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1 PROGRESSIVE POLICY MAKING FOR THE EUROPEAN UNION Strategic issues for the EU10 countries main positions and implications for EU policy-making Progressive Policy Making for THE EuropeAN UNION The european union needs more progressive policy-making To overcome ITS CURRENT CRISIS AND TO DEVELOP ITS POTENTIAL AS A PROGRESSIVE PROJECT Maria João RODRIGUES FOUNDATION FOR EUROPEAN PROGRESSIVE STUDIES FONDATION EUROPÉENNE D’ÉTUDES PROGRESSISTES

Progressive Policy Making for the European Union

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Page 1: Progressive Policy Making for the European Union

1PROGRESSIVE POLICY MAKING FOR THE EUROPEAN UNION

Strategic issues for the EU10 countries

main positions and implicationsfor EU policy-making

ProgressivePolicy Making for

THE EuropeAN UNIONThe european union needs more progressive policy-making To overcome

its current crisis and to develop its potential as a progressive project

Maria João RODRIGUES

Foundation For EuropEan progrEssivE studiEs

Fondation EuropéEnnEd’étudEs progrEssistEs

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progressive policy making For The european union

PROGRESSIVE POLICY MAKING FOR the EUROPEan union

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4 5PROGRESSIVE POLICY MAKING FOR THE EUROPEAN UNION

PROGRESSIVEPOLICY MAKING FOR

the EUROPEan unionthe european union needs more progressive

policy-making To overcome iTs currenT crisis andto develop its potential as a progressive project.

Edited by Maria João Rodrigues

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Publisher

FEPS - Foundation for European Progressive Studiesdr. ernst stetter - secretary generalrue montoyer, 40 - 1000 Brussels - Belgiume-mail: [email protected]

Edited by Maria João Rodrigues

Brussels, 20 october 2013

ISBN 978-2-930769-00-4

Printer Prefilm - Brussels

Designed by p-l-a-s-m-a . net

This book is edited with the financial support of the European Parliament

contents PREFACE

I. FINANCIAL CRISIS AND RECOVERYA - Financial crisis and a progressive recovery planB - a progressive agenda for the european union: the key-priorities

II. FOR A NEW GROWTH MODELC - on the europe 2020 strategy, from lisbonD - The europe 2020 strategy and the national reform programmesE - how can we foster job creation?

III. THE EUROZONE CRISIS AND THE ECONOMIC AND MONETARY UNIONF - The euro-zone crisis and the reform of the eu economic governanceG - shaping the economic union - For a progressive reform of the eu economic governanceH - emu, Quo vadis?I - a Backstop for divergences in the euro-zone

IV. EUROPE AND THE WORLDJ - For a global new dealK - For a progressive eu external action - strategic partnerships and a new global agendaL - What will be europe’s position in the world? is the decline unavoidable?

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preface

the european union needs more progressive policy-making to overcome its current crisis and to develop its potential as a progressive project.

last years were particularly challenging for progressive policy-making in the european union:

• the transition to a new growth model has become urgent for Europe to ensure prosperity and job creation in a new context marked by global competitive pressures, climate change and ageing trends

• the so-called European model, whatever its internal varieties, will have difficulties to survive if Europe is not able to influence global governance and the global key-players in order to built up an international order with more sustainable development, peace, democracy and fairness

• all these European ambitions were deeply disturbed by a destructive global financial crisis followed by a destructive Eurozone crisis, hitting the very heart of European integration.

1

Ernst Stetter

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There are many criticisms regarding the deficit of progressive thinking to deal with all these challenges, which could also provide opportunities for more fundamental change. This is still perhaps the case, much more can and should be done. nevertheless, it is also important to recognize and to build on many attempts which have taken place over the last years, mobilizing hundreds of experts and policy-makers in order to develop more articulate responses to these various challenges.

The Foundation of european progressive studies created in 2007 has played an increasing role in supporting this process by promoting workshops, conferences, networks all over europe and abroad where experts and policy-makers can meet on a regular basis and create a regular stream of publications.

among our contributors, we had the chance to benefit from Maria João Rodrigues. With the double hat of expert and policy-maker, she wrote for us a sequence of papers analysing in particular the european summits. Together with her, we came to the conclusion that the time has come to publish all these papers on one book. They provide a consistent sequence of analysis and responses to cope with some key european problems asking for more progressive policy-making:

• is the European growth model still sustainable and, if not, what should the main strategic priorities to reshape it be?

• If these strategic priorities are defined at European level, how should they be adapted to the national level? To what extent should we Europeanize national policies in order to have a coordinated process of transition to a new growth model?

• Is there an effective response to foster job creation?

• What is the relationship Europe should develop with its external strategic partners in order to encourage more strategic convergence towards sustainable development?

• What are the long term implications of the financial crisis which started in 2007?

• What kind of Global New Deal is necessary to turn this crisis into an opportunity to reshape the global order ?

• What are the implications of the current crisis of the Eurozone? How should the Economic and Monetary Union be reformed in order to overcome and prevent this kind of crisis ?

• Is Europe condemned to an irreversible decline or can it have a re-start and a new role in the international game?

These and many others are the questions addressed by this book. They reflect many debates which took place across europe and abroad involving thousands of actors and they translate a progressive thinking still in the making. But i hope this can inspire many other progressive actors not only to come up with new ideas but also to come up with new actions with more powerful systemic impact.To conclude, i would also like to express my gratitude to a very effective and creative Feps team without which this all this would not be possible.

Secretary General of FEPS Ernst Stetter

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IFINANCIAL CRISIS

AND RECOVERY

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Financialcrisis anda progressive european recoverYplan

maria João rodriguesOctober 2009

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Introduction

A SPECIAL CRISIS AND THE EUROPEAN PARADOx

When the risk of a financial tsunami seemed to come from the usa one year ago, europe had an uncertain hope of being better protected

by its sounder macroeconomic fundamentals and its stronger social model. it has soon understood that it was in face of a crisis of historic proportions and the only way to protect itself would be to deploy an unprecedented array of instruments of financial economic and social policy. in the pick of the storm, several downward spirals were at work: wage cuts and mass lay-offs squeezing consumption; a credit crunch blocking investment; many member states unable to support demand because of higher spreads in their public debts and, in some cases, as a result of imF conditionality; finally, national protectionist actions undermining the

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single market and economic and monetary union. in the eu average, growth rate in 2009 fell to minus 4%, the public deficit rose to 7% and the unemployment rate in going beyond 10%. now, one year later, the best outlook is just a sluggish growth with climbing unemployment and uncertain conditions for fiscal consolidation, in spite of the increasing pressure of the ageing trends on the sustainability of the social protection systems.

how can we explain this paradox of the european vulnerability? For two main reasons. First because the european economic model was not protected against this kind of crisis, in spite of certain varieties of european capitalism being more protected than others. second, because of level of european integration and interdependency already reached, national policies alone are no longer sufficient and can even be counterproductive when addressing this kind of crisis.

Therefore, if we want to define and assess the european policies, not only to control and mitigate, but also to overcome and to prevent this kind of crisis, we need first to understand its real nature as well its implications for the european integration.

This is systemic crisis of a market economy which has been driven by the share value, by the short term financial return as the main criteria, sacrificing productive investment, growth, jobs, wages, environment and general well being. This is a systemic crisis requiring key transformational reforms for the emergence of a new development model. The crisis can also be viewed as a historic opportunity to bring forth transformational change in our economies, leading the way for more sustainable and socially fair long-term development. We should build a financial system

supporting the real economy and the transition to a smart and green economy; a generalised lifelong learning system to support the transition to new and better jobs; an active welfare system providing services and income support throughout the life-cycle. We should achieve radical change in the way we produce, distribute and consume energy in the interests of the planet. changes in governance - corporate and public - are required to ensure this transformation.

This is also a global crisis, which started in the usa and swiftly spread throughout the world, with the financial crisis feeding in the economic crisis and the social crisis and the other way round. underlying this crisis there are major economic and financial imbalances: american growth depending on external credit, chinese or other emerging economies fostering their exports to the detriment of their internal demand, too many countries still in an underdevelopment trap, a very uneven distribution of the benefits of globalization across the world and within each country. a global new deal should be settled for a better international balance allowing to raise the global demand in a sustained way and making globalization work for all.

Finally, this crisis is coming on the top of another crisis. This financial turmoil has emerged in a special moment of our history when the gap between global problems and governance was already becoming evident in several areas: a multilateral deal for trade and development is still in pain to be born, migrations flows are expanding without concerted management and climate change is still without the appropriate response. in this particular juncture there is a unique window of opportunity, with a clear choice:

- either each country retrenches in an individual and isolationist and reaction, by hindering trade, de-regulating

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financial markets, postponing the transition to a low carbon economy and reducing development aid because they seem too expensive for public budgets. The final and general outcome will then be sluggish growth, inefficient financial system plus uncontrolled climate change;

- or there is international cooperation to sustain demand, growth and jobs exactly by opening trade, fostering the transition to a low carbon economy and supporting developing countries catching up. national protectionism should be replaced by global protection.

A COORDINATED EUROPEAN POSITION IS NOW CRUCIAL

We should therefore establish, as a matter of urgency, a stronger and more progressive european plan to overcome the financial and

economic crisis, coupled with joint action with the eu’s international partners namely in the g20.

more europe is also needed to support all member states when coping with their national problems. National policies are no longer enough due to the level of european and global interdependence we live in. isolated national measures of macro-economic, industrial policy or social policy can undermine the economic and monetary union and the single market. if we want to have a pro-growth macroeconomic policy and an active innovation and industrial policy, to strengthen our social protection systems or to move to a low-carbon economy, we need to coordinate these policies at european level and to complement them with new european instruments. We also need a more coordinated europoean voice in the international fora.

The crisis is not over and the recovery is still fragile because unemployment is still rising, industrial restructuring is going on, the fiscal packages are coming to an end, banks’ credit was still not fully restored and it is not even clear to what extent the current gdp rebound is due to demand rise or to re-stocking. moreover, if want not only to control and mitigate the crisis, but overcome it and to prevent it in the future, with the double concern of sustainable

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development and social justice, we need to go further with a comprehensive and progressive european recovery plan.

This paper builds on previous versions which were submitted to a large debate across europe and aims at identifying the key political priorities as well as assessing the main progress and shortcomings in the way for a stronger, more sustainable and fairer recovery process.

a comprehensive and progressive european recovery plan requires:

1. A coordinated response to the recession, combined with an ambitious longer-term strategy for smart and green growth and jobs;

2. Swift action to activate and regulate the financial systems;

3. International cooperation for a more balanced development at international level.

We need stronger coordination between member states regarding these three priorities and a stronger political europe to implement such a progressive response to the crisis. a common “tool box” is no longer enough. We need to have a common european framework, stronger european coordination and stronger, more effective european instruments.

1. A COORDINATED RESPONSE TO THE RECESSION

a stronger european response to the recession should focus on the following objectives:

safeguarding employment and preventing mass

unemployment by counteracting the slowdown and supporting demand by households and companies; creating new jobs while promoting transformational

change for a smarter and greener economy, thereby meeting long-term climate goals; protecting people, especially lower income groups,

and their jobs as well as supporting their move to new and better jobs.

The european response to the recession should combine a budgetary stimulus, more ambitious policies to promote structural change and social policies providing more security in change as well as stronger action to activate bank lending.

a stronger european recovery plan should be connected with the definition of the post-2010 lisbon strategy, enhancing the growth potential and paving the way for a deeper economic, social and environmental transformation.

This should be a central priority for the new term of the European Commission and the European Parliament as well as the upcoming Presidencies

The internal cohesion of the single market should be safeguarded when implementing this joint european recovery plan. This means that state aids to struggling sectors, suffering massive job lay-offs, should not result in unfair competition and should ensure equal treatment to cross-border branches. But the best way to prevent the risk of national protectionism is to strengthen the role of european funding instruments, including the structural Funds, the globalization Fund and community programmes, strengthening the european innovation, industrial and employment policies. moreover, member states should have the means to ensure the social protection and the

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active labour market policies necessary to cushion the industrial restructurings which will be triggered by the crisis.

all this will require more coordination of macro-economic policies. The economic and monetary union, as another major asset of european integration, will only be safeguarded on four conditions:

• that member states improve the coordination of their budgetary policies, including tax policies;

• that the room of manoeuvre of the revised stability and growth pact is fully used;

• that european instruments are further developed, to enable all member states to support demand;

• and, finally, that non-eurozone member states are better protected against speculative attacks on their currencies.

The political choice is now clear: either we strengthen european integration to combat this crisis or this crisis will undermine european integration.

The connections between this crisis and the European integration are not being fully addressed so far.

1.1. A BUDGETARY STIMULUS FOR GROWTH, JOBS AND STRUCTURAL CHANGE

employment should be central for designing the european budgetary stimulus. in order to take advantage of the european spill-over effects on growth, member states should coordinate their economic policies, including public investments, fair and effective tax incentives, and incentives for private investments, according to a common set of

priorities. The precise policy mix should be decided by each member state according to criteria of effectiveness and fairness and to national specificities, notably levels of debt and deficit and the scope of its problems.

The priorities for the recovery to be defined in the framework of the lisbon strategy should become the drivers of an investment strategy focusing on:

speeding up the construction of new energy and broadband networks; promoting the greening of products and services,

including houses and cars; developing comprehensive programmes to

support smes; improving the coordination of research and

education programmes with innovation in new areas of investment and job creation; supporting existing jobs while helping to retrain the

existing workforce, such as schemes to enable employers to prevent job cuts through “intelligent work-sharing”, combining reduced working time with publicly-subsidised training programmes; providing tailor-made access to new skills for new

jobs, including education and training programmes for the unemployed; supporting the development of family care services

and infrastructures. This can include maintenance work.

The projects to be supported should be timely, targeted, have an immediate impact on job creation and be consistent with long term goals. public procurement rules should also be adapted in order to speed up the implementation of projects.

The level of horizontal (various policies) and vertical (between Member States) coordination of the

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macroeconomic policies according to these priorities is still very insufficient.

What is a good stimulus package?

- it is more about investments and less about consumption, to improve productivity and to use multipliers;

- it should be timely, targeted and temporary; we emphasize especially that implementation has to be timely to work against the crisis;

- it should lead to more sustainability;- it should be financially efficient, and therefore

rather about loans and guarantees than about grants; on average loans and guarantees are, to a very high degree, self-financing and reduce therefore the burden for future generations significantly;

- and it should have the size to create the necessary impact in order to make the crisis less deep and achieve an earlier recovery. The size of the european budgetary stimulus in 2009 and 2010 should be determined by the need to safeguard employment. such a stronger budgetary stimulus – driven by the 13 biggest economies in the eu – should make it possible to return to the pre-crisis employment level within the next 4 to 5 years, by using the spill over effects of each country growth supporting the others.

various instruments of public finance should be adapted for this central purpose:

a. in the framework of the revised stability and growth pact, member states, able to redirect their public expenditure and tax structures, should be allowed to run higher public deficits, provided they can demonstrate that this will contribute to higher growth and a consolidation of their public finances in a longer time frame. This approach should also be taken into account when applying the

excessive deficit procedure. To achieve sustainable public finances in the medium term and avert an unacceptable debt burden for future generations, the choice today is not just between raising or cutting taxes: it is between slow growth damaging the life chances of many, or investment in a sustainable and prosperous future with real job prospects for all.

The flexibility of the revised Stability and Growth Pact has been used but Member States are in very unequal conditions to provide a fiscal stimulus.

The instruments to assess the redirection of public finances are still very insufficient.

b. selective tax incentives should have as their primary purpose to stimulate domestic demand in a socially fair and effective way, leading to actual increases in consumption. The following measures could be considered: tax incentives for green products and services and for labour intensive services such as personal or catering services or reductions in the tax burden in lower incomes or in some basic products. The eu should adopt a bold package of green tax measures in this context.

