Social Europe Cohesion and convergence in Europe László Andor Mercator Senior Fellow at Hertie School of Governance (Berlin) Visiting Professor at ULB (Brussels) Poznan, 18 May 2015
Social Europe
Cohesion and convergence in Europe
László AndorMercator Senior Fellow at Hertie School of Governance (Berlin)Visiting Professor at ULB (Brussels)
Poznan, 18 May 2015
Social Europe
Cohesion & convergence in EU Treaties
Treaty on European Union (TEU):Preamble:RESOLVED to achieve the strengthening and the convergence of their economies and to establish an economic and monetary union including … a single and stable currency…Article 3 TEU (objectives of the union):The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. …It shall promote economic, social and territorial cohesion, and solidarity among Member States.
Treaty on the functioning of the European Union (TFEU):Article 121(3) - economic policy coordination:In order to ensure closer coordination of economic policies and sustained convergence of the economic performances of the Member States, the Council shall … monitor economic developments in each of the Member States and in the Union as well as the consistency of economic policies with the broad [economic policy] guidelines … and regularly carry out an overall assessment.+ the ‘convergence criteria’ agreed in the Maastricht Treaty as pre-conditions for Member States to join the single currency (inflation, exchange rate stability, interest rate, 3% deficit rule, 60% debt/GDP rule)+ Title XVIII on economic, social and territorial cohesion
Social Europe
Single Market (EU-28)
Cohesion policy (budget ~0.4% EU GDP)• supporting long-term
cohesion & convergence
• mitigating core-periphery dynamics resulting from competition within Single Market
Social legislation preventing a race-to-the-bottom in working conditions
Currency union (€A-18)
Much stronger constraints on monetary and fiscal policies, yet: No lender of last
resort No shared fiscal
capacity to help deal with cyclicality & asymmetry
“Internal devaluation” as the only remaining adjustment mechanism
This set-up deepens core-periphery divergence
Social Europe
Convergence and divergence in GDP per capita across the EU (1995–2013)
Reading note : EU-15 Centre (BE, LU, NL, DE, FI, FR, AT), EU-15 North (DK, SE, UK), EU-15 South and periphery (EL, IE, PT, ES, IT), EU-13 Centre and North (CZ, HU, PL, SI and SK), EU-13 South and periphery (BG, CY, EE, LV, LT, MT, HR, RO). Source: Eurostat, calculations DG EMPL. Note: GDP in real terms (in euros) — some missing values were kept constant : BG, EE, HR, CY, MT (1995-99), LV (1995-98), EL, LT, SK (1995-97), PL, RO (1995-96), HU, SI (1995).
Social Europe
Convergence and divergence in unemployment rates across the EU (1990–2013)
Reading note : EU-15 Centre (BE, LU, NL, DE, FI, FR, AT), EU-15 North (DK, SE, UK), EU-15 South and periphery (EL, IE, PT, ES, IT), EU-13 Centre and North (CZ, HU, PL, SI and SK), EU-13 South and periphery (BG, CY, EE, LV, LT, MT, HR, RO). Source: Eurostat, calculations DG EMPL. Note: GDP in real terms (in euros) — some missing values were kept constant : BG, CY, EE, HR, MT (1995-99), LV (1995-98), LT (1995-97), PL, RO (1995-96), HU, SI (1995), AT (1990-93), DE (1990), EL (1990-97).
Social Europe
Convergence and divergence in poverty rates (AROPE) across the EU (1995–2013)
Reading note : EU-15 Centre (BE, LU, NL, DE, FI, FR, AT), EU-15 North (DK, SE, UK), EU-15 South and periphery (EL, IE, PT, ES, IT), EU-13 Centre and North (CZ, HU, PL, SI and SK), EU-13 South and periphery (BG, CY, EE, LV, LT, MT, HR, RO). Source: Eurostat, calculations DG EMPL. Note: GDP in real terms (in euros) — some missing values were kept constant : HR (2004-09), RO (2004-06), BG (2004-05), CZ, DE, CY, LV, LT, HU, MT, NL, PL, SI, SK, UK (2004).
