasion and fraud, to consider the role of taxation in contributing to fiscal consolidation and the recommendation to shift taxation away from labour towards taxation which is less detrimental to growth, such as wealth and environmental taxes are encouraging and deserve further consideration.

The promotion of social protection systems, education and training is is nothing more than window dressing as budgetary cuts remain the priority: the Commission correctly underlines that priority should be given to investment in education and skills to address increasing skills’ mismatches and that social protection systems should continue to cushion against poverty and social exclusion as the social situation deteriorates. However, the recognition of the important role of social investment in human capital and social protection is contradicted by the priority given to fiscal consolidation. The experience of countries which have already adopted this instruction confirms that cuts have been made in social payments, reducing social benefits and the financing of health and social services.

Attacking public services and front-loading deregulation: member states are encouraged to pursue public sector reforms under the pretext of the need for “modernisation” and budget consolidation. The ETUC rejects a policy of public sector reform based solely on economic reasons and deficit reduction. The role and functioning of public administrations cannot be reduced to the narrow focus of fostering EU competitiveness.

The deregulation agenda: the Commission’s proposal, endorsed by the Council, to essentially exempt micro and small enterprises from new EU regulation is a worrying new development in the “Smart Regulation” agenda. The risk of blanket exclusion of SMEs from employment regulation, not least regarding health and safety, is unacceptable. The Commission’s proposal to develop a scoreboard of proposals to reduce administrative burden as they go through co-decision and national transposition which it will use to highlight cases where the legislator “adds burdens” during the process raises questions regarding the encroachment on the competence of the national and European legislators.

Super economic governance: The AGS is accompanied by a proposal for two new regulations on economic governance, specifically for Euro Area Member States. One seeks to further enhance the Commission’s (DG ECFIN) powers to supervise ongoing budgetary processes at national level. The other aims to replace existing and recently installed European policy processes (European Policy Semester, Excessive imbalance procedure) with a new policy process in which Member States ‘experiencing or threatening to experience financial difficulties’ are put under ‘enhanced surveillance’. The latter aims, apparently, to ‘broaden and deepen’ policy measures and recommendations following from the Treaty articles on the economic and employment policy guidelines. There is an explicit link with the new budget for European funds by stating that non-compliance with the adjustment programme that follows from this new policy process will result in a suspension of payments from the European Structural and Social funds.

Europe urgently needs to change course

Central bankers, finance ministers, European leaders and the European Commission have been taking the wrong decisions over the past years. The ETUC reiterates our long-standing message that austerity does not work: the policy is self-defeating and has failed. The view that rapid fiscal consolidation would restore confidence and push savings rates down has proven to be a myth. In fact, fiscal consolidation has been accompanied by falling household confidence and weakened economic activity. Despite the cuts, this is, in turn, not only keeping deficits high but is also pushing public debt ratios up because of the denominator effect. Sticking to short term deficit targets despite the fact that the EU economy is already in recession will only make the situation worse.

A further European policy mistake is that labour market policies are called upon to counter serious macroeconomic policy mistakes on the premise that labour market flexibility, easy hiring and firing, will foster job creation. However, the reality is that labour market flexibility is not the miracle solution to create employment. The real risk is that decent jobs are converted into precarious and low paid ones which weakens the economy as low wages result in less demand while insecure jobs imply higher precautionary savings. In short, precarious jobs lead to a precarious economic recovery. The ETUC rejects this type of structural reform.

Some messages from the latest summits (informal growth and employment summit of 30 January and the March European Council) indicate a realization among EU leaders that fiscal consolidation and economic governance alone will not get Europe out of the crisis. The acknowledgment that tax policy has a role to play in supporting growth and the call for progress on the Commission’s proposals on energy taxation, the common consolidated corporate tax base and on the financial transaction tax is worth noting but we await concrete progress on these issues. Similarly, the Council’s endorsement of the Commission’s recommendation that “growth-friendly expenditure” such as education, research and innovation should be prioritised, can be supported, but with the caveat that without a proper investment plan these objectives will not be realised. Finally, whilst employment and social policy matters appear to be creeping back on to an agenda dominated by economic policy, as things currently stand, the prospect of achieving the Europe 2020 employment and poverty reduction targets seems to moving further away.