The shift towards green taxation has not taken place yet.

c. state aids to struggling sectors, suffering massive job lay-offs, should not result in unfair competition and should ensure equal treatment to cross-border branches. a new european framework to promote innovative and sustainable industrial development should be developed, generating synergies between new national efforts and ensuring their consistency with the internal market.

A European industrial policy ensuring better coordination

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of state aids is still at a very early stage.

d. implementation of the structural Funds, the cohesion Fund and cap needs to be stepped up by reprogramming and frontloading financing. implementation should also be streamlined and refocused in line with the common set of priorities mentioned herein.

In spite of several simplifications, some administrative and financial obstacles are still hindering a more effective implementation of the Structural Funds. Moreover, they can leverage more investment if they can also be used to subsidized interest rates

e. The globalization Fund should widen the scope of its action not only to respond to lay-offs connected with globalization but to prevent them through proactive action, to be reflected in the current commission proposal for revision being considered.

f. The capital base of the european investment Bank should be strengthened again to go further in its support for investments in infrastructure, green technologies, innovation and smes.

This was already decided, but the EIB loans should create more leverage for private investment by providing guarantee instruments.

g. The european central Bank must continue its efforts to support the recovery in the eurozone through its monetary policy, including timely interest rate cuts, and across the european union through all other relevant measures.

This crisis has made clear that the ECB responsibilities

are not only about inflation but also about growth and employment. Its interventions were and should remain very relevant in this direction.

h. member states should consider new tools to issue public bonds. in the present context, characterized by international competition for financial resources, it could be useful to examine the possibility of converting national bonds into eurobonds. The aim would be to reduce the spreads which are being paid by public debt to launch new investment projects, supporting business in general by decreasing the cost of capital, and attracting domestic and foreign savings and preventing hostile takeovers by foreign investors. a european agency could be created to organize the common issuance of eu denominated bonds, with the guarantees to be provided by all participating member states.

This important instrument is still waiting for an institutional initiative.

i. Trade policy must also play a role in the recovery, through the conclusion of the doha round and european partnership agreements, as well as promoting the export potential of europe’s small and medium sized businesses.

The Doha Round conclusion is still blocked.

j. The community budget should be adapted to contribute directly to the immediate need for economic recovery, starting with the proposal for the 2010 budget and then also in the forthcoming mid-term review of budget.

Still waiting for an institutional initiative. The new financial perspectives should be consistent with an ambitious recovery and long-term strategy for sustainable development as the post-2010 Lisbon strategy.

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Finally, the recovery is also strongly dependent on restoring bank lending (see section 2.1). The aim of a successful and sustained recovery should be to mobilize as much private funding as possible and to add as much public funding as necessary.

The exit strategy regarding this special fiscal stimulus overburdening the national budgets needs to put the central focus on increasing the growth rate and growth potential, as a pre-condition for the longer term sustainability of public finances. Therefore:

- a early withdrawal of the fiscal stimulus should be avoided until the drivers for a sound recovery are confirmed

- The public expenditure cuts and the tax increases should comply with social justice and should avoid to over-burden the labour factor. a shift to green and financial taxes should become a clear priority

- The pace to reduce the fiscal stimulus should be differentiated and adapted to national specificities, under two conditions: on the one hand, a convergence regarding social and green taxes and, on the other hand, stronger european instruments for regional development.

1.2. MORE AMBITIOUS POLICIES FOR SMART AND GREEN GROWTH

The recovery plans in the us, china and a small number of eu member states are the biggest investment packages ever established in such a short time span. The scale of the crisis presents a unique and historical opportunity to bring forth transformational change in our economies, leading the way for truly sustainable and socially fair long-term development. it is therefore crucial that the european economic recovery programme meets this central purpose.

even in recession, europe can create jobs in many sectors: retrofitting of houses, developing and installing renewable energy production units, spreading low carbon technologies, efficient and electric cars, strengthening public transport, smart urban planning, health and care services, personal services, business services, biotechnologies and nanotechnologies, creative and cultural industries and modernizing manufacturing sectors according to new standards of energy, design, safety and quality. This will be particularly important not only to offer job opportunities to a higher-skilled young generation entering the labour market, but also for workers who are losing their jobs in sectors undergoing restructuring. saving energy and raw materials in the manufacturing and service sector makes the european economy more independent, reduces costs and makes european products more competitive. environmental and climate conscious customers represent an increasing market, which europe cannot afford to ignore.

1.2.1. SMARTER GROWTH

For the recovery to bring transformational economic change to the european economy and create more and better jobs, there must be better coordination of innovation, industrial, research, education and retraining and employment policies at all relevant levels:

a. member states should improve the coordination of these policies, in particular to support regional partnerships for growth, innovation and jobs as well as cross border initiatives.

b. at european level, a single strategic platform should be created for bringing together all key actors to work together on growth, innovation and jobs in each

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sector and to coordinate existing instruments: technology platforms, skills expert panels, joint technology initiatives, lead markets, clusters and high level industrial groups.

c. research and development needs to be better supported and more targeted on the technologies of the future. more emphasis must be put on the marketability of new developments, europe-wide legal standards and subsidies must be used in order to support mass production of new technologies.

d. regarding infrastructure for a smarter economy, a european broadband network should be extended to all regions, allowing access to the latest generation of internet platforms, by combining private and public resources, at national and european level.

The current policies are still far away of this level of ambition to promote a knowledge-intensive economy which was at the heath of the lisbon strategy.

1.2.2. GREENER GROWTH

The fight against climate change demands a fundamental shift towards a low-carbon economy, generating important new opportunities for more and better jobs and social fairness in our societies. climate change is happening at an even faster pace. Bolder action is now needed to avert dangerous climate change and irreversible damage to the planet, to our economies and our societies, with a window of opportunity of just a few years before dangerous climate change becomes inevitable.

The european commission has estimated that to achieve the eu’s climate targets of 20% emissions reduction by 2020 – which would be raised to 30% if a post-2012 global climate deal is achieved - there will have to be public and private

sector investment of approximately one trillion euro from now until 2020. one eu-funded study has estimated that climate-related investments of eur 3,145 billion by 2030, would result in the creation of between around 300,000 to almost 900,000 new jobs annually.1 increasing energy dependence on countries outside europe and rising energy prices point to the need for an urgent push towards energy efficiency and renewable energies.

The recovery must be used to simultaneously fight climate change and create new growth and jobs. a new european framework for innovative and sustainable industrial development could thus prove vital.

“green” economic measures for the recovery could include immediate implementation of the following measures:

provide tax credits/government premiums and

redirect eu structural funds to support energy efficiency related household investments (high energy efficient heating systems, building isolation, more efficient electronic devices) and to support renewable energy production for personal use. regulation and subsidies supporting the installation

of renewable energies (feed-in tariffs, direct support to carbon free power plants, support energy infrastructure). investments in sustainable transport and tax

credits/government premiums for cleaner cars. credits from the eiB for renewable energy and

energy efficient projects.The sustainability, independence and security of europe’s

1 “climate change and employment: impact on employment in the european union-25 of climate change and co2 emission reduction measures by 2030”; european Trade union confederation (eTuc),instituto sindical de Trabajo, ambiente y salud (isTas), social development agency (sda), syndex Wuppertal institute, 2007.

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energy supplies will depend on large-scale investments in our energy sources, distribution and infrastructure. The following investment areas have huge potential for promoting, jobs, growth and long-term prosperity:

power generation and storage: renewing electricity power generation capacity, including renewable energies, will require an approximated 17 billion euro in the next five years. There will need to be high investments in developing gas and electricity networks. all these infrastructure projects will create high-value jobs. cross-border energy networks: important cross-

border projects are an important component of these investments needs. energy efficiency: the eu is committed to improving

energy efficiency by 20% by 2020. in order to achieve these targets and bring considerable cost savings to europe’s businesses, households and the public sector, investments and tax incentives are now needed to renovate public and private buildings and housing, increase the efficiency of lighting, heating and cooling systems, and promote new technologies for energy efficiency in goods and services.

europe should also examine in much greater depth how green investments can be financed through new green revenues, for example green taxes. Furthermore, the revised emissions Trading scheme will provide a significant new source of revenue, on a scale that will depend on the price of carbon at auctioning. These revenues should be invested in generating new green growth and jobs.

The European Recovery Plan should be more strongly connected with smarter and green growth.

Even if the international framework for low-carbon growth will depend on the Copenhagen Summit, the European Union should move quicker in this direction, in order to keep its leading position.

1.3. SOCIAL AND EMPLOYMENT POLICIES TO PROVIDE MORE SECURITY TO CHANGE

social and employment policies should be adapted to cope with the recession. it is important to safeguard jobs as far as possible, support the unemployed back into employment as fast as possible and stimulate the creation of new jobs. This crisis should also be seen as an opportunity for a european-wide radical re-skilling of the labour force. above all, fairness in the response to the recession should be our main guiding principle and a special concern should be kept for the most vulnerable. a European Employment Pact and Social Progress Pact should be developed as two major pillars of the recovery plan. The priorities should be:

a. To launch programmes for job creation in the priorities already identified in point 1, combining public and private investments, notably structural funds, eiB and eurobonds. These initiatives should promote access to new jobs, particularly amongst young and older workers, and will require stronger proactive action, based on a better coordination of labour market, education and innovation policies. attention should also be paid to facilitating entry into the labour market for young people – for example through large-scale support for internships and apprenticeship programmes – and tackling the increased risks of age discrimination in the labour market.

b. To launch a european-wide programme for “New skills for New jobs” to ensure a massive re-skilling for new jobs. This programme should be financed by public and private spending to be coupled with a refocusing of the european social fund, providing tailor-made solutions for education and training to those who will need a “knowledge lift” to get a new job or keep their existing one. This programme requires not only building a european co-

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ordinated system to anticipate skills needs but also to develop the european frameworks (eQF and ecveT) to support the transfer and accumulation of learning outcomes. Finally it also requires widening access to competence assessment centres as well as to new funding instruments for learning activities (learning accounts, social contributions, loans and scholarships).

c. schemes to enable employers to prevent job cuts, such as “intelligent work-sharing” combining reduced working time with publicly-subsidised training programmes, should be implemented. These schemes should, if necessary, be coupled with reduced contributions to the social security. other forms of internal flexibility should be explored in the framework of social dialogue and enhanced social corporate responsibility.

d. monitoring and supporting wage developments to ensure sustained private consumption. common principles could be agreed, based on the dual need for wages to be aligned with productivity gains and to protect purchasing power. Wage reduction schemes should be closely monitored, ensuring that they are necessary and temporary, and, where appropriate, linked to social security support and sector-relevant skills training. The social partners have a key role to play.

e. strengthening the monitoring of the restructuring process. To submit planned mass lay-offs to a stronger supervisory scheme, ensuring that all other alternatives have been exhausted. restructuring processes which are inevitable should be supported by social plans and programmes for regional development, which could be financed by eu structural Funds and the globalisation Fund. companies that receive state aid should reimburse it in cases where they have laid off staff while at the same time using their financial resources to pay dividends to shareholders or buy company shares to increase share value.

f. To renew social, employment and education policies and services focused on unemployed people. strengthen unemployment insurance, when needed, and significantly scale up active labour market policies which should come into play as early as possible following redundancy (under 3 months). modernise and strengthen unemployment services, offering a range of support and re-skilling programmes, developing closer relationships with local employers and providing information on access to entrepreneurship opportunities. support the social economy to provide new opportunities to the unemployed.

g. Targeted policies must be established or reinforced to support those most affected by the crisis, including those on the lowest incomes, at risk of home repossession, lone-parent families, the young, the pensioners. We must promote social justice while having an immediate impact on consumer demand for the recovery. special measures need to be developed for those being made redundant from precarious jobs benefiting from few social rights. discrimination against posted or immigrant workers should be combated. inclusive labour markets, access to public services and minimum income should be kept as basic principles.

h. To establish specific measures for the housing market, such as: reducing the cost of mortgages, supporting first-time buyers, protecting against repossession, and promoting the social housing sector.

i. To develop specific measures to support lower income groups during the recession, including income support (for example, cuts in the social security contributions to be paid by employees, targeted tax cuts and credits, including income tax rebates) and policies to ensure the affordability of basic goods such as electricity and gas.

j. protect pensions and savings. priorities should include the protection of savings by guaranteeing bank

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deposits – a general measure already agreed at eu level –, a better assessment of financial products, for example through the implementation of consumer information and protection measures, and ensuring the adequacy and sustainability of pension schemes in the three pillars of the social protection system, particularly the first pillar. in this respect, a review of regulation relating to the governance and investment of second and third pillar pensions should be undertaken.

k. To make investments in services which meet employment and social objectives, including family care services and infrastructures.

The unemployment problem is being underestimated by the current policies. Up to 10 million jobs could be lost over the next two years and it will take many years to reach the per-crisis employment level again. The limited actions adopted so far will not be sufficient to meet this challenge. The support to part-time work has been important to avoid many lay-offs but:

-More needs to be done to proactively create new jobs. Creating an environment friendly for entrepreneurship and assisting young people and unemployed to start an own business will not be sufficient in this. We need to activate labour demand and not only labour supply.

- The social consequences of the crisis will also become deeper. Poverty and social exclusion will rise in the coming months and national welfare systems will increasingly come under pressure. Specific measures need to be developed to address these challenges.

on the longer term, the policy mix of social policies should be adapted to the new labour demand and supply trends. The structure of employment is undergoing a major redeployment towards new activities, due to the new

context created by the transition to a knowledge intensive economy and a low carbon economy, by the european integration process and by a faster globalisation, where emerging economies are competing across the board. at the same time, the structure of the labour force is also undergoing a major re-composition due to the ageing trends, the immigration flows, the education trends and the emergence a new family types.

against this background, a stronger priority should be given to the political orientations which can address these challenges by enhancing competitiveness and social cohesion simultaneously. This is notably the case of the following orientations:

-developing skills by raising the education levels and spreading the access to lifelong learning, with a particular focus on activities where more and better jobs can be created;

- supporting professional transitions with an employment insurance and social drawing rights

-developing flexicure labour markets for all, using internal and external flexibility and encouraging social dialogue;

-developing family friendly policies to improve the conciliation between working life and family life over the life-cycle;

- spreading active ageing with later and flexible retirement and keeping adequate, adaptable and sustainable pensions;

-promoting active inclusion with active labour market policies, minimum income support and better access to social services;

-strengthen external action of the union to promote jobs, improve global social standards and managing migrations, ensuring better social integration.

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2. SWIFT ACTION TO ACTIVATE AND REGULATE THE FINANCIAL SYSTEMS

2.1. URGENT MEASURES FOR FINANCIAL STABILIZATION TO PROTECT SAVING, INVESTMENT AND JOBS

restoring bank lending and promoting good banking, is crucial for a quick, sound and lasting recovery. The concept of “good banking” can be defined by a set of criteria such as developed retail services, strong deposit business, diversification, closer relationships with customers, a leverage cap and striking a right balance between efficiency and safety. This concept should become a driver for the unavoidable restructuring process which should be carried out in the banking sector. a long term strategy to strengthen and developing good banking meeting the real needs of citizens and business should frame the public intervention in this sector.