Social Europe
Convergence and divergence in income inequality (S80/S20)
Source: Eurostat, DG EMPL calculations – Years refer to income reference years
Social Europe
Convergence and divergence in gross household disposable income per capita
(GHDI)
Source: Eurostat, DG EMPL calculations – adjusted for inflation and at fixed exchange rates for countries outside the euro area
Social Europe
Weakening of stabilisation of household incomes in the crisis
Source: Eurostat and ECB.
Benefits
GHDI
Contributions to nominal growth of gross disposable income of households (EA 17)
Labour incomes
Social Europe
Weakening of automatic stabilisation: 2011 and 2012
Source : Eurostat, National Accounts, DG EMPL calculations Note: 2012 data are estimated based on quarterly data from the first 3 quarters. In the current recession, N is year 2009. Estimates of the deviation from the trend in social protection expenditures are based on a standard Hodrick-Prescott filter. Reading notes : in the year of the recession, in the current crisis, social expenditure were around 5% above their trend in Europe, while the GDP was about 4% below its potential (output gap of -4%). Averages are unweighted country averages (since countries do not always experience a recession the same year).
Public social expenditure and GDP: deviation from trend during current and past recessions
Social Europe
Development of household income in Germany and Spain
After 2010Germany: Market income increases with recovery; benefits no longer needed
After 2010Spain: Weakened social benefits do not compensate for fall in market income
Social Europe
Social divergence in the Economic and Monetary Union
EMU with serious design flaws: --uniform fiscal (and centralised monetary) policy
without risk sharing or transnational fiscal transfers --social problems generate spill-over effects on other
members of euro area (e.g. falling demand) --deterioration of human capital, loss of competitiveness
and risk of destablisation and disintegration
Need to restore socio-economic convergence in EMU, e.g. Youth Guarantee and Youth Employment Initiative
Social Europe
Stronger social dimension of the EMU
Ability of economic governance mechanisms & policy instruments to anticipate, take into account & address problematic developments & challenges related to employment & social policies in the EMU; helping all MS to realize their growth & employment potential & improve social cohesion
Better monitoring of employment & social dynamics in EMU: scoreboard of five indicators introduced in European SemesterBetter coordination of employment & social policies to collectively ensure timely actionBetter involvement of EU-level & national social partners in EMU governance
Social Europe
Need for automatic stabilisers in EMU
• Countering „asymmetric shocks” and resulting imbalances with rule-based, conditional and temporary fiscal transfers
• Supporting aggregate demand economic activity employment social cohesion in zones of economic downturn (lacking autonomous fiscal/monetary policy)
• Options:• --automatic income support (based on „output gap”)• --reinsurance of national unemployment insurance funds
• transfers triggered by major crises
• --partial pooling of unemployment benefit systems• (need for partial harmonisation)
Social Europe
Dynamic CEE growth since late 1990s:compensation for major income loss in early 1990s
Source: IMF, "25 Years of Transition: Post-Communist Europe and the IMF", October 2014
Social Europe
EU13 employment still well below EU28 average(employment rates across the EU, 1995–2013)
Reading note : EU-15 Centre (BE, LU, NL, DE, FI, FR, AT), EU-15 North (DK, SE, UK), EU-15 South and periphery (EL, IE, PT, ES, IT), EU-13 Centre and North (CZ, HU, PL, SI and SK), EU-13 South and periphery (BG, CY, EE, LV, LT, MT, HR, RO). Source: Eurostat, calculations DG EMPL. Note: GDP in real terms (in euros) — some missing values were kept constant : HR (1995-01), BG, MT (1995-99), CY (1995-98), LT, LV, SK (1995-97), CZ, EE, PL, RO (1995-96), HU, SI (1995), AT, FI, SE (1990-94).
