European Commission Adopts an Instrument for European Economic Governance
For the first time, the European Commission has today adopted its proposals for the broad economic policy guidelines and for the employment guidelines and recommendations on the same day, and in streamlined form, in order to ensure greater cohesion and effectiveness of the EU reform agenda in the medium term (2003-2005). President Prodi declared: Â«Today's package constitutes the first step towards a European economic governance aimed at strengthening economic integration in the Union as the second leg of our monetary integration. It reflects the need for consistent policies to enable member States to reap the full benefits from the Economic and Monetary Union and also takes account of the constraints imposed by the interdependence of our economies. In the context of the present economic and geopolitical uncertainty and of the imminent EU enlargement, the creation of a more dynamic, resilient Europe becomes all the more important. Despite laudable progress in creating a Single Market and raising employment rates, much remains to be done to make the EU truly entrepreneurial and innovative and to create more and better jobs. The agenda has been set. It is now time to deliverÂ». The Spring Report was the main Commission message to the European Council. Today's Guidelines package translates the agreed principles and objectives into operational economic and employment actions for the Union and for each Member State that can be properly monitored.
The 2003-2005 Broad Economic Policy Guidelines
The Broad Economic Policy Guidelines (BEPGs) concentrate on the contribution that economic policies can make to achieve the EU's strategic Lisbon goal. The Lisbon agenda has seen notable successes, like the creation of five million jobs and agreement on the opening up of energy markets and on a Community patent. However much more needs to be done to further boost employment, productivity and business dynamism. Interim target dates are less than two years away. The BEPGs make both general and country-specific recommendations. They focus on the key economic policy priorities. They underline the need for growth and stability-oriented macroeconomic policies and for pursuing structural reforms to raise Europe's growth potential. Finally, they focus on actions to strengthen economic, social and environmental sustainability. With a clear strategy and new streamlined processes for making recommendations and measuring progress, the focus is now firmly on implementation.
The Overall Strategy
The Lisbon agenda sets out an agreed concept and an agreed strategy, with clear measurable targets. The Brussels European Council on 20 and 21 March confirmed the importance of sticking to the strategy and to the targets.
The EU needs macroeconomic policies that maintain stability and support growth, economic reforms to increase growth potential and policies that make sure growth is sustainable in the face of economic, environmental and social change. The recommendations in the BEPGs are set in a medium-term (three year) framework, focussing on key economic policy priorities. With a clear strategy and new streamlined processes for making recommendations and measuring progress, the focus is now firmly on implementation.
1. Growth- and Stability-Oriented Macroeconomic Policies
The economic slowdown has lasted longer than anticipated and the outlook is clouded by economic uncertainties and global political risks. In the current environment, sound macroeconomic policies must, more than ever, be pursued in order to restore confidence and economic growth.
Budgetary policy - Member States not yet having achieved cyclically-adjusted budgetary positions of close to balance or in surplus, must take the necessary measures to ensure an annual improvement in the cyclically-adjusted budget position of at least 0.5 percent of GDP. Where already achieved, such budgetary positions should be maintained. When growth resumes, Member States should avoid pro-cyclical policies that counteract the full and symmetric play of the automatic stabilisers over the cycle.
Wages - Member States must promote the right framework conditions for wage negotiations by social partners. It is important that nominal wage increases are consistent with price stability and productivity gains. If a cyclical recovery in productivity or oil price-related inflation materialise, wage developments should remain moderate to allow for a restoration of profit margins so as to underpin job-creating investment growth.
2. Economic Reforms to Raise Europe's Growth Potential
The EU's weakness in the face of a global downturn has underlined the need for the EU to rely much more on its domestic strengths. Structural reforms in different areas, if implemented together, can produce substantial benefits and reduce adjustment costs. Structural reform helps markets operate more efficiently and contributes to successful macroeconomic policy, especially in a monetary union.