The measures already adopted to avoid the financial meltdown are still not completely implemented and are crucial to re-activate the interaction between the financial system and economic activity, which is at core of this crisis. Besides guaranteeing deposits, ensuring more liquidity and supporting inter-banking lending:

restructuring bank balance sheets in order to isolate the effect of the impaired assets. “Bad banks” and insurances can be considered but in other cases, recapitalizing banks will be necessary. in any case, clear conditions should be set for them to get public support: presenting restructuring plans and ensuring transparency, equal treatment of their cross border branches and fair cost-sharing between taxpayers and shareholders, the latter

being ready to shoulder an important part of the burden of losses; recapitalizing banks by bail-out of creditors or by

debt-for equity swaps. appropriate conditionality should be set including maintaining their credit lines to companies and households, rationalizing executive pay and complying with the improved regulation of the financial system. government representation in the board can also be considered up to the necessary level; most of all, pressing all banks to play their role

of providing credit to companies and households in order to sustain the level of economic activity, investment and job creation at local and regional level. The incentives for bankers, traders and fund managers should revised in order to change their behaviour: their bonuses should be assessed over a longer period and involve stock-options; special credit facilities should be created for smes

to be provided, if necessary, by regional industrial funds;In spite of the already adopted measures, the credit

level remains very insufficient to overcome the recession. It is important to recognize that the problem is not only of liquidity but, in several cases, of solvency. Therefore, stronger measures are needed to tackle this crucial bottleneck and they should be based on making banks accountable for their situation and setting a limit for the tax payers contribution. Moreover, the stress tests to banks should comply with a European Framework and lead to the presentation of public conclusions.

Targeted interventions to support more vulnerable member states which do not belong to the euro-zone are also required to ensure european solidarity.

some non-eurozone member states, especially among central and eastern european member states, are especially vulnerable to the crisis and are being hit particularly badly. specific issues include the pressure on their balance of

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payments and the devaluation of their currencies; the drying up of liquidity with bank headquarters focusing on their home markets rather than in their subsidiaries in central and eastern europe; the devaluation of government bonds; and a much lower room for fiscal manoeuvre to stimulate the economy.

The crisis could have extremely negative economic and

social consequences in many of the new member states, substantially slowing their convergence with the eu-15. spill-over effects could also occur, affecting the euro and the economies of the euro-zone. The european union should take the initiative for coordinated, stronger support for member states in difficulties. Therefore, strong actions are required for european solidarity, to protect the euro-zone and strengthen the internal consistency of the european union.

First of all, the european framework to respond to the crisis should ensure equal treatment of all member states: the support given to banks in their headquarters should be extended to their cross-border branches and subsidiaries.

second, the rescue package to support banks in these countries, provided by eBrd, eiB and World Bank should be increased.

Third, the financial resources of the community Facility should also be increased, providing medium-term assistance to member states which do not belong to the euro-zone and have difficulties with their balance of payments. Within this Facility, the european commission can borrow in the markets eu denominated bonds and provide financial assistance to these member states. The intervention of the Facility and the imF - if indispensable - in these cases should

be coupled with an appropriate revision of conditionality in order to create room for manoeuvre for recovery.

Finally, the better protection against speculative attacks will be to step up the pathway to join the euro zone. This could be done by admitting some of these countries into the european exchange rate mechanism (erm ii) and by re-interpreting the benchmark of best-performing countries on inflation. The ecB should also examine all possibilities at its disposal for supporting non-eurozone member states.

A deeper assessment of the measures already taken is necessary to safeguard European cohesion

2.2. REGULATING THE FINANCIAL SYSTEM TO SUPPORT GROWTH AND SUSTAINABLE DEVELOPMENT

Tackling the economic recession must be our priority, but this must be combined with better regulation for stable, transparent and efficient financial markets at european and global levels. in the absence of this tandem of action, we will see very soon a dramatic downward spiral between recession and financial turmoil, potentially leading to an economic depression.

This crisis has revealed fundamental market failures, resulting in a dramatically spiralling recession and unemployment. systemic risks cannot be avoided by relying on diversification. The european union urgently needs a fully functioning transparent, efficient, cost effective and stable financial market, as a precondition for meeting long-term goals in the public interest, such as the lisbon strategy and fighting climate change. Therefore full scale reform of the financial markets is vital.

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The purpose of regulation should not just be to prevent market instability. regulation must now ensure a close and efficient link between financial markets and the real economy. all financial players and instruments should be covered by regulation for transparency, efficiency and stability.

The financial markets should be reformed on the basis of the following pillars:

I. MONITORING AND SUPERVISION

stronger european supervision and more cooperation between all european national regulatory bodies. supervision is fragmented and therefore quite ineffective in europe. in this crisis, supervisors had no global, horizontal overview of what was happening and hence no consensus on the real problems, for example in relation to non-regulated excessive leverage. There is a fundamental need to build a macro

financial surveillance to monitor and identify operations of financial market players which could cause systemic risks. This implies a more operational approach, an integrated system with access to relevant data. The aim is to create a real “chain” of warnings, that is precise warnings to central banks and supervisors which would then entail action. The de larosière report recommendations should be swiftly implemented The actual system should be reversed: risk should

be observable from the beginning and associated with clear responsibility. Financial institutions need to bear some of the lending risks themselves in future. measures should be in place to promote an effective interplay between sovereign wealth funds and efficient and transparent

financial markets. The imF code of practice on sovereign wealth funds provides a good basis for action.

II. BETTER REGULATION OF ALL FINANCIAL INSTITUTIONS

universal legislation covering all financial players. no financial market player should be left out of the system, notably hedge and private equity funds. a new strong standard of transparency and

disclosure for all financial players. This has to be done in an efficient and comprehensive way and is a first step towards efficient regulation. Transparency and disclosure will allow regulatory authorities to track in a better way the actions of financial players. Transparency is a means to better regulation and not an end in itself. mandatory “capital requirements” for all financial

players. capital requirements must accurately reflect risk, with higher minimum capital ratios, proportional to risk and complexity. This also applies to long loans to hedge funds and private equity. mechanisms to avoid pro-cyclicality should be

introduced, ensuring that banks increase capital and provisions in the good times. rules to prevent excessive borrowing should be introduced. new and more transparent financial accounting standards are needed so that operations are clearly stated in balance sheets. The convergence of accounting rules between europe and the usa needs to move faster and will contribute to tackle off the balance sheets. limits on executive pay and remuneration as well

as mechanisms to ensure that earnings reflect losses as well as profits should be established. new rules are needed to prevent conflict of

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interests. all short-selling should be properly regulated.

detrimental short selling that exacerbates crises should be curbed by regulatory authorities. credit rating agencies have always relied on

credibility. This has been damaged. Their role and accountability must be reassessed. The establishment of a european credit rating agency would be a means to develop competition and re-establish market credibility in this seriously affected sector. it could also provide registration and oversight of rating agencies. credit rating agencies are amongst the financial actors with the highest profit margins: in addition to the two ratings they have to provide, they should provide a third rating free of charge. in addition, we should examine how to broaden rating measures.

III. BETTER REGULATION OF FINANCIAL PRODUCTS

For credit default swaps, a transparent clearing house should be set up. a european public classification of products,

including derivatives, should be established. issuers of securitised products should retain on

their books for the life of the instrument a meaningful amount of the underlying risk (non-hedged).

IV. PENSIONS AND SAVINGS

national and european rules must obtain better protection of wage earners’ pension savings through funds with fiduciary responsibility. national and european rules must be tightened to

better protect wage earners’ pension savings through funds:

o With fiduciary responsibility;o By prohibiting investments in high risk, opaque

products and vehicles;o By ceiling the share of the fund dedicated to

financial markets; o By creating incentives to invest in long term

loans and financing public investment;o With guaranteed interest rates.

V. PROTECTING WORkERS’ INTERESTS

regulation should ensure that employees are informed and consulted during all takeovers including those that are leveraged, comparable to that provided for during mergers by directive 2001/23/ec of 12 march 2001 on the approximation of the laws of the member states relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses.

VI. TAx HAVENS AND OFF-SHORE FINANCIAL CENTRES

unregulated tax havens and off-shore financial centres must be covered by regulation through a new international initiative. europe must lead the way in fighting tax evasion. co-ordinated efforts should be intensified in

relation to poorly regulated or uncooperative jurisdictions to:

o enhance cooperation in exchanging information on tax evasion with other supervisors and authorities;

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o provide prudential information or information related to activities to fight money laundering and terrorism. at the european level, supervisors should

increase capital requirements for those financial institutions investing in or doing business with poorly regulated or supervised financial centres whenever they are not satisfied by the due diligence performed or where they are unable to obtain or exchange pertinent information from supervisors in these offshore jurisdictions at the international level, the Financial action

Task Force (FaTF), oecd and FsF should propose a toolbox of possible sanctions.

The G-20 adopted a new control mechanism regarding tax heavens, agreed to develop international rules by the end of 2010 to strengthen the quality of bank activity and mitigate pro-cyclicality; it also stated that bonuses should avoid excessive risk taking, be aligned with long term value creation and be subject to claw back, be transparent. In September 2009, The G-20 agreed to work on an international framework for a transaction tax.

In the meantime the EU has amended the capital requirements directive and is discussing new regulatory instruments on hedge funds, investor compensation schemes and market abuse as well as the new regulations creating the European Systemic Risk Board, the European Banking Authority and the European Insurance Authority. The final content of all these new instruments will decisive to define the kind of reforms which will be introduced in the financial systems: either the transformational reforms it is requiring or just adjustment reforms to keep business as usual

3. INTERNATIONAL COOPERATION FOR A GLOBAL RESPONSE TO THE CRISIS AND SUSTAINABLE DEVELOPMENT

the global nature of the financial and economic crisis demands swift, joint international action. eu member states should agree on a strong, common european position for international negotiations, notably in the g20 process. again, restarting banking activities, regulating the financial system, coordinated fiscal stimulus, supporting developing countries, promoting the necessary structural adjustments and reforming global governance should be the strategic priorities. specific priorities are presented below, in addition to a stock-taking of the important g-20 summit held in london on 2nd april:

a. Tackling the recession by strengthening the recovery plans and their international coordination, making the best of their spill-over effects and ensuring their consistency with the long term goals of sustainable development.

The G-20 Summit launched a preliminary coordination of the recovery plans –the global plan for recovery- but could not agree on increasing the fiscal stimulus except for developing countries.

b. restoring bank lending to business and people according to a common framework ensuring clear conditionality for public support.

The G-20 summit agreed on a common approach to this central problem but many details are still to be clarified, including the method for stress tests.

c. The afore-mentioned principles to improve the regulation of the financial system should be extended worldwide, if the g20 process is to be successful.

The G-20 Summit has agreed on many of those principles but it is now necessary to ensure not only their

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implementation but also the full coverage of all financial operators, including private equity funds and hedge funds. Finally, the actions taken against tax havens should be carried out systematically.

d. The core competences of the imF and FsF (Financial stability Forum) must be enhanced in order to raise the effectiveness of crisis prevention measures and early warning. in order to move towards a real Bretton Woods ii reform, we can no longer continue with the “soft” regulation of Basel ii. in the long term, we need a global regulatory framework to improve financial market efficiency, ensuring macro-financial stability, micro-financial stability, investor protection and consumer protection. The international management of currency reserves should also be reconsidered. all countries should comply with this regulatory framework.

The G-20 Summit established a new Financial Stability Board (FSB) with a larger composition and stronger mandate. Together with the IMF, the FSB should provide early warning of macro-economic and financial risks. The issue of currency management reserves was not discussed.

e. The imF has traditionally been a liquidity-providing institution. We need to increase its resources very substantially in order to strengthen its capacity to rescue default developing countries and emerging economies and provide them with short and long term credit. conditionality must be revised in order to promote the economic recovery, support their trade and counter-cyclical policies. additional funding can also be provided by increasing the issuance of special drawing rights (sdrs).

This is the area where the G-20 meeting went further by strengthening IMF resources. It was also agreed to inject a new general SDR allocation. However, the revision of the conditionality is still not on the agenda.

f. The governance of the international Financial

institutions should be deeply reformed in order to increase their legitimacy and effectiveness. Their heads should be appointed in future through open, merit-based selection processes. imF quotas should be further revised in order to give more voice to developing and emerging countries.

The G-20 Summit has started to implement this reform, even if at quite a slow pace

g. development aid must be stepped up to meet the target of 0.7%gdp and transnational schemes for cooperation with developing countries should be urgently implemented by reducing the co-financing of recipient countries. all multilateral development banks should be assured of all the capital they need. new international financing instruments should be developed to pursue the millennium development goals.

The G-20 Summit reasserted commitment to the MDGs and strengthened the resources of the multilateral development banks. The support to low income countries was increased, focusing on social protection, boosting trade and safeguarding development. The World Bank will receive voluntary contributions to an Infrastructure Crisis Facility and a Rapid Response Fund. However, this is still very insufficient to meet the needs of these countries, where this crisis is being combined with a previous one.

h. credit lines to support trade must be expanded. protectionist reactions should be prevented by a new momentum to conclude the WTo doha round. eu efforts to conclude free trade agreements should also be pursued.

The G-20 Summit has increased the support available for trade credit and reasserted its commitment to achieve an ambitious and balanced conclusion of the Doha Development Round. However several national decisions of the G-20 members contradict this commitment.

i. The g20 should agree on a regular monitoring and assessment of the recovery plans and their international

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coordination, in connection with the un and Bretton Woods institutions. recovery efforts should be based on medium to long term adjustments towards more sustainable consumption and production patterns, sounder financial schemes and a more balanced structure of global demand. The need to push forward with ambitious plans towards a safe and sustainable low-carbon economy should also reinforce efforts for a progressive climate agreement at the un copenhagen summit at the end of 2009.

The emergence of the g-20 at leaders level can provide important mechanisms to govern the global economy. Two general frames were adopted in september 2009:

-the Framework for strong, sustainable and balanced growth defined by the g-20, launching a process of mutual assessment of policy frameworks and their implications for the pattern and sustainability of global growth, while trying to identify potential risks to financial stability. The 20 members will agree on shared policy objectives for fiscal, monetary, trade and structural policies to collectively ensure more sustainable and balanced trajectories of growth

- a charter of core values for sustainable economic activity (macro-economic policies for long term objectives, rejection of protectionism, regulation of the markets for sustainable development, financial markets serving the needs of households, businesses and productive investment, sustainable consumption and production, internationally development goals, need of a new economic and financial architecture

The fundamental crisis is not over. Many developed and developing countries were badly hit. The recovery process will be long. What is at stake is not only to recover but to renew the foundations of our development model. Deep transformational reforms are needed in the financial system, corporate governance, welfare systems, patterns of

consumption and production and global governance. Will the G-20 remain a consultation forum or can it become a driving board for economic governance? In this case serious issues of legitimacy and effectiveness should be addressed in connection with the reform of the UN system

The present gap between global problems and global governance is just unacceptable and crucial reforms of global governance can no longer be delayed. More generally, what is at stake is to pave the way for a Global New Deal, reshaping the global order, which should combine a coordinated recovery, a regulation of financial markets, a global agreement to fight against climate change, a multilateral agreement to open markets, stronger development policies and a worldwide extension of the ILO’s decent work agenda. Global governance should be reformed to create the conditions for the negotiation and implementation of this Global New Deal.

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a progressive agendaForthe europeanunion_____________________________________

The Key Priorities

maria João rodriguesOctober 2009

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the next 3 years will be decisive for europe and the world future. in face of a unprecedented financial and economic crisis, the deepening of social

inequalities and the threat of climate change, the choice we are confronted with is clear: either to accept the rise on unemployment, a sluggish growth, the risks of new financial crisis and global warming or to mobilize all progressive forces to transform our economies and societies for a greener, smarter and more inclusive growth. The second choice requires a stronger europe and more progressive influence in the european direction. The window of opportunity which is there should not be missed.