The proposed solution to the jobs and growth crisis, as presented by the Commission in the AGS and by the European Council, continues to consist in recommendations for labour market reforms - characterised by wage moderation and employment protection deregulation - combined with completing the single market, including its further liberalisation. This approach, coupled with the continued pursuit of austerity - even if now presented as “growth-friendly consolidation” - will do little to solve the pressing challenge of boosting the economy to provide sustainable growth and create desperately needed quality jobs.

The ETUC continues to call for an urgent re-evaluation of the EU’s current economic and employment policies. A change of direction - away from austerity and accelerated budget rebalancing and towards a sustainable economy supported by the creation of decent jobs and the reduction of inequalities between Europe’s citizens - is urgently needed. The European Semester schedule should be modified to reinforce the political dialogue with the social partners and other stakeholders. The social partners should be consulted during the preparation of the AGS, not when it is a fait accompli. The ETUC supports the European Parliament’s resolution on the Employment and social aspects in the Annual Growth Survey 2012 [[(2011/2320(INI))- adopted 15 February 2012]]. We call for the Parliament’s full involvement in the European Semester.


Investing for a sustainable economy, quality jobs and social equality: ETUC calls for a European Investment Plan and economic recovery led by wages and quality jobs.

The recessionary developments in the economy call for an urgent ‘reality check’ on the economic policies being pursued and promoted across Europe. To stabilise the economy, we need ‘circuit breakers ’ to stop the negative feedback loops between the fiscal policy of austerity, the sovereign debt crisis initiated by the financial markets and the structural reform policy of social deregulation. Europe also needs ‘accelerators’ to relaunch the economy, create quality jobs and fuel a self-sustained process of growth.

Circuit breaker 1: the European Central Bank should, directly or indirectly, provide the necessary liquidity as a ‘lender of last resort’ for sovereign debt. Markets will thus be made to understand that the sovereign debt in the Euro Area is backed by a central bank, as is the case in the US and the UK with sovereign debt being issued in their own currencies.

Circuit breaker 2: the EU must pursue the objective of a solid and well-regulated financial sector but the pro cyclical arrangements of current financial regulation should be reviewed, in order to ensure credit provision to the real economy. The combination of an accelerated imposition of higher capital requirements (Basel III norms imposing 9% equity ratio) by July 2012, together with banks being forced to register their holdings of sovereign bonds at a severely depressed market value (‘mark to market’[[‘Mark to market’ refers to the practice of valuing an asset at the current market value. The choice of the mark to market method is based on the highly unrealistic assumption that the ‘market signal’ is always the correct one. At present, however, the situation is such that markets are seriously undershooting and are excessively pessimistic towards sovereign debt and banks lose part of their capital base.]]), is triggering a renewed credit squeeze. The technique of ‘mark to market’ of sovereign debt should be abandoned. A distinction should be made between banks which predominantly provide credit to the real economy and investment banks (whose balance sheet consists of 60-70% of derivative trading and speculative activity). The capital requirements of the Basel III should be imposed on the latter by the July deadline, while the former should be subject to ‘moving’ capital requirements, depending on the business cycle. Banking sector deleveraging will thus target speculation rather than affecting jobs. In addition, the access of the banking sector to the ECB's massive liquidity at an interest rate of 1% should be made conditional on the distribution of adequate credit to the real economy, while the practice of paying irresponsible bonuses and dividends must be stopped.

Circuit breaker 3: The ETUC calls for a ‘year of healing’ with a temporary freeze on new fiscal austerity in 2012, combined with an adapted and longer time frame for reducing deficits below 3% of GDP. The Commission refuses to recognise that the unfolding recession is firmly liked to the austerity policy that it has been pushing for. Its objective of cutting public deficits from 6% to 3% in three years’ time may be on track but the consequence is that recovery and jobs are jeopardised.