Increasing employment - Member States need to take demand and supply-side measures to make work pay and to facilitate job creation. They should improve the combined incentive effects of taxes and benefits, while enforcing eligibility criteria for benefits. They should promote more flexible work organisation and review labour market regulations. The quality of education and training needs to be improved and wages need to better reflect productivity, so that low-skilled workers avoid being priced out of jobs. Policy should facilitate labour mobility, by giving individuals portable pension and social security rights. This needs to be complemented by active labour-market policies, targeted at people facing the greatest difficulties in finding a job. Employment issues are addressed in a more comprehensive way in the Employment Guidelines which should also be implemented vigorously together with the BEPGs.
Increasing productivity and business dynamism - Policies need to improve the conditions which encourage businesses to invest and grow. Member States must take action to step up market integration and competition in goods, services and capital markets.
- Member States should eliminate barriers to trade and market entry. They should improve and simplify the corporate tax system and the regulatory environment. Policy actors must also improve the access to finance for small and medium-sized enterprises.
- Member States should promote investment in knowledge and innovation by expanding networks and clusters, delivering on the recent political agreement on a Community patent, promoting access to ICT, and improving the quality and efficiency of education and training systems.
- Markets also need stronger corporate governance rules and appropriate financial supervision and crisis management. Member States should implement the Risk Capital Action Plan by 2003 and the Financial Services Action Plan by 2005 (2003 for securities markets).
3. Strengthening Sustainability
Growth will only be sustainable if action is taken now to cater for the impact over the long-run of economic, environmental and social factors.
Long-run sustainability of public finances - especially the economic and budgetary consequences of ageing. While some demographic changes may still be a while off, decisions today will materially affect the outcomes of the future. Member States must use the small window of opportunity before the effects of ageing are felt more forcefully. Beyond increasing employment rates, the focus should be on continued reductions in public debt burdens and on reforming pension and health care systems. Recommended measures here include a further decline in government debt ratios, especially for countries that have not achieved the 60 percent debt to GDP ratio. In addition Member States should remove incentives that encourage early withdrawal from the labour market and reform pension systems to accommodate flexible employment and career patterns.
Environmental sustainability - Economic growth must not be at the expense of the environment. To promote an efficient use of natural resources, prices should reflect costs to society, including the environmental costs. Member States should reduce sectoral subsidies, tax exemptions and other incentives that have a negative environmental impact. They should broaden the coverage and differentiation of energy taxation. They should also adjust transport taxes, charges and subsidies to better reflect environmental and social costs. This also means meeting commitments under the Kyoto protocol.
Economic and social cohesion - The Lisbon Strategy will only attract continued and widespread support for necessary structural reforms if it contributes to improve opportunities for all. Social inclusion is best served by having a job. New Member States' ability to catch up and employment creation depend on favourable conditions for private sector activity and investment. Public authorities should modernise social protection systems in order to achieve an inclusive labour market and a more cohesive society. They should improve the functioning of markets so that they are conducive to private investment in lagging regions, particularly by taking steps to allow wages to reflect regional differences in productivity. Member States should ensure that public support, including from EU sources, in lagging regions is strongly focused on investment in human and knowledge capital, as well as adequate infrastructure.
While the general policies advocated in these guidelines are largely relevant for the new Member States, the 2004 update will provide the occasion to take a closer look at the new Member States and particular policy requirements.
The full BEPG document is available on:
The New Employment Guidelines and Country Recommendation
The new, results-oriented European Employment Strategy helps contribute more effectively to delivering more jobs, better jobs and an inclusive labour market. The Commission sets 10 priorities for action in Member States, wherever practicable to be accompanied by targets, and makes individual recommendations to each Member State on what the focus of its reform efforts should be. It also calls on governments, business and trade unions not to relax their effort during this difficult and uncertain period but rather to intensify the push for reform.
The Employment Guidelines
In line with its Communication of January this year on the future of the European Employment Strategy, and responding to guidance from the recent Spring European Council, the proposal for renewed employment guidelines focuses on:
- building the key points of the Lisbon strategy into the European Employment Strategy, in particular through adoption of three overarching objectives reflecting the balance of the Lisbon agenda: full employment; quality and productivity at work, and cohesion and an inclusive labour market.