This is a systemic and global crisis requiring new rules in the market economies and a new global governance, necessary for the emergence of a new development model. The crisis should be viewed as a historic opportunity to bring forth transformational change in our economies, leading the way for truly sustainable and socially fair long-term development. We must build a financial system supporting the real economy and the transition to a smart and green economy; a generalised lifelong learning system to support the transition to new and better jobs; an active welfare system providing services and income support throughout the life-cycle. We must achieve radical change in the way we

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produce, distribute and consume energy in the interests of the planet. changes in governance - corporate and public - are required to ensure this transformation.

The world has profoundly changed and a new global order is already underway. More Europe is needed to make the best of the unique opportunity created by the obama’s administration in the usa, coupled with the emergence of a more balanced structure of global governance which is being driven by the g-20 and a new engagement with the un system. most of the global problems can only be tackled by global solutions and the european union can bring its unique experience of shared sovereignty and its commitment with multilateral rules. moreover, the european goal of sustainable development can only be pursued if there is more strategic convergence of all the global players in the same direction. europe should take the lead of this planetary shift rather than being hindered by conservative reflexes.

more europe is also needed to support all member states when coping with their national problems. National policies are no longer enough due to the level of european and global interdependence we live in. if we want to have a pro-growth macroeconomic policy and an active innovation and industrial policy, to strengthen our social protection systems or to move to a low-carbon economy, we need to coordinate these policies at european level and to complement them with new european instruments.

THE STRATEGIC PRIORITIES FOR THE EUROPEAN UNION

The strategic priorities of the european union for the next five years should address with ambition the main challenges the union is confronted with. They should be the following:

1. To respond to the current financial and economic crisis with a stronger recovery process and a long term strategy for economic, social and environmental development

2. To respond to climate change by promoting green growth and by implementing a global agreement where europe should take the lead

3. To adapt the Welfare systems to fight unemployment and to support re-skilling, active ageing, youth empowerment, european mobility and immigration policy, according to a common european Framework

4. To reform the financial system and to direct public finances to support greener, smarter and more inclusive growth

5. To make europe a global player in the reshaping of the global order, paving the way for a global new deal

6. To implement the lisbon Treaty to strengthen european political institutions and european citizenship and to pursue the other strategic priorities

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1. To respond to the current financial and economic crisis with a stronger recovery process and a long term strategy for economic, social and environmental development.

We need a stronger recovery process aiming to prevent mass unemployment with three clear priorities: supporting demand, with more private and public investment and consumption ; protecting people, especially lower income groups; and creating new jobs while promoting transformational change for a smarter and greener economy. Withdrawing the fiscal stimulus to early can be counterproductive and that is why the best way for an exit strategy is an entry strategy for those who lost their jobs because of this crisis. stronger investment initiatives are needed in new areas for growth and jobs: new energy and broadband infrastructures network; greening of products and services, including houses and cars; comprehensive programmes to support smes; family care services and infrastructures. For the recovery to bring transformational economic change to the european economy, there must be better coordination of innovation, industrial, research, education and employment policies at all relevant levels.

This recovery process should also be in line with a long term strategy for sustainable development ensuring the balance between the economic, social and environmental dimensions and paving the way for greener, smarter and more inclusive growth. in the sequence of the lisbon strategy, launched by social-democrats but diverted by neo-liberals, we need to have a single development strategy to be driven by a set of clear priorities: a shift to a low-carbon economy; a more creative and knowledge-intensive economy; a more enabling welfare system, a stronger anti-poverty policy and an active immigration policy; the

coordination of macro-economic policies and the reform of the financial system; a external action to shape globalization

When defining the post 2010, it is important not to lose the governance acquis of the Lisbon strategy, which is very relevant, even if several of its targets were not reached: a european-wide process of coordination of structural reforms and innovations to cope with common challenges, involving european institutions, governments, parliaments, regions and civil society at several levels; a gradual re-direction of several policies: employment, social protection, education, research, innovation, information society, single market, energy, regional and macro-economic policies. still we need to increase the political accountability, by making clear choices about the priorities and by synchronising this strategy with the political cycles at european and national levels.

These priorities should be translated into very concrete actions with measurable outcomes such as: developing of a new energy infrastructure which should be a low-carbon, intelligent and decentralised one; generalising the access to broadband and web 2.0 tools; creating european platforms to strengthen the coordination of research, education and innovation in new areas of investment and jobs creation; developing a european access to education and training; supporting learning organisations; adapting the welfare systems to the age trends and the professional transitions; creating new qualitative jobs, while avoiding an increase in the numbers of working poor; improving the social integration of immigrant workers; strengthening the quality of public finances; modernising public administration to support economic and social innovation; developing strategic partnerships with other countries to open markets and support the convergence to sustainable development.

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With this long term strategy, europe can take again the lead of promoting sustainable development based on new sources of growth, low carbon energy and human creativity.

2. To respond to climate change by promoting green growth and by implementing a global agreement

The way we consume, produce and move should profoundly change if we want to curb global warming. at the same time, the potential for new green jobs and greening existing jobs is huge and we should reap the benefits of this transition to low-carbon economies. green jobs creation is not limited to renewable energy production, increasing energy efficiency and the transport sector. all sectors have to put a stronger focus on green growth. competitiveness and jobs in european manufacturing will be safeguarded by lowering production costs through higher energy efficiency.“green” economic measures for the recovery could include tax credits to support energy efficiency coupled with regulation and subsidies to support renewable energies; investments in sustainable transport and tax credits/government premiums for cleaner cars should also be launched.

Furthermore, the sustainability, independence and security of Europe’s energy supplies is at stake. it will depend on large-scale investments in power generation and storage and cross-border energy networks to increase energy efficiency and to spread renewable energies, which have huge potential for promoting jobs, growth and long-term prosperity.

The copenhagen summit should launch a global adjustment process based on clear commitments: reduction of carbon emissions to 20% - 30% until 2020 for all developed countries; all developing and emerging countries

should develop national carbon reduction plans; emerging countries should agree to binding emission reductions compared to the business as usual scenario until 2020; mechanisms for a global carbon trading scheme must be put in place shortly after copenhagen; an ambitious support mechanism for developing countries should be established, sufficiently financed by public funds from developed countries and market mechanisms; in case of failure of the market mechanisms, additional public funds must be made available; a binding target to reduce the global emissions by 80% on 1990 figures until 2050 should be agreed.

3. To adapt the Welfare systems to fight unemployment and to support re-skilling, active ageing, youth empowerment, European mobility and immigration policy, according to a common European Framework

We cannot accept that the burden of this crisis will be taken by those who are not responsible for it. saving jobs is as much important as saving banks. By 2010, up to 27 million people could be unemployed, dramatically increasing the number of people living at risk of poverty, while threatening an entire generation of young people with long-term exclusion from the labour market. europe’s welfare states will come under enormous pressure as a result of the crisis, coupled with the ageing trends. To respond to this worrying outlook, we need a European Employment Pact combining urgent measures with longer term reforms of the Welfare and education systems.

Programmes for job creation should be launched based on a better coordination of labour market, education and innovation policies. attention should also be paid to facilitating entry into the labour market for young people – for example through large-scale support for internships and

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apprenticeship programmes – and tackling the increased risks of age discrimination in the labour market. unemployed people should count on unemployment insurance coupled with more effective employment and retraining services.

The european-wide programme “New skills for New jobs” should ensure a massive re-skilling for new jobs. This programme should be financed by public and private spending to be coupled with a refocusing of the european social Fund, providing tailor-made solutions for education and training to those who will need a “knowledge lift” to get a new job or keep their existing one. schemes to enable employers to prevent job cuts, such as “intelligent work-sharing” combining reduced working time with publicly-subsidised training programmes, should be implemented. other forms of flexicurity should be explored in the framework of social dialogue and enhanced social corporate responsibility.

Targeted policies must be established to support those most affected by the crisis, including those on the lowest incomes, at risk of home repossession, lone-parent families, the young, the pensioners. We must promote social justice while having an immediate impact on consumer demand for the recovery. special measures need to be developed for those being made redundant from precarious jobs benefiting from few social rights. discrimination against posted or immigrant workers should be combated. inclusive labour markets, access to public services and minimum income schemes should be kept as basic principles.

A better protection of pensions and savings is necessary by a sounder assessment of financial products and by ensuring the adequacy and sustainability of pension schemes in the three pillars of the social protection system. in this respect, a review of regulation relating to the governance and investment of second and third pillar pensions should be undertaken.

To make investments which meet employment and social objectives, including family care services and infrastructures should also remain a strong priority.

Beyond this set of urgent priorities, a progressive Social Agenda should focus on supporting professional transitions with an employment insurance and social drawing rights, promoting swifter full integration of young people in all domains of public life, mainstreaming equal opportunities in all domains of political life, adapting living and working conditions and the social protection systems to longer lives and more active ageing, eradicating poverty and fighting against discrimination, promoting new conditions for voluntary mobility and organizing a coordinated immigration policy. a new legal framework to safeguard and clarify the legal status of public services throughout europe is also required.

4. To reform the financial system and to direct public finances to support greener, smarter and more inclusive growth

There is no lasting recovery and development without a deep reform of the financial system to ensure good banking systems and better regulation for stable, transparent and efficient financial markets really focused on supporting greener, smarter and more inclusive growth. it is time to act decisively and to overcome the resistances to these deeper reforms. Financial markets should comply with very clear principles for market regulation and efficiency.

Universal legislation should cover all financial entities, products and transactions. no financial market player

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should be left out of the system, for example hedge and private equity funds. in addition, a careful and continuing analysis needs to be undertaken to monitor and identify operations of financial market players which could cause systemic risks. Tax havens and off shore financial centres that are free of regulation and legislation must be covered by regulation through a new international initiative. We must fight tax evasion resolutely;

Stronger international supervision and more cooperation between all national regulatory bodies. mandatory “capital requirements” should be defined for all financial players. executive pay and remuneration schemes should be in line with long term performance goals. accountable and transparent credit risk rating and robust and reliable accounting regimes should be ensured

alternatives to for-profit private banking, such as credit

unions, cooperative banking, mutual insurance and other community-based and public financial services, should be promoted to ensure a balanced and robust domestic financial services sector. Workers’ interests, should be protected by such means as ensuring that employees are informed and consulted during all takeovers, including those that are leveraged.

Public finances also have a key role to play in supporting a greener, smarter and more inclusive role. The current european instruments should be shaped with this purpose and the need to keep european internal solidarity.

in the framework of the revised Stability and Growth Pact, member states, able to redirect their public expenditure and tax structures, should be allowed to run higher public deficits, provided they can demonstrate that

this will contribute to higher growth and a consolidation of their public finances. Selective tax incentives should have as their primary purpose to stimulate domestic demand in a socially fair and effective way, leading to actual increases in consumption. The eu should adopt a bold package of green tax measures in this context. member states should be encouraged to reduce social security contributions of wage earners and to increase direct aid to more vulnerable households, as appropriate.

state aids to struggling sectors, suffering massive job lay-offs, should not result in unfair competition and should ensure equal treatment to cross-border branches. a new european framework to promote innovative and sustainable industrial development should be developed, generating synergies between new national efforts and ensuring their consistency with the internal market. The implementation of the structural Funds, the cohesion Fund and cap needs to be stepped up by reprogramming and frontloading financing.

member states should consider new tools to issue public bonds. in the present context, characterized by international competition for financial resources, it could be useful to examine the possibility of converting national bonds into eurobonds. The aim would be to reduce the spreads which are being paid by public debt to launch new investment projects, supporting business in general by decreasing the cost of capital, and attracting domestic and foreign savings and preventing hostile takeovers by foreign investors.

The Community budget should be adapted to contribute directly to the immediate need for economic recovery, starting with the proposal for the 2010 budget and then also

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in the forthcoming mid-term review of budget. The next financial perspectives should be aligned with the strategic priorities of this european progressive agenda

5. To make Europe a global player in the reshaping of the global order, paving the way for a Global New Deal

The emerging global order is requiring an urgent re-definition of europe’s position and role in world affairs. The lisbon Treaty will equip the eu with a service of external representation and will lead to a more consistent and coherent external action comprising cFsp, trade, cooperation, humanitarian aid and the external dimension of internal services such as energy, research, education, employment.

a new EU external agenda should define the orientations for the long term priorities as expanding the neighbourhood policy, renovating the transatlantic cooperation, deepening the strategic partnerships with the key-global players and the macro-regions, strengthening the instruments to support the mdgs. This new external agenda should also frame the european position regarding pressing issues such as the main process of peace keeping and peace building or the regulation of the financial markets, the coordination of the recovery, the agreement on climate change, the WTo doha round or the ilo agenda on decent work. making the best use of the recent g-20 process and clarifying the european position regarding the reform of the Bretton Woods institutions have also become urgent issues.

in a longer term perspective, we should stress that the time has come for a Global New Deal able to create a new global order with more social justice,

sustainable development and respect for multilateral rules democratically defined.

6. To implement the Lisbon Treaty to strengthen European political institutions and citizenship and to pursue the other strategic priorities

We want to ensure that the forthcoming implementation of the Lisbon Treaty will fully comply with its spirit by enhancing the democratic role of the european parliament with the extension of the co-decision, by developing the external action of the union and building the service of external action, by improving the coordination of economic and social policies, by respecting the horizontal social clause, by developing the services of general interest, by providing european solidarity regarding energy security, by coordinating immigration policies, by encouraging participatory democracy and promoting the charter of Fundamental rights.

The most decisive test for the implementation of the lisbon Treaty will be the capacity to connect European politics with the European citizens enabling them to build better responses to their problems and aspirations. We should work to strengthen this european connection and to make europe the most precious asset to ensure prosperity.

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GROWTH MODEL

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on theeurope2020sTraTegy,From lisBon

maria João rodriguesJanuary 2010

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iiIn the beginning of a new decade, the European Union, while implementing its new institutional setting defined by the Lisbon Treaty, is dealing with two

major challenges: redefining its role in the new emerging international order and renewing its development model. This renewal should be guided by a EU2020 succeeding to ten years of a unique experience of transnational coordination of economic and social policies framed by the Lisbon strategy adopted in 2000. This is the moment for a thorough critical assessment of this unique experience and of the situation we are now after of an also unique financial and economic crisis. This should also be the moment for setting a new ambition with very precise requirements, regarding a central purpose, the strategic priorities, the key-actions and the governance method for the years to come.

1. OUR DEVELOPMENT MODEL IS UNSUSTAINABLE

The point of departure should be to recognize that, even if Europe presents the best international example of quality of life and of a development model combining is economic, social and international dimensions, this model is just not sustainable and is driving us to an unacceptable situation.

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First, our development model is unsustainable because our patterns of consumption and production are undermining the climate and the ecological balance of the planet. The way our houses manage energy, the way our transports are organised and the way our factories work are translated into carbon emissions which will lead to a major disturbance of this balance, if they are not reversed until 2020. This reversal of the trend we are in will require to increase energy efficiency and to spread renewable energies in all sectors, in order to decouple growth from carbon emissions. Nevertheless, it is not enough to reduce the ratio of carbon emissions in the GDP, in the sense of a relative decoupling. We need to have an absolute decoupling, meaning a reduction of the total amount of carbon emissions. This is only possible with a radical shift of economic activities to low-carbon activities. In the high polluter sectors, such as transports, this will depend on major technological and social innovations. Finally, this will also require a major change in our consumption habits regarding mobility, habitat, domestic equipment and energy and our way of life in general. Ultimately, the central question to underpin this major transformation is: how should we define what is a good way of life and what is prosperity.

Second, our development model is unsustainable because our ageing trends are undermining the financial basis of our social protection systems. Even if the employment rate increases substantially, the European labour force will decrease and the dependency ratio will increase, which might strengthen the financial burden over the next generations or reduce their level of social protection, or most likely, both. This will be unavoidable unless, other factors are brought to this picture such an increase in birth rate, in working life length or in immigration flows, generalised equal opportunities, new priorities in the redistribution of income or an unattended leap in labour productivity. In fact,

the relevant discussion for the future is about the right mix of all these factors, if we want to avoid a downgrade of the European welfare systems.