Accelerator 1: a European Investment Plan focused on structural investments rather than structural reforms. Instead of member states competing on jobs, Europe needs to invest itself out of the crisis and out of debt by developing new sectors and economic activities, underpinned by a coherent European industrial strategy and investment in public services. This Investment Union would need to transfer the high savings surpluses of one part of the Euro Area into a structural investment policy that is focused on upgrading the economic and industrial structure, in particular, of the ‘deficit’ Euro area economies, while developing a close synergy with the ‘greening’ of the European economy.

To support this European Investment Plan, the ETUC repeats it call for new sources of revenue to be developed, including a financial transactions tax and Eurobonds. Revenue streams should also be improved via fairer taxation (a European wealth tax should be considered). Robust measures to tackle tax evasion, fraud and corruption must be implemented and efforts to address the causes and problems of undeclared work and the informal economy must be stepped up. The European structural funds should also be used to bolster the Plan. In addition to the ESF, the European Regional Development Fund should be better utilized (currently, around 25% of these funds -approximately 80 billion euros - are unallocated) to support job creation and stimulate growth[[‘The proposed EU Multiannual Financial Framework and Cohesion Policy 2014-2020: ETUC position and call for consultation’ adopted by ETUC Executive Committee 7-8 December 2011]].

The public sector, broadly defined, drives development and has a potential as part of the Europe 2020 Strategy or economic governance reforms to pave the way for more sustainable and fairer development. Any public sector reforms should be driven by the fundamental objective of securing the sustained delivery of high quality public services, accessible to all and pursued with the full involvement of the social partners.

Accelerator 2: Decent jobs with decent contracts and decent wages . If European investment is to kick start growth, it is also crucial to make that growth self-sustaining. The present policy of promoting precarious work and downwards wage flexibility must be reversed into a process of wage led growth. Fair wages must be promoted through meaningful and effective social partner negotiations and increases in national minimum wages. The ETUC reiterates that social partners are primarily responsible for setting wages through negotiated collective agreements and that their autonomy in this regard must be respected. We oppose the policy of decentralisation of wage formation systems aimed at bringing wage setting to a level where workers’ and trade unions’ bargaining position tend to be weak.

The ETUC welcomes the focus on youth employment as a top priority. Young people are particularly vulnerable to precarious employment and the ETUC stresses that the focus must be on the provision of quality jobs and training and not on further deregulation of employment protection legislation and fostering precarious contracts. Measures to address youth unemployment should form part of a wider strategy to create quality employment in general and be integrated into member states’ employment policies. We support a youth guarantee in Europe to ensure that every young person is offered training or a job within a set period of time. We also support the Commission’s initiative to establish “action teams” on youth employment with a view to assisting member states to identify the necessary elements for national youth employment plans

We recognise the value of mechanisms to protect employment such as the German system of “Kurzarbeit” by which jobs are maintained, income losses are prevented and workers are given the opportunity to upgrade their skills. EU-level initiative with this objective should be developed with the full involvement of the social partners. The European Commission wants to publish a communication on Flexicurity as part of an Employment Package. The ETUC warns that the focus on flexicurity in current economic circumstances is extremely unhelpful and a dangerous distraction. Instead, the emphasis should be on addressing precarious work and developing active labour market policies.

A social contract for Europe. The crisis, austerity, economic governance and the fiscal compact are being used as a vehicle to weaken workers’ right, interfere with collective bargaining, and dismantle our public services and social protection systems. The ETUC continues to highlight the dangers that such unbalanced policies pose to the European social model and social cohesion. We urgently need a reorientation towards the social aspects: a social contract for Europe, giving priority to investments that promote a sustainable economy, quality jobs and social justice, while fighting inequalities.

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Labour market policy