- adopting a medium-term time horizon (2010, with a mid-term review in 2006)
- simplifying and further clarifying the policy objectives and priorities, with a stronger focus on results.
To support the three objectives of full employment, quality and productivity at work and cohesion and an inclusive labour market, the new guidelines identify 10 priorities ('10 commandments') for action :
- help unemployed and inactive to find a job, prevent long-term unemployment
- encourage entrepreneurship and improve climate for business start-ups
- promote adaptability of workers and firms to change
- provide more and better investment in human capital
- increase labour supply and promote active ageing
- promote gender equality in employment and pay
- combat discrimination against disadvantaged groups
- improve financial incentives to make work pay
- reduce undeclared work substantially
- promote occupational and geographical mobility
Targets at EU and National Level
A consequence of the focus on results is that the proposals are backed up by a series of specific targets, against which progress will be measured. The experience of the last five years shows that setting targets in the guidelines, or encouraging Member States to set national targets, have proven effective in stimulating reforms. A number of the proposed targets were set by the European Council itself, or were already included in the previous guidelines, others are new.
The targets are :
- personalised job search plan for all unemployed before fourth month of unemployment by 2005
- work experience or training for all unemployed before twelfth month of unemployment (before six months for young and vulnerable) by 2005
- 30 percent of long-term unemployed in work experience or training by 2010
- reduction of 15 percent in rate of accidents at work, and a reduction of 25 percent for high-risk sectors by 2010
- 80 percent of 25-64 year olds to have at least upper secondary education by 2010
- increase rate of participation of adults in education and training to 15 percent on
- average in the EU, and to at least 10 percent in every Member State by 2010
- increase in investment by companies in training of adults from the existing level of the equivalent of 2.3 percent of labour costs up to 5 percent of labour costs on average in the EU by 2010
- an increase in the effective average exit age from the labour market from 60 to 65 years on average in the EU by 2010
- elimination of gender gaps in employment and halving of gender pay gaps in each Member State by 2010
- childcare places available for 33 percent of 0-3 year olds and 90 percent of those from 3 years to mandatory school age in each Member State by 2010
- halving of the school drop-out rate in each Member State and reduction of EU average drop-out rate to 10 percent by 2010
- reduction by half in each Member State in the unemployment gaps for people defined as being at a disadvantage in accordance with national definitions by 2010
- reduction by half in each Member State in the employment gap between non-EU and EU nationals by 2010
- all job vacancies advertised by national employment services should be accessible and be able to be consulted by anyone in the EU by 2005
- national targets to be set for: business training; reduction of red tape for startups; per capita increase of public and private investment in human resources; tax burden on low-paid workers; undeclared work.
The Employment Recommendations
The employment recommendations provide Member States with individualized guidance for implementation of the employment guidelines and thus focus on the most serious and urgent problems of each Member State in turn. The Commission has proposed such recommendations annually since the year 2000.
The Commission has decided to table a total of fifty-seven recommendations to Member States. More than half of the Member States, as in previous years, are singled out for recommendations in the fields of active ageing and labour supply, gender equality, lifelong learning, and unemployment prevention and activation, including development and modernisation of employment services.
The European Employment Strategy has been instrumental in promoting convergence of labour market policies and structural improvement to EU labour markets since 1997, when the EU leaders agreed to pool their efforts to achieve more and better jobs at their special employment summit in Luxembourg. The Lisbon strategy of 2000 has given a further boost to employment policy reform and five million net new jobs have been created since 2000, even 500000 in 2002 during the economic downturn. The Commission reviewed the European Employment Strategy in 2002, after five years' operation, in order to take account of new challenges facing a soon-to-be enlarged EU such as further globalisation, technological change, the demographic challenge and social change. For the five-year review, see:
The analysis behind the recommendations is provided by the Joint Employment Report, which was adopted by the Commission and the Council on 6 March. This report is, in turn, based upon National Action Plans for employment submitted to the Commission by each Member State. For the report, see:
- The employment recommendations by Member State and by policy field - PDF document; opens in new window. - Filesize: 41kb