Third, our development model is unsustainable because our financial system is undermining the conditions for the long term investment which is necessary to ensure sustainable growth and jobs in the transition to a low-carbon and knowledge intensive economy. Over the last two decades a major transformation took place in several varieties of capitalism, starting in the Anglo-Saxon one but spreading to others, including the European continental one. By increasing their role in funding companies, the financial markets have taken the driving seat of the economic system submitting it to chronic instability and to a new rule of profitability: not the long term profitability of productive investment which is necessary to sustain growth and jobs creation, but the short-term and short-sighted profitability which is requested by most of the shareholders. Furthermore, this kind of profitability has been developed by new financial instruments which aim at extra profits by gambling with extra-risks (such as short-selling and derivatives).

The banking system was also contaminated by the logic, which was also encouraged by insufficient regulation on capital reserves. Finally, many companies were also influenced by the same kind of logic, when their corporate governance has started to respond the shareholders expectations, rather to all stakeholders’ ones, and when their top management was refocused in favour of financial management. Hence, the recent financial and economic crisis is the direct consequence of this major metamorphosis of capitalism. Even if it was possible to control this crisis by an unprecedented public intervention, it will be necessary a major reform of the financial system and of the corporate

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governance to overcome it and to prevent it again in the future. We should then ask what kind of new economic paradigm should we aim at moving to.

These are fundamental questions Europe can no longer postpone, even more in a decisive moment when a long-term development strategy is to be designed and adopted by the European institutions involving all the relevant stakeholders.

2. A NEW CONCEPT OF PROSPERITY

The first question to be answered is what should we mean by prosperity, as a central idea to give us a sense of direction and of progress. The level of material resources measured by the GDP, and the living conditions in terms of habitat, mobility, food and health, even if they remain basic, seem to be an unsatisfactory approach to prosperity. First, because they elude the constraints of global resources we are living in. Second, because they ignore the other dimensions which are necessary for people’s well being, even to use these material resources. These other dimensions of well being are: access to capabilities, to useful activities, to initiative, environmental and physical security, social protection, democratic rights, social integration and sense of belonging to a larger community.

This larger and deeper concept of well being should be the driver to renew our development model. To be greater and not simply to be richer and stronger should be the underlying aspiration of our culture. This should have several implications for the central principle of another development model. This principle is simple: once the fundamental needs of material resources are ensured for all population, all the other dimensions of well being should grow in a

balanced manner and not be sacrificed in order to increase consumption of material resources.

In this new framework, the way to measure and to compare progress should be deeply revised. The indicators to measure growth should go beyond GDP to take into account these various dimensions of well-being. The added value should no longer be measured by the ratio between GDP and employment ignoring the depletion of natural resources. Furthermore, the increase in labour productivity should be measured not only by comparing GDP growth with employment hours growth but by comparing well-being growth in its various dimensions with the labour hours engaged in these various dimensions. Finally the progress in the various dimensions of well-being cannot be measure on by per capita indicators providing the average, because they can be very misleading; indicators about the relative distribution across the population are indispensable in all these dimensions.

A society where all citizens can satisfy their fundamental material needs, develop their capabilities, engage in useful activities, take initiative, count on environmental and physical security and on social protection, practise their democratic rights and duties with a real sense of belonging. Is this the society we want? This is possible, but with a quite deep transformation.

3. A STRATEGY OF INNOVATION FOR SUSTAINABLE DEVELOPMENT

The new long term-strategy of the European Union should be inspired by a central principle: innovation for sustainable development. Technological, economic, social

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and political innovation. To drive this transformation, some strategic priorities should be clearly defined:

A. To make a shift to low carbon activities

A shift should take place in our patterns of consumption, production and mobility. This shift should concern all sectors, but particularly those which are the most polluting ones such as transports, manufacturing and housing. The expansion of services, business, personal and collective services such as health, education, leisure, creative and communication activities should be encouraged but, if we want to avoid des-industrialisation, it should be combined with a new industrial revolution focusing on low-carbon, smarter and safer products combined with post-sale services.

B. To make knowledge and creativity the main resource of people, companies and regions

Innovation needs to be driven by new demands, but also by new interactions in supply between companies, research and education institutions. This requires to generalize the conditions for innovation in companies, which are organisational change and competence-building, access to technologies and expertise, to venture capital and to markets as well as reduction of the administrative burden. This will also require todevelop long-term pan-European research networks addressing the main challenges of this new development model in an interdisciplinary way. Knowledge accumulation has been too much subordinated to competition policy in the European research programmes. Finally, this means, not only to generalise secondary education and spreading higher education, but also to extend the access to lifelong learning based on open learning centres and on learning organisations, which role will increase in

the competence-building process. New competences such as team work, networking, learning to learn, sustainable behaviours should be generalised.

C. To make the welfare system to support change and reduce inequality

To underpin all these changes, we need to build a developmental welfare state, supporting the transitions all over the life cycle, making the best of people’s potential and reducing social inequalities. The first concern should be, of course, to reduce long-term unemployment and youth unemployment. A unemployment situation should be quickly turned into a transition to a job, a relevant training or a useful activity or a combination between them. Active ageing should be coupled with a better use of elderly experience and competence. Equal opportunities between men and women should be actively generalised at all professional levels. The conciliation between family working and social life should be made possible by better family care services and better sharing of family responsibilities. The access to learning mobility across Europe should generalized, paving the way for more professional mobility. Immigration with active social integration should be promoted as a dynamising factor of the European societies. Finally, poverty should be actively combated, first of all by reducing social inequalities and the working poor, second by providing general access to active labour market policies and good public services and, ultimately, by ensuring a basic income and integration scheme to all.

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D. To make the financial system serve the real economy

We need to refocus the financial system on the support to real economy. All the financial institutions and products should be regulated in order to control financial instability and to channel the financial resources to support the real economy, sustainable growth and jobs and, more particularly the long-term investments required by the above mentioned strategic priorities. This will also imply to fight against tax havens and speculative practices such as short-selling and many of the derivatives. A stronger supervision of the banks should be coupled with a tighter control of liquidity. Finally, corporate governance rules, particularly the accountancy standards, the top management remuneration and the rights of stakeholders/shareholders should be revised in order to ensure long-term investments and sustainable competitiveness. These principles should also be strengthened by the rating agencies when evaluating private and public debts.

Public finances should also be refocused to support the real economy which is, by the way, the best way to progress towards balanced budgets. This means to redirect public expenses and taxes to support public and private investment for smarter and greener growth.

Are these strategic priorities a wrong or a risky choice because they would create a competitive handicap to Europe? No, on the contrary, they can create the long-term competitive advantage of a first mover in general priorities which will be followed by the others, if the planet is able to create a win-win game and avoid extreme differentiation and collapse. We are assuming that the planet is condemned to

a certain level of strategic convergence if it wants to survive (see section 7).

Are these strategic priorities utopian? No, not at all, most of the technological solutions required are already known. The real difficulty is about the political process strong and democratic enough to drive this grand transformation.

In the meantime, the recent financial and economic crisis was controlled, but it is still there to be overcome and prevented regarding possible replications in the future. Hence, the central challenge for this political process is how to make the recovery not only a successful one, but something more than a recovery, a transition to a new development model.

It is crucial to make the right choices when dealing with the various dilemmas which are ahead of us:

- How can we recover growth and jobs creation and reduce carbon emissions at the same time? By refocusing investment, production, consumption and jobs creation on low-carbon solutions.

- How can we recover growth and reduce the public debt which is now much higher after the effort made with the stimulus packages and the financial bail-outs? By actively supporting jobs creation, redirecting public expenditure to key-investments and by launching green taxation.

- How can we recover growth and speed up the transition to a low-carbon and smarter economy? By actively supporting innovation at all levels and in all companies as well as the transition of people to the new jobs.

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4. AND THE STATE? A NEW APPROACH FOR POLICY MAkING

This transition will involve crucial decisions to be taken by all the stakeholders and, in fact, by all citizens, but it is central to clarify which should be the new approach to be developed by the public policy-making. The full range of available instruments should be used to manage this transition: strategic planning guidelines, regulations and standards, public services, taxes and public benefits, public procurement, public financial institutions, education contents and methods, public communication to frame the public choices, support and incentives to civil society initiatives. The policy mix will certainly require a stronger and more strategic public intervention, which is not at all in contradiction with making the best of new forms of civil society activism. A good example is the public support to be given to networks for innovation and jobs creation, or to networks for social integration, which should be strengthened at regional, national and European level. Moreover, the public services as major regulators, services providers, standards setters, network developers have an unexploited potential to be more fully used when promoting innovation for sustainable development.

Nevertheless, this new approach for policy-making should go further. Nowadays, if governance needs to be multilevel in order to be effective, we need to develop multilevel instruments of policy-making. Even if the national level remains central in many policy areas, we need to activate the local level to multiply the initiative, we need to strengthen the European level in order to use the potential of the European space and we need to shape the global level in order to protect our collective choices.

The recent experience of controlling the financial and economic crisis was particularly highlighting about this. The rescue plans and the recovery packages were submitted to an unprecedented effort of European and international coordination. This attempt was very important to avoid a collapse, but its remaining flaws at European and global level were and will be paid with high price, in term of losses of viable companies and of rising unemployment.

National policies are no longer enough due to the level of European and global interdependence we live in. Isolated national measures of macro-economic, industrial policy or social policy can undermine the Economic and Monetary Union and the Single Market. If we want to have a pro-growth macroeconomic policy and an active innovation and industrial policy, to strengthen our social protection systems or to move to a low-carbon economy, we need to coordinate these policies at European level and to complement them with new European instruments. We also need a more coordinated European voice in the international fora.

The internal cohesion of the Single Market should be safeguarded when implementing a joint European recovery plan. This means that state aids to struggling sectors, suffering massive job lay-offs, should not result in unfair competition and should ensure equal treatment to cross-border branches. But the best way to prevent the risk of national protectionism is to strengthen the role of European funding instruments, including the Structural Funds, the Globalization Fund and community programmes, and to enhance the European innovation, industrial and employment policies. Moreover, Member states should have the means to ensure the social protection and the active labour market policies necessary to cushion the industrial restructurings which will be triggered by the crisis.

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All this will require more coordination of macro-economic policies. The Economic and Monetary Union, as another major asset of European integration, will only be safeguarded on four conditions: that Member States improve the coordination of their budgetary policies, including tax policies; that the room of manoeuvre of the revised Stability and Growth Pact is fully used; that European instruments are further developed, to enable all Member States to support demand; and, finally, that non-eurozone Member States are better protected against speculative attacks on their currencies.

The political choice seems now clear: either we strengthen European integration to overcome this crisis or this crisis will undermine European integration.

5. MULTILEVEL ACTIONS WITH A STRONGER EUROPEAN DIMENSION

That is why the future long-term strategy of the European Union should be translated into powerful actions based on a multilevel policy-mix, including global, European, national and local measures. In this policy mix, the European dimension should be strengthened into three different ways: the European coordination of national policies, the implementation of specific European instruments and the definition of a European position in the international fora. According to the strategic priorities which were proposed above, the following key-actions should be given priority:

A. To promote new patterns of consumption and production for a low-carbon economy

At global level, to influence the negotiation to define

the post-Kyoto agreement; to introduce eco-standards in WTO negotiations; to promote good practices using the UN sustainable consumption and production framework of programmes.

At European level, by complying with the targets for emissions reductions and by implementing the emissions trade scheme; implementing the renewable energies directive and developing the European Strategic Energy Technology Plan; adopting the directive on eco-design, supporting leaner production and labelling and greening the supply chains to consumers; defining an harmonized base for public procurement; coordinating and supporting the construction of trans-European and low carbon transport network and of European intelligent energy grid.

At national and local level, promoting energy efficiency and the use of renewable energies using rules, standards, taxes, communication and education; building an intelligent energy grid; pricing fossil-fuel including environmental degradation and foster the use of renewable energies.

B. To actively support innovation, investment and jobs creation in new areas

At global level, to coordinate the stimulus packages and the exit strategies with a focus on jobs creation; to conclude the WTO Doha Round and to move forward in the bilateral agreements with key trading partners; to deepen and to extend the regulatory cooperation with the EU strategic partners regarding environmental, social and intellectual property standards.

At European level, to create sectorial platforms for the coordination of innovation, research and human

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resources in order to develop a European industrial policy; using regional policy, to develop European networks of clusters in promising activities for investment and jobs creation such renewable energies, ICTs, biotechnologies, nanotechnologies, creative industries, fashion, specialized equipment, health, personal services; to develop a European broadband network, common digital standards and the European contents industry, making the best use of the Web 2.0 tools; to support industrial restructuring with a stronger Globalization Fund; to implement the Small Business Act in order to improve the access to finance, to markets and a better regulatory environment. Finally, to develop European venture capital funds.

At national and local levels, to promote innovation clusters in promising activities and to strengthen the coordination between industrial, innovation, research and human resources policies. To support restructuring with stronger re-training and active labour market policies. To support SMEs and all forms of entrepreneurship.

C. To strengthen the European research potential

At global level, to develop networks for brain circulation and support schemes for joint research with European partner countries; to implement the European strategy for international science and technology cooperation.

At European level, to organise joint programming, joint calls and pooling resources of national research policies in areas of common interest. To develop the public-private partnerships in manufacturing, automotive and construction. To create European long-term research networks and research infrastructures, involving the universities. To use

the EIT and the knowledge and innovation communities to foster innovation in the universities. To adopt a community patent regime also considering the needs of knowledge transfer and use.

At national level, to increase the public and private investment in research and higher education; to adapt the universities statutes and careers in order to foster fundamental research on the one hand and innovation on the other hand.

D. Competence-building for all

At the European level, to launch a European-wide programme for “New skills for New jobs” to ensure a massive re-skilling for new jobs. This programme should be financed by public and private spending to be coupled with a refocusing of the European Social Fund, providing tailor-made solutions for education and training to those who will need a “knowledge lift” to get a new job or keep their existing one. This programme requires not only building a European co-ordinated system to anticipate skills needs, but also to develop the European frameworks (EQF and ECVET) to support the transfer and accumulation of learning outcomes. Finally, it also requires widening access to competence assessment centres as well as to new funding instruments for learning activities (learning accounts, social contributions, loans and scholarships). In this framework, all European citizens should have an opportunity for learning mobility, an Erasmus for all. Finally, is also important to create a European network to support the development of learning organization in companies and public services.

At national level, to develop national strategies for lifelong learning, including tailor-made methods, validation

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and compensation of the learning outcomes; a particular effort should be made about the generalization of secondary education, the increase of higher education graduates and the access to education and training by the lower skilled workers; schemes to enable employers to prevent job cuts, such as “intelligent work-sharing” combining reduced working time with publicly-subsidized training programmes, should be implemented.

E. Supporting professional transitions and reducing social inequalities

At global level, to promote the ILO decent work agenda the Global Employment Pact; defining new regimes of joint management of migrations and co-development with European partners countries.

At European level, to use the employment guidelines to specify the securities to be provided in each type of professional transition over the life-cycle, for instance, to create a European exchange mechanism for internships to foster the professional integration of young people; to support the transformation of the national unemployment insurance schemes into employment insurance schemes; to promote the creation of leave schemes supported by learning accounts or training vouchers for the workers in need of re-training to move to new jobs; to foster the generalisation of equal opportunities at all professional levels, supported by the development of family care services; to encourage different schemes of flexible and phased retirement where unemployment benefits can be used to co-finance in-work subsidies, training and jobs creation; to connect the minimum-income schemes with other policies for social integration; to develop a European coordinated policy for immigration.