Social Europe
Structural shift from agriculture
0
5
10
15
20
25
30
35
40
45
50
BG CZ EE LV LT HU PL RO SI SK DE SE IT FR
1995 2000 2005 2010 2013
0
5
10
15
20
25
30
35
40
45
50
BG CZ EE LV LT HU PL RO SI SK DE SE IT FR
1995 2000 2005 2010 2013
Source: Eurostat, National Accounts
Share of primary sector in total… employment … Gross Value Added
Source: Eurostat, National Accounts
Social Europe
…but manufacturing remains significant
Source: Eurostat, National Accounts
Share of manufacturing in total…… employment … Gross Value Added
0
5
10
15
20
25
30
35
BG CZ EE LV LT HU PL RO SI SK DE SE IT FR
1995 2000 2005 2010 2013
0
5
10
15
20
25
30
35
CZ EE LV LT HU PL RO SI SK DE SE IT FR
1995 2000 2005 2010 2013
Social Europe
Stronger labour productivity growth in East before and during the crisis…
Source: Eurostat, National Accounts
Real labour productivity per person employed (2005=100)
90
95
100
105
110
115
120
125
130
135
140
EU28
EU27
EU15
EA18 BE
DK
DE IE EL ES FR IT LU NL
AT PT FI SE UK
BG
RO CZ PL HU SK SI EE LV LT MT
CY
HR
2005 2010 2013
Social Europe
...limits increase in cost of labour
Source: Eurostat, National Accounts
Real unit labour cost, 2005=100
90
95
100
105
110
115
120
125
130
135
140
EU28
EU27
EU15
EA18 BE
DK
DE IE EL ES FR IT LU NL
AT
PT FI SE UK
BG
RO CZ PL HU SK SI EE LV LT MT
CY
HR
2005 2010 2013
Social Europe
Low share of GDP for wages
Adjusted wage share in manufacturing industry: Compensation per employee as % of nominal gross value added per person employed
Source: AMECO data-base, National Accounts.
40
45
50
55
60
65
70
75
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
EU15
Poland
Slovakia
Hungary
Czech Republic
Social Europe
Still a major income gap between EU13 & EU15Difference in GDPpc between EU28 average and two groups of EU13 Member States (1995–2013), expressed as % of the
EU28 GDPpc, in real euros (not PPS)
EU-13 Centre and North EU-13 South and periphery
Reading note : EU-13 Centre and North (CZ, HU, PL, SI and SK), EU-13 South and periphery (BG, CY, EE, LV, LT, MT, HR, RO).Source: Eurostat, calculations DG EMPL. Note: calculations based on GDP in real terms, in euros. Note — some missing values in the beginning of the period were kept constant for the calculation of averages: BG, EE, HR, CY, MT (1995-99), LV (1995-98), LT, SK (1995-97), PL, RO (1995-96), HU, SI (1995).
Social Europe
Large labour outflows from some CEE countries (as % of labour force)
Source: Eurostat EU LFS
Recent (<10 years) mobile (economically active) EU citizens by nationality, as % of labour force of country of origin (2013)
Social Europe
Faster population decline in some EU13 countries(combined result of low fertility, low life expectancy & emigration)
Total population, 1995=100
Source: Calculation based on Eurostat
Social Europe
Gender gap in employment and pay levelsGender pay gap (2012) as % of men's average hourly earnings (paid employees)
Source: Eurostat, LFS
Gender employment gap (2013) (difference between empl. rates for men and women in percentage points)
0
5
10
15
20
25
30
35
LT FI
LV
SE
BG
DK
PT
EE
FR SI
HR
AT
DE
NL
BE
ES
CY IE UK
EU28
HU
LU
SK
PL
RO
CZ
EL
IT MT
Source: Eurostat, SES
Social Europe
2nd decade of EU membership should be about human capital investment!
The European Social Fund is EU’s key financial instrument for investing in human capital: to improve employment opportunitiesto promote education and life-long learningto enhance social inclusion and combat povertyto improve efficiency of public administration
An integral part of EU cohesion policy
• In 2014-20, the ESF has been given a minimum share of 23.1% of the total cohesion policy budget; in practice close to 25% (€ 85bn)
• Poland is greatest beneficiary...