At national and local level, to adapt all these measures to the specificities of the national and local labour markets. Moreover the re-distributional and not only the protector and enabler roles of the welfare systems need to be strengthen in combination with tax and wage policies. A European framework should be defined to coordinate this process.

F. Making public services a major innovator for sustainable development

At national and local level, public services should become powerful promoters of key priorities of sustainable development such as of low-carbon economy, entrepreneurship and social inclusion. They can promote low-carbon economies by setting news standards and regulations, using public procurement, introducing green taxes and benefits, and encouraging new behaviours with education and public communication. They can promote entrepreneurship by cutting red tape, providing financial and technical support and spreading education for entrepreneurship at all levels. Finally, they can promote social inclusion and equal opportunities, by improving the quality and performance of health, education, housing, urban planning and infrastructures and other social services in order to strengthen social integration; the top priority here should be to eradicate child poverty.

At European level, a framework directive on services of public interest is important to deepen this potential of public services. They are also supposed to be protected all over the implementation of the services directive.

At global level, the European public services should also be protected in the negotiations for trade liberalization.

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G. Reform the financial system and corporate governance for sustainable development

At global level, the regulatory agenda announced by the G-20 needs to be systematically implemented: universal legislation should cover all financial entities, products and transactions; no financial market player should be left out of the system, for example hedge and private equity funds; a careful and continuing analysis needs to be undertaken to monitor and identify operations of financial market players which could cause systemic risks; tax havens and off shore financial centres that are free of regulation and legislation should be covered by regulation through a new international initiative; stronger international supervision and more cooperation between all national regulatory bodies; mandatory “capital requirements” should be defined for all financial players; executive pay and remuneration schemes should be in line with long term performance goals; accountable and transparent credit risk rating and robust and reliable accounting regimes should be ensured.

At European level, the current initiatives should be shaped in this direction: the EU financial supervision with the European Systemic Risk board and the European System of Financial Supervisors; the directive on hedge funds and private equity funds; the recommendations on derivatives and on the remuneration of directors. Moreover, several initiatives should also be taken to reform corporate governance: the accounting standards and the corporate taxation should be revised in order to favour reinvestment of profits, long-term investment and corporate social responsibility regarding the various stakeholders.

H. Public finances to support sustainable development

At global level, the coordination of the macro-economic and structural policies should be improved, particularly in the framework defined by the G-20.

At European level, this coordination is now crucial if we want to make better use of the European spill-over effects of the stimulus packages. Moreover, in the framework of the revised Stability and Growth Pact, Member States able to redirect their public expenditure and tax structures should be allowed to run higher public deficits, provided they can demonstrate that this will contribute to higher growth and a consolidation of their public finances. This approach should also be taken into account when applying the excessive deficit procedure. To achieve sustainable public finances in the medium term and avert an unacceptable debt burden for future generations, the choice today is not between raising or cutting taxes: it is between a sluggish growth damaging the life chances of many, or investment in a sustainable and prosperous future with real job prospects for all. This fine-tuning of the macro-economic policies should be underpinned by further technical developments in the definition of indicators concerning the sustainability and the quality of the public finances at both national and European levels.

Also at European level, the Community budget should be adapted to contribute directly to the EU2020 strategy and also to the immediate need for economic recovery, starting with the proposal for the 2011 budget and then also in the forthcoming new financial perspectives.

.Finally, Member States should consider new tools to

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issue public bonds, particularly green bonds to fund the transition to a low-carbon economy. In the present context, characterized by international competition for financial resources, it could be useful to examine the possibility of converting national bonds into Eurobonds. The aim would be to reduce the spreads which are being paid by public debt to launch new investment projects, supporting business in general by decreasing the cost of capital, and attracting domestic and foreign savings and preventing hostile takeovers by foreign investors. A European agency could be created to organize the common issuance of EU denominated bonds, with the guarantees to be provided by all participating Member States.

At national level, selective tax incentives should have as their primary purpose to sustain domestic demand in a socially fair and effective way, leading to actual increases in consumption. The following measures could be considered: tax incentives for green products and services and for labour intensive services such as health, personal or catering services or reductions in the tax burden in lower incomes or in some basic products. The EU should adopt a bold package of green tax measures in this context. Member States should be encouraged to reduce social security contributions of wage earners and to increase direct aid to more vulnerable households, as appropriate

The EU 2020 should be intertwined with the recovery process and the exit strategy regarding this special fiscal stimulus overburdening the national budgets. This one needs to put the central focus on increasing the growth rate and growth potential, as a pre-condition for the longer term sustainability of public finances. Therefore:

- A early withdrawal of the fiscal stimulus should

be avoided until the drivers for a sound recovery are confirmed;

- The public expenditure cuts and the tax increases should comply with social justice and should avoid to over-burden the labour factor. A shift to green and financial taxes should become a clear priority;

- The pace to reduce the fiscal stimulus should be differentiated and adapted to national specificities, under two conditions: on the one hand, a convergence regarding social and green taxes and, on the other hand, stronger European instruments for regional development.

6. TO IMPROVE GOVERNANCE: PARTICIPATION, COORDINATION AND ACCOUNTABILITY

When defining the post 2010, it is important not to lose the acquis of the Lisbon strategy, which is very relevant, even if several of its targets were not reached (see annex):

- a large political consensus on the main strategic direction;

- a European-wide process of coordination of structural reforms and innovations to cope with these challenges, involving European institutions, governments, parliaments, regions and civil society at several levels;

- a gradual re-direction of several policies: employment, social protection, education, research, innovation, information society, single market, energy, regional and macro-economic policies.

The following priorities should be introduced to improve

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the governance of this political process.

A. The strategy architecture requires some fundamental improvements:

- at the top level, a single strategic framework, with the long term and key strategic orientations, overcoming the current disconnection between growth and jobs, social policy, energy and sustainable development;

- at the intermediate level, the Treaty-based broad economic and employment guidelines as integrated guidelines covering the full scope of the strategy;

- at the operational level the common objectives and key actions to be taken in each relevant policy according to these strategic priorities (and only those, in order to avoid the so called Christmas tree).

B. We need to increase the political accountability, by making clear choices about the priorities and by synchronising this strategy with the political cycles at European and national levels.

C. Identifying clearly the European and national tool-box which can be used by each policy. Promote its better use by each policy (see framework in annex).

D. Improving the implementation of the existing instruments available by each Council of Ministers formation and by the respective Committees and Groups, aiming a better articulation both at European as well as at national level:

- identify the tool-box available for each Council

formation;- define a general road map for its application;- improve the Committees’ support work to the

Council;- improve the peer review methods regarding

the implementation at national level.

E. Improving the implementation of the guidelines and the common objectives taking advantage of the techniques used by the open method of coordination:

- improve the consistency between the reporting, the integrated guidelines and the key-actions;

- prepare EU2020 national programme mutually consistent with the national governmental programmes;

- combine the national annual progress(short) reports with annual thematic reports focusing only on some key-actions previously selected;

- define indicators and deadlines regarding the main objectives and invite the Member States to define specific ambitious, but realistic targets for its particular case;

- select the key-indicators to grasp the main dimensions regarding the general well-being, the knowledge-economy and the development potential;

- develop a more intelligent benchmarking, putting good practices in the right context, using progression indicators, developing rankings regarding each Member State capacity to evolve towards the targets set for by each of them;

- improve the monitoring and evaluation process by focusing on the country specific recommendations;

- improve the learning process based on thematic

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workshops and data bases on good practices.

F. Improving the coordination between the relevant Council formations:

- by strengthening the coordination role of the European Council;

- by developing the regular interfaces between the Councils’ Committees or Groups focusing on concrete issues.

G. Improving the action and articulation of the national Coordinators:

- promoting a more in-depth sharing of experiences between these Coordinators;

- improving horizontal coordination at national government and at the European Commission levels;

- defining a more clear standardization of national programmes and its annual reports in order to underline the progress obtained and the respective responsibilities.

H. Developing the role to be played by the European Parliament and by the national parliaments.

I. Identifying methods to improve the participation and mobilization of civil society and social partners:

- improve the role of the Tripartite Summits and of the macroeconomic dialogue;

- support the role of the European Economic and Social Committee and of its network with the national Economic and Social Councils;

- support the adaptation of the EU2020 Strategy to the specific target-groups;

- develop various types of partnership to implement projects.

J. Improve communication instruments in order to involve different types of actors: civil servants, opinion makers, civil society partners, young people, citizens in general. Communication should be promoted and sufficiently promoted at European, national and local level, by empowering those who can multiply and adapt the message.

K. Develop the methods for a better implementation at territorial level and support the initiatives taken by the Committee of Regions. The implementation of this agenda should now be fully translated at territorial level:

- by tacking advantage of the territorial specificities and ensuring the full use of the endogenous resources;

- by developing European territorial pacts supported by regional policies and a European platform to exchange best practices;

- by enabling cities and metropolitan areas as main hubs for innovation and creativity.

7. THE IMPLICATIONS OF THE LISBON TREATY

How can we assess the potential and the limits of the Lisbon Treaty regarding the implementation of the EU development strategy (the Lisbon strategy and its successor)? A preliminary analysis of this Treaty can be undertaken from

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this particular perspective, focusing on the EU aims and principles, its institutions, its instruments and its policies.

General references

The Union’s aims in the Lisbon Treaty confirm the main ingredients of the Lisbon strategy: “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 scientific and technological advance.” Naturally, we cannot find the articulation of the strategic priorities of the Lisbon agenda, highlighting the central role of a knowledge economy or the purpose to reply to globalisation.

Furthermore, the principles for the external action of the Union are clearly stated in the Treaty encompassing: democracy, rule of law, human rights, peace, humanitarian assistance, sustainable development, environment, free trade.

The Charter of Fundamental Rights includes many of them which call for a more ambitious development agenda such as: the rights to education, to placement services, to social protection, to health, to environmental protection or the freedoms to choose an occupation, to conduct a business or to the arts and sciences.

The horizontal social clause and the protocol on services of general interest are also relevant provisions to frame the main concerns of the Union in sustaining its social model.

Institutions

The reforms to be introduced in the EU political institutions can also have several implications for the Lisbon agenda:

- the European Council is defined as central institution in its guiding role and equipped with a full-time and permanent President;

- the Council will extend the qualified majority area to more fifty new areas, using a new calculation rule after 2014-17, based on a double majority. Besides, the Council will have a new formation, a General Affairs Council clearly distinct of the Foreign Affairs Council, with the purpose of coordinating the internal policies and their interface with the national policies;

- the Presidency of the Council will be provided by a rotating team of three Member States which can organise their tasks in various ways;

- the European Commission will be chaired by a President with a stronger democratic legitimacy because he/she will be elected by the European Parliament;

- a High Representative of the Union for Foreign Affairs and Security Policy, also a Vice-President of the European Commission, will coordinate the instruments for the external action of the Union;

- the national parliaments will more systematically consulted on the Union decisions; a stronger inter-parliamentary cooperation is also envisaged;

- the European Parliament will get co-decision competences with the Council in forty new areas;

- besides a stronger interface between

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representative democracy ad participatory democracy included in the procedures of the European Economic and Social Committee and the Committee of Regions, a Tripartite Summit for growth and jobs was created, involving the social partners representations.

One can expect a general evolution of this political system in the direction of more legitimacy and more efficiency of decision making process as well as stronger coordination mechanisms, even if some tensions and counter-effects cannot either be excluded. In any case, the positive effects which can be expected are relevant for the EU development agenda, which requires a quicker implementation and a stronger horizontal coordination. The new General Affairs Council can play an important role from this perspective, supporting the European Council. Moreover, the ownership of the Lisbon process can be strengthened by more relevant roles given to the European Parliament, the national parliaments as well as by the bodies of participatory democracy at both European and national level.

The instruments

The instruments of the Union can be either compulsory, as the regulations, the directives and the decisions or not compulsory, as the recommendations and the opinions. Nevertheless the “instrument mix” will be very different according each policy, notably taking into account the different ways to assign competences to the Union and to the Member States:

- the Union has exclusive competences regarding the customs union, the competition policy, the monetary policy, the marine biological resources, the commercial policy;

- the Union shares competences with the Member States regarding: the internal market, the economic, social and territorial cohesion, the agriculture and fisheries, the environment, the consumer protection, the transport policy, the energy policy, health safety, as well as the social policy, for the aspects defined in the Treaty. Regarding research policy as well as development cooperation, the Union shall have competences to carry out activities without preventing Member States to carry out theirs;

- the Union only has competences to carry out actions to support, coordinate or supplement the actions of the Member States regarding the policies for industry, culture, tourism, education, civil protection and administrative cooperation.

Finally, the coordination of the economic policies and of the employment policies shall be undertaken according to common guidelines.

This means that the policies mobilised by the EU development agenda are distributed by the three different types of competence, meaning different levels of Europeanisation:

- in the first type, the monetary, competition and commercial policies;

- in the second type, the internal market, the environment, the research and the social policy (for certain aspects);

- in the third type, industrial and education policies, certain aspects of social policies and administrative cooperation.

In short, when it comes the strategic priorities of the EU

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development agenda, this framework implies the following instrument mix:

- regarding the regulation of the markets of products and services, capital and labour, the predominant instruments are directives and regulations;

- regarding employment and social policies, the predominant instruments are guidelines, common objectives, common programmes and structural funds;

- regarding environment, the predominant instruments are directives, decisions and structural funds;

- regarding knowledge policies, the predominant instruments are guidelines, programmes and structural funds;

- regarding macroeconomic policies, with the exception of monetary policy, the predominant instruments are guidelines.

The possibility to enforce political reorientations is therefore quite different regarding the various strategic priorities, even it is possible to go further by using the full potential of the available instruments:

- enforcing the implementation of the directives and regulations; identifying the need for new ones, respecting the better regulation process;

- monitoring the implementation of the guidelines with country specific recommendations;

- improving the resources and the effectiveness of the common programmes;

- improving the effectiveness of the structural funds.

It is also important to mention that the external action of the Union shall be deployed by quite different instruments:

- CFSP, by guidelines and decisions;- Commercial policy, by regulations and

agreements;- Development cooperation, by common

programmes and guidelines;- Economic, financial and technical cooperation,

by common measures.

Finally, it is also relevant to evaluate the level of Europeanisation of these policies by identifying those which will become covered by the ordinary legislative procedure, meaning co-decision of the Council and the European Parliament: energy, education, intellectual property, industry, tourism, administrative capacity, structural funds (after 2013), cooperation policy, trade policy and social policy with the exceptions of social protection, lay-offs, information and representation. By contrast, the need for unanimity is kept for these fields as well as for state aids, single market regulations, excessive deficits, tax policy for environment and energy, education, health and cultural services in trade policy, exchange rate, linguistic regime, own resources, common defence and general European elections.

Relevant changes in specific policies

Beyond all these systematic changes introduced by the Lisbon Treaty there are also some particular changes regarding specific policies which are relevant for the implementation of the EU development agenda:

- the move to co-decision regarding intellectual

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property rights;- the introduction of the concept of European

research area;- the inclusion of a European space policy;- the strengthening of the energy policy

addressing security issues;- the strengthening of the environmental policy

addressing climate change;- the reference to both co-decision and to the

tools of the open method of coordination in research policy, industrial policy, health policy and social policy;

- the development of a European immigration policy;

- a stronger role of the Commission in monitoring the broad economic policy guidelines and the Stability and Growth Pact;

- a declaration emphasising the need to ensure not only “sound budgetary positions” but also “raising the growth potential” as the two pillars of the economic and fiscal policy of the Union;

- a detailed organisation of the functioning of the Eurogroup, including the external representation of the Euro.

Besides this concrete specification on the Eurogroup, the procedures to organise a enhanced cooperation in various areas are also made stronger. How far can they be useful to foster the implementation of the EU development agenda is still too early to know. Nevertheless, it is important to underline, that even without using these legal procedures, many initiatives taking place in the framework of the Lisbon agenda involved a certain kind of enhanced cooperation, such as the technology platforms and the technology initiatives in research policy or the lead markets in innovation policy.

The implementation of the EU development agenda certainly requires an evolving combination of instruments supporting:

- a level playing field of common rules;- stronger instruments at European level;- a convergence of national priorities, respecting

the need to adapt to national specificities;- the possibility of differentiation to move faster

in some particular goals.

In spite of its limits, the Lisbon Treaty provides relevant opportunities to enrich and to strengthen the tool box of the EU development agenda. To exploit this potential will also depend on improving the governance of the political process underlying the agenda.

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Annex

Taking stock of the Lisbon strategy

Even if there were clear failures, the implementation of the Lisbon strategy should not be considered a failure. We need to be precise in this assessment in order not to throw out the baby with the bath water. When defining the post 2010, it is important not to lose the acquis of the Lisbon strategy which is relevant:

- a large political consensus and a real progress on the main strategic direction;

- a gradual re-direction of several policies: employment, social protection, education, research, innovation, information society, single market, energy, regional and macro-economic policies: Starting with the measures defined in the follow-up of the Lisbon European Council of 2000, several hundred of them were implemented even many others were not (see Table 1);

- and most of all, the building-up of a unique European-wide process of coordination of structural reforms to cope with these challenges, involving European institutions, governments, parliaments, regions and civil society at several levels.

In fact, the development and the implementation of Lisbon agenda can be analysed as political and social process which has involved, in a progressively organised way, the following institutions and actors:

- the European Council, in its several annual

meetings with a particular relevance to its Spring meeting, deepening its coordinating role;

- the Council, in seven of its formations: General Affairs, Ecofin, Competitiveness, Employment, Education, Environment, Energy and Telecommunications; their Council committees and groups are also involved;

- the European Commission, involving 15 out of 27 Commissioners and 17 Directorate-General. A smaller group of “Lisbon” Commissioners is meeting on a more regular basis;

- the European Parliament, involving 6 of its Committees;

- the national parliaments, involving at least their European Affairs Committees, and organising a yearly Lisbon conference with the European Parliament;

- the European Economic and Social Committee and its Lisbon network of Economic and Social Councils in the Member States they exist in;

- the Committee of Regions and its Lisbon platform involving more then one hundred regions;

- the European confederations of social partners, representing their counterparts at national level and meeting regularly with the other European institutions in the Tripartite Social Summit;

- last, but not least, the national governments with the involvement of several ministers and ministries as well as the Prime-ministers. A horizontal network of top officials is also emerging due the role of a Lisbon Coordinator, who can be a minister or a top-official reporting to a minister or the Prime-minister.

Beyond this institutional setting, there is vast network of civil society organisations in various areas which are following

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and feeding in, in a way or another, the development of the Lisbon agenda. Most of them are probably not aware of this European agenda, but rather of its translation into the national level. The same happens with many political and media actors at national level, which explains a level of ownership which remains quite low, even if with many differences when comparing Member States. Still, a quite large network and civil society leaders across Europe are explicitly connecting with the Lisbon agenda in their normal work.

The instruments being used by the Lisbon agenda are also quite diversified: directives, regulations, decisions, recommendations, guidelines, common objectives, community programmes and structural funds. Still, the “instrument-mix” is very different according to various policies covered by the Lisbon agenda: research, innovation, enterprise, information society, environment, energy, employment, education, social protection, macro-economic policies.

Nevertheless, the general orientation of the Lisbon agenda is provided by the integrated guidelines for growth and jobs, based on the Treaty instruments called “broad economic policy guidelines” and “employment guidelines”, which enable the Council and the Commission to organise a coordination process, the Commission to issue “country specific recommendations” and the European Parliament to make a follow-up, including a formal opinion in the case of the employment guidelines. The integrated guidelines were defined in 2005, building o the common objectives which were identified by the Member States by using the open method of coordination launched with the Lisbon strategy in 2000, in order to create a new strategic consensus and a larger involvement of the relevant actors. In operational

terms, these integrated guidelines are then translated into a Community Lisbon Programme mobilising the relevant European instruments already mentioned above and into national reform programmes by all Member States, mobilising all the relevant instruments. For each three year cycle, some actions can be prioritised at both levels.

Table 1: The Lisbon agenda: relative achievements and failures

Policy field (Relative) achievements (Relative) failures

Information society

• Schools connected with Internet

• Scale in content industries

• Public services: access via Internet

• Extension of broadband

Research

• European research networks

• Community patent

• European research infrastructure

• Mobility of researchers

• Technology platforms

• European Institute of Technology

Innovation

• Joint technology initiatives

• Interface business-universities

• Clusters • Venture capital

• One stop-shop for start-ups

• Galileo

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Lifelong learning

• Extension of early-school education

• Modernisation of universities

• Extension of vocational and technological education

• Extension of training for adults

Single market

• Telecommunications • Energy

• Single sky • Portability of pensions

• Financial services • Better regulation

• Services directive

• Reducing red tape

Trade • Bilateral agreements • Doha Round

Employment

• Net jobs creation (15 million)

• Flexicurity

• Modernisation of employment services

• Employment of young people

• Women employment rate

• Immigration management

• Restructuring management

Social protection • Pensions reform • Active ageing

Social inclusion • Childcare services • Poverty rate reduction

Environment

• Environmental awareness

• Renewable energies

• Emissions trade scheme

Source: Rodrigues, M.J. (ed.) (2009) Europe, Globalization and the Lisbon Agenda, Cheltenham, UK and Northampton, MA, USA: Edward Elgar.

RECENT BIBLIOGRAPHY

• Aglietta, Michel and Laurent Berrebi (2007), Désordres dans le capitalisme mondial, Paris: Éditions Odile Jacob.

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• Attali, Jacques (2008), La crise, et aprés?, Paris: Librairie Arthème Fayard.

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• European Commission (2009), Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Second implementation report for the community Lisbon Programme 2008-2010, COM(2009) 678 final, Brussels, 15.12.2009.

• Fagerberg, Jan, Paolo Guerrieri and Bart Verspagen (eds) (1999), The economic challenge for Europe, Adapting to innovation based growth, Cheltenham, UK and Northampton, MA, USA: Edward Elgar.

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(eds) (2009), Aftershocks, Economic crisis and institutional choice, Amsterdam: Amsterdam University Press.

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• Kinsley, Michael and Conor Clarke (eds) (2009), Creative capitalism, London: Simon & Schuster.

• Lorenz, Edward and Bengt-Ǻke Lundvall (eds) (2006), How Europe’s Economies Learn. Coordinating Competing Models, Oxford and New York: Oxford University Press.

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knowledge economy, Cheltenham, UK and Northampton, MA, USA: Edward Elgar.

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the europe2020strategYand the nationalreFormprogrammes_____________________________________

A progressive guide

maria João rodrigueswith the collaboration of Jan kreutz

October 2010

• Stiglitz, Joseph, Amartya Sen and Jean-Paul Fitoussi (eds) (2009), Rapport de la Commission sur la mesure des performances économiques et du progrès social.

• Talbott, John R. (2008), Obamanomics, How bottom-up economic prosperity will replace trickle-down economics, New York: Seven Stories Press.

• Telò, Mario (ed.) (2009), The EU and Global Governance, London and New York: Routledge/Garnet Series Europe in the World.

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• Wolf, Martin (2008), Fixing Global Finance, Baltimore: The John Hopkins University Press.

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iiA DECISIVE PERIOD TO SHAPE NATIONAL POLICIES

the way to define the national economic and social policies and to coordinate them at european level is about to change. The launch of the strategy

europe 2020 combined with the financial and economic crisis and its impact in the euro-zone is leading to an important overhaul of the european economic governance. This new political framework will shape the choices to be made regarding:

- The balance between recovery and fiscal consolidation

- The path to reduce macro-economic imbalances in the euro-zone

- The means to promote jobs creation and combating unemployment

- The plans to reform and sustain the welfare system and the public services

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- The concern to fight against poverty and social exclusion

- The ambition to invest in education and r&d- The commitment to move to a greener

economy- The regulation of the financial markets

Why is that so? new coordination rules were approved by the european councils of June and september 2010 and will be further deepen by the european council of october. From now on:

- The general priorities for fiscal, economic, social and environmental policies will be first defined at european level, notably by the european council of march each year, after a proposal to be made by the european commission in its annual growth survey;

- after that, all member states will present their stability and convergence programmes (framing the national budgets) and their national reform programmes (framing their economic, social and environmental policies) to be prepared jointly until april each year

- recommendations for each member state can be presented afterwards by the european commission and should be discussed and adopted by the council of ministers until July each year

- after this so-called “european semester” of coordination at european level encompassing fiscal policies and structural reforms, member states will start the internal work of approval of their budgets and their internal policies in the national parliaments and other relevant bodies.

From then on, the multilateral surveillance will be broader, including not only the fiscal one under the

stability and growth pact, but also the macro-economic surveillance and the monitoring of the structural reforms under the europe 2020 strategy. The non compliance with the recommendations can lead to sanctions, which are now being specified (fines but also possible involvement of structural funds under discussion)

The transitional period for these new rules is starting now. member states were invited to prepare their draft national reform programme until 12 november 2010, where they will set their national targets regarding employment, r&d, low-carbon economy, education and poverty; they should also identify the major bottlenecks and define the priority measures and the reforms to be “frontloaded”. Bilateral meetings between the governments and the european commission are taking place to prepare these documents. Furthermore, country surveillance missions to capitals led by the dg ecFin are planned for october.

The present progressive guide was prepared to be used all over this process: during the preparation, the discussion, the approval, the assessment and the implementation of the national reform programmes. This guide follows the structure of the upcoming national reform plans and its content is based on the large joint work undertaken by thematic networks, ministerial meetings and workshops. This first version should be discussed and improved by working together in these national and european structures.

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PROMOTING GROWTH AND RE-BALANCING THE BUDGETS

EU DECISION

headline target

medium-term objectives regarding the public deficit and the public debt, below the limits of 3% and 60% over the national gdp

guideline 1:

ENSURING THE qUALITY AND THE SUSTAINABILITY OF PUBLIC FINANCES

member states should implement budgetary consolidation strategies under the stability and growth pact and in particular recommendations addressed to member states under the excessive deficit procedure, and/or in memoranda of understanding, in the case of balance-of-payments support, as follows:

– member states should achieve a consolidation of well beyond the benchmark of 0.5 % of gross domestic product (gdp) per year

in structural terms until medium-term budgetary objectives have been reached. in designing and implementing budgetary consolidation strategies, they should generally avoid increases in taxes that particularly harm growth and employment whilst prioritising growth-enhancing expenditure items such as education and skills, research and development (r&d) and innovation and investment in networks, for example high-speed internet, energy and transport interconnections. Where taxes may have to rise, this should, where possible, be done in conjunction with measures to make tax systems more growth-friendly by shifting the tax burden from labour to energy and environmental taxes. Tax and benefits systems should provide incentives to make work pay.

– Without compromising the overriding objective of consolidating budget positions, member states should give priority to enhancing the quality of public finances and to supporting growth, employment and cohesion-enhancing public expenditures such as r&d and innovation, education, skills training, labour market activation and economic infrastructure.

– member states should strengthen national budgetary frameworks, and improve the sustainability of public finances through a three-pronged strategy consisting of a fast pace of debt reduction, reform of age-related public expenditure, such as health spending, and contributing to raising effective retirement ages to ensure that age-related public expenditure is financially viable, socially adequate and accessible.

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a progressive approach

Ensuring fiscal consolidation and long term sustainability of public finances

Although our economies have not recovered from the severe downturn that affected Europe from 2008, as demonstrated by the deteriorating situation on the labour market all across the European Union, Member States must integrate objectives of fiscal consolidation in their medium term fiscal strategy.

Spending cuts should not concern measures with higher long-term multipliers, such as public investment. Spending cuts should concern primarily public consumption measures. In relation to the economic situation of the relevant Member State, measures aimed at supporting internal demand should be maintained, if required.

However, medium term fiscal consolidation in the context of the post-crisis recovery is not a sufficient guarantee for the long term sustainability of public finances, which implies a complete reorientation of public spending, the setting-up of innovative permanent sources of public revenue, such as a tax on financial transactions, and the achievement of the structural goals of the Europe 2020 strategy.

1. Fiscal consolidation in the medium term, in particular on the spending side, must not be implemented before the economic recovery is firmly secure, and a proper social and gender impact assessment has been carried out.

2. in the process of consolidation, revenue measures should be favoured over spending measures. in particular, innovative revenue measures such as taxation on activities with strong negative externalities should be explored. The taxation of carbon and of capital should be favoured over

the taxation of labour. sources of finance other than national budgets, in particular eu structural funds and eiB loans, must be used to their full extent to finance innovative, job creating investments.

3. spending cuts should not concern public investment but rather public consumption measures. social transfer measures can only be affected by fiscal consolidation programmes under the condition that the principle of fair burden-sharing is respected.

4. strengthening the long term sustainability of public finances, by re-directing public spending, setting-up of innovative permanent sources of public revenue, such as a tax on financial transactions and achievement of the structural goals of the europe 2020 strategy, notably higher growth potential and sustainability of social protection.

5. reform and strengthen pension, social insurance and health care systems to ensure that they are viable, socially responsible and inclusive.

Improving the quality of public finances and efficiency of economic policy

In the context of economic recovery, the conduct of fiscal policies, comprising of budgetary and tax policies, for the next decade, should be better connected with structural policies.

The fiscal stimulus measures in the Member States must be gradually withdrawn in accordance with the broad principles laid out in guideline 2, to allow for the full deployment of structural policies aimed at reaching the

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Europe 2020 strategic goals.

Growth and job creation should be explicitly made the central objective of fiscal policy, by re-directing public spending and revenues and by enhancing ex-ante and horizontal coordination in the euro-zone. An efficient and effective policy-mix must be defined to support sustainable growth, also comprising of adequate coordination with the single monetary policy.

1. member states should implement coordinated investment programmes targeted at innovative, high growth potential sectors such as renewable energies, sustainable building and sustainable transport, energy and broadband networks, education and social infra-structures.

2. in the framework of the revised stability and growth pact, member states must be enabled to redirect their public expenditure and tax structures to support investment and job creation, as well as protecting viable jobs, and they should have more time to reduce their deficits, provided they can demonstrate that this will contribute to higher growth and a consolidation of their public finances.

3. The coordination of budgetary policies regarding the common priorities of public spending towards a greener, smarter and more inclusive growth should be organized as a precondition to benefiting from the spill-over effects across member states.

4. in accordance with the principle of subsidiarity, investment programmes which are best implemented at a supra-national level should be assigned to the eu budget, within the limits allowed by the Treaty.

ENSURING THE qUALITY AND THE SUSTAINABILITY OF PUBLIC FINANCESREDUCING THE MACROECONOMIC IMBALANCES

EU DECISION

headline target

indicators of macroeconomic imbalances to be reduced

guideline 2:

ADDRESSING MACROECONOMIC IMBALANCES

member states should avoid unsustainable macroeconomic imbalances, arising from developments in current accounts, asset markets and the balance sheets of the household and corporate sectors. member states with large current account deficits rooted in a persistent lack of competitiveness or prudential and taxation policies should address the underlying causes by acting on fiscal policy, on wage developments, on structural reforms relating to product and financial services markets, and on labour markets, in line with the employment guidelines.

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in this context, member states should encourage the right framework conditions for wage bargaining systems and labour cost developments consistent with price stability, productivity trends and the need to reduce external imbalances. Wage developments should take into account differences in skills and local labour market conditions and respond to large divergences in economic performance across regions within a country.

guideline 3:

REDUCING IMBALANCES IN THE EURO AREA

euro area member states should regard large and persistent divergences in current account positions as a matter of common concern and take action to reduce macroeconomic imbalances where necessary. Within the eurogroup, they should regularly monitor the current account positions. euro area member states with large and persistent current account deficits that are rooted in a persistent lack of competitiveness should achieve a significant yearly reduction in structural terms. Those euro area member states should also aim to reduce real unit labour costs. member states with large current account surpluses should pursue measures to remove structural impediments to consumption.

a progressive approach

Some macroeconomic imbalances were magnified by the crisis and are now more visible in the current accounts and the balance sheets of the households and companies. Their underlying causes might be explained by unsustainable public

spending, wage developments or by lack of productivity improvements. Nevertheless, in the present conditions, they are also explained by lack of demand for investment and consumption at European level, inequalities in income distribution, increasing unemployment and poverty, deeper regional inequalities and lack of effective instruments to finance public budgets. Therefore, multilateral surveillance should follow-up these different dimensions in order to identify the appropriate and specific solutions. Beyond the national specific solutions, there are general principles which should be implemented. Macroeconomic imbalances can be reduced by better conditions for recovery in all Member States.

Wage developments can contribute to stable macroeconomic conditions and an employment friendly policy mix. This requires that real wage increases are in line with the underlying rate of productivity growth over the medium term and are consistent with a rate of profitability that allows for productivity, capacity, for the protection of purchasing power and employment-enhancing investment. This requires that temporary factors such as variation in productivity caused by cyclical factors or one off rises in the headline rate of inflation do not cause an unsustainable trend in wage growth and that wage developments reflect local labour market conditions.

In the current economic and labour market situation, freezes and cuts in nominal wage levels do not stimulate the recovery process but can rather undermine it, and should therefore be avoided. In this regard social partners can play a key role. These issues need to be taken into account in the continued dialogue and information exchange between monetary and fiscal authorities and the social partners via the Macroeconomic Dialogue.

Welfare renewal should be complemented by wage and tax policies with redistribution effects. Progressive tax

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policies need to be reintroduced and wage policies must aim at gradually raising wages in all income groups.

Particular attention should be given to the low level of wages in professions and sectors which tend to be dominated by women and to the reasons which lead to reduced earnings in professions and sectors in which women become more prominent. Member States’ aim should be to eradicate the gender pay gap. A first step is lowering the pay gap by 10% until 2020, going hand in hand with closing the other structural and social gaps that contribute towards the pay gap.

1. The fiscal stimulus to sustain demand should be kept until the recovery is secured and the coordination of national fiscal policies improved to generate positive spill-over effects across member states.

2. The sustainability of public debt should be ensured by responsible spending as well as by more effective financing instruments.

3. income inequalities, including the gender pay gap, should be reduced in order to foster consumption and reduce households’ indebtedness.

4. Tax policies should be adjusted in order to reduce social inequalities.

5. regional policy should be more effective in supporting regional convergence towards a new greener, smarter and more inclusive growth model.

6. social dialogue and the role of collective bargaining should be strengthened in order to ensure wage developments, economic recovery and quality jobs.

7. social partners should, within their own areas of responsibility, be encouraged to set the right framework for wage bargaining in order to reflect productivity and labour market challenges at all relevant levels and to avoid gender pay gaps.

.

A SMARTER GROWTH

EU DECISION

headline target

investing 3% of the gdp in r&d

guideline 4:

OPTIMISING SUPPORT FOR R&D AND INNOVATION, STRENGTHENING THE kNOWLEDGE TRIANGLE AND UNLEASHING THE POTENTIAL OF THE DIGITAL ECONOMY

member states should reform national (and regional) r&d and innovation systems, ensuring adequate public investment, orienting them towards addressing major societal challenges (for example. energy, climate change, social cohesion, health, and security), fostering excellence and smart specialisation, and reinforcing cooperation between universities, research institutes and private sector

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companies. member states’ r&d and innovation policies should be set within an eu context in order to enhance opportunities for pooling public and private resources in areas with eu value added, thus achieving sufficient scale and avoiding fragmentation.

national funding schemes should be reviewed and simplified to facilitate cross-border cooperation. With a view to promoting private investment, member states should improve framework conditions — notably with regard to the business environment, competitive and open markets — combine fiscal incentives and other financial instruments with measures to facilitate access to finance (including risk-capital), boost demand (notably through public procurement), promote innovation-friendly markets and regulations, and ensure adequate protection of intellectual property. member states should also ensure a sufficient supply of science, mathematics and engineering graduates and school curricula should strive to support creativity, innovation, and entrepreneurship.

member states should promote the roll-out of high-speed internet; they should put in place appropriate framework conditions to promote investment in an open, competitive market for high speed internet, including a functioning single market for online content and services. public funding, including structural funds, should be targeted on areas not fully served by private investment. policies should respect the principle of technological neutrality. member states should seek to: reduce the costs of network roll-out, by coordinating public works; promote the deployment and use of modern accessible online services, partly by further developing e-government; support social innovation and active participation in the digital society; and promote a climate of security and trust.

a progressive approach

Strengthening investment in research

A high level of research and development (R&D) is crucial for our future competitiveness and for addressing new societal needs. R&D affects economic growth through various channels: first, it can contribute to the creation of new markets or production processes; second, it can lead to incremental improvements in already existing products and production processes; and third, it increases the capacity of a country to absorb new technologies.

More rapid progress towards establishing the European Research Area, including meeting the collective EU target of raising research investment to 3 % of GDP is needed. Public research expenditure must be made more effective and the links between public research and the private sector have to be improved. The main challenge is to put framework conditions in place, instruments and incentives for companies to invest more in research. Poles and networks of excellence should be strengthened; better overall use should be made of public support mechanisms to boost private sector innovation.

In addition, a determined effort must be made to increase the number and quality of researchers active in Europe, in particular by attracting more students into scientific, technical and engineering disciplines, enhancing the career development and the transnational and inter-sectoral mobility of researchers, reducing barriers to the mobility of researchers and students and by enhancing access to the R&D sector for women, who represent 60% of university graduates. The international dimension of R&D should be strengthened in terms of joint financing, development of a more critical mass at the EU level in key areas requiring large funds.

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1. public expenditure on r&d should be more effective and efficient, pooling resources and infrastructures by joint programming involving several member states.

2. centres of excellence of educational and research institutions in member states should be developed and strengthened. new centres should be created where appropriate, and the cooperation and transfer of technologies between public research institutes and private enterprises should be improved.

3. The management of research institutions and universities should be modernized.

4. Framework conditions should be improved, ensuring that companies operate in a sufficiently competitive and attractive environment. incentives to leverage and better use of private r&d should be developed.

5. a sufficient supply of qualified researchers should be ensured by attracting more students into scientific, technical and engineering disciplines. The career development and the european, international as well as inter-sectoral mobility of researchers and development personnel should be enhanced.

6. r&d policy should be gender mainstreamed by increasing the number of women researchers and encouraging female graduates (who represent 60% of all graduates) to develop their careers in their field of expertise.

Fostering innovation

The dynamism of the European economy is dependent

on its innovative capacity. Innovation concerns not only processes but also products and services, not only technologies but also organisations and people, not only forefront sectors and regions but also all sectors and regions. The challenges for the EU over the coming years are to actively mobilise investments and create new jobs by using innovation as the main engine for growth. Therefore, the economic framework conditions for innovation need to be in place. One is the access to advanced digital infrastructures, another is the access to venture capital.

Innovations are often introduced to the market by new enterprises, which may meet particular difficulties in obtaining finance. Measures to encourage the creation and growth of innovative enterprises, including improving access to finance, should therefore enhance innovative activity.

The EU’s broad based innovation strategy therefore addresses standardisation, the use of public procurement to stimulate innovation, joint technology initiatives, boosting innovation in lead markets, cooperation between higher education, research and business, technology diffusion, innovation in services and non-technological innovation, improving businesses’ access to innovation capital and intellectual property rights. It is now imperative to deliver a unitary, affordable Union patent, set up an EU-wide jurisdictional system for patent litigation and facilitate the enforcement of intellectual property rights in the Internal Market.

1. european partnerships for innovation and job creation should be launched, focusing on promising new activities and combining european and national initiatives.

2. public procurement of innovative products and

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services should be encouraged.

3. innovation support services should be improved, in particular for dissemination and technology transfer.

4. innovation poles, networks and incubators should be created and developed, bringing together universities, research institutions and enterprises, including regional and local level, helping to bridge the technology gap between regions.

5. cross-border knowledge transfer, including from foreign direct investment, should be encouraged.

6. access to domestic and international finance should be improved, and efficient and affordable means to enforce intellectual property rights should be secured.

7. Broadband access in all regions should be deployed and widespread use of icT in public services, smes and households should be encouraged.

A GREENER GROWTH

EU DECISION

headline target

reduce greenhouse gas emissions by at least 20%compared with 1990, increase the share of renewable energy to 20% and achieve 20% increase in energy efficiency

guideline 5:

REDUCING GREENHOUSE GAS EMISSIONS AND USING RESOURCES EFFICIENTLY

member states should decouple economic growth from resource use. in order to reduce emissions and progress towards the agreed targets, member states should make extensive use of market-based instruments, including taxation, to support green growth and jobs and incentivise the use of renewable energy and clean technologies. member states should phase out environmentally harmful subsidies and ensure fair distribution of their costs and benefits, limiting exceptions to people with social needs. member states should use regulatory and fiscal instruments, including building performance standards, subsidies and ‘green procurement’, to incentivise cost-effective adaptation of production and consumption methods,

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maximise efficient use of resources and promote recycling, and decarbonise both transport and electricity production. member states should develop smart, upgraded and fully interconnected transport and energy infrastructures, use information and communication Technologies, in line with guideline 4, to secure productivity gains, ensure coordinated implementation of infrastructure projects and support the development of open, competitive and integrated energy markets.

a progressive approach

To increase energy efficiency and spread renewable energies

To ensure a more efficient use of energy throughout the European Union, Member States should increase incentives for investments in modern, clean and efficient energy sources as well as increasing energy efficiency and reducing the use of energy and other resources. Furthermore, the EU must work with the Member States on interconnecting Europe’s energy grid, in order to make it more reliable as well as more efficient.

Concrete steps can be taken in the production, consumption and mobility sectors. Standardisation and harmonisation policies should be used to promote energy efficient measures for production and for phasing out older and less efficient carbon-intensive ways of manufacturing while raising the industry’s competitiveness by reducing the need for raw material and energy input. Through consumer education and labelling, awareness of energy efficient production could be raised and by doing so promote the consumption of products with smaller carbon footprints. Vast improvements can also be achieved in the mobility

sectors by continuously reducing emissions from cars powered by combustion engines while gradually substituting conventional drives with hybrids or electric vehicles and extending public transportation.

The use of market-based instruments, so that prices better reflect environmental damage, social costs and hence encourage consumers to use energy more efficiently, plays a key role in this context. Encouraging the development and use of environmentally-friendly technologies, the greening of public procurement with particular attention to SMEs, and the removal of environmentally harmful subsidies alongside other policy instruments can improve innovative performance and enhance the contribution to sustainable development.

Renewable energy and “green” technology have high growth potential and can be used to make the European Union the frontrunner for sustainable manufacturing. This restructuring process should be supported by new industrial policy improving the framework conditions, coordinating the relevant instruments and ensuring a fair transition to the new jobs created.

1. incentives to foster investments in efficient and sustainable energy sources e.g. subsidies, tax breaks or feed-in-tariffs should be set, and the eu’s reliance on imported fossil fuels should be reduced.

2. The share of renewable energy in electricity generation and transport should be increased and the eu emission Trading scheme (eTs) must be strengthened and extended in order to price co2 emissions in a socially just manner.

3. europe’s energy grids should be interconnected so

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that energy efficiency as well as energy security improves throughout the eu.

4. changes in the consumption of energy and raw material should be supported by incentives and/or sanctions. For example, market-based instruments and regulations should be introduced to ensure that the price of energy reflects the price of its environmental damage.

5. environmentally harmful subsidies should be phased out.

6. incentives to create new green jobs should be given and the greening of existing jobs should be supported. To achieve this objective we require a clear industrial framework that directs already existing and potential revenue streams (e.g. a Financial Transaction Tax) at overhauling the european economy and provides green investments with a secure, sustainable perspective.

7. market entry for low-carbon products should be facilitated through harmonisation and standardisation, public subsidies to allow products to enter the markets and transitional financial support to increase their competitiveness.

8. r&d measures for “green” technology should be increased in order to maintain europe’s position among global leaders for sustainable energy and energy efficient technologies.

9. measures ensuring that less advantaged groups in society do not bear un-proportional costs due to the transition towards a carbon-free economy must be introduced, especially concerning energy price.

EU DECISION

guideline 6:

IMPROVING THE BUSINESS ENVIRONMENT AND MODERNISING THE INDUSTRIAL BASE

member states should put in place predictable framework conditions and ensure well-functioning, open and competitive goods and services markets, particularly through the effective implementation and enforcement of single market rules. member states should continue to improve the business environment by modernising public administrations, reducing administrative burdens, supporting small and medium-sized enterprises (smes) in line with the ‘Think small First’ principle, facilitating access to finance, improving conditions for enforcing intellectual property rights, and promoting entrepreneurship. public procurement should be used to provide incentives to innovate, particularly for smes, while respecting the principles of transparency and effective competition.

member states should support a modern, competitive, and energy-efficient industrial base, partly by facilitating any necessary restructuring in full compliance with eu competition rules and other relevant rules. member states should work closely with industry and stakeholders to contribute to eu leadership in global sustainable development, particularly by encouraging corporate social responsibility, identifying bottlenecks and anticipating and managing change.

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a progressive approach

A new industrial policy

Europe’s economy cannot prosper without a strong industrial sector. Becoming a knowledge based economy must not be mistaken with becoming a purely service based economy. Looking at Europe as a whole, economic growth, employment and wealth still highly depend on a strong industrial sector. In the aftermath of the crisis, the impacts of reduced industrial production on the service sector, on the labour market and on public budgets have become clearly visible.

Answering the challenge of strengthening the industrial sector requires a paradigm shift: laissez faire policies have been proven to fail in the past years. The competitiveness of European industry decreased, production was outsourced to other continents and the pressure on the labour market and social security systems increased. What is needed instead is a proactive European industrial policy, based on two pillars:

1. Improving framework conditions for Europe’s industry in general, for example by supporting the greening of the economy, providing high quality infrastructure and equipping the workforce with new skills.

2. Analysing the opportunities and restructuring needs in each sector and – in close cooperation with the national and regional levels - developing the necessary support tools for enterprises in each sector.

Small and medium-sized enterprises (SMEs) are major economic actors within the European Union and constitute the most important employers of European workers. The legal framework for SMEs should be optimized and simplified through a common statute for European Private Companies. The EU now needs to implement the Single Act

with an integrated policy approach which tackles obstacles at all stages of SME development in order to increase their size and enable them to compete successfully with global challengers. The reduction of administrative burdens at EU level should not lead to a race to the bottom concerning the environmental and social standards in application in the Member States. A clear priority of the European Union is to improve the business environment for SMEs: an easier access to financial and innovation resources is therefore needed.

The key elements of such a new industrial policy must be:

1. Industrial policy for fair, green and smart growth: The development of a proactive industrial policy is crucial for fair, green and smart growth. it must be servant of human and societies’ progress by contributing to the creation of new, decent jobs, strengthening the economic capacity of member states, to the consolidation of their budgets and providing affordable and high-quality products to european consumers.

2. Being innovative: a key challenge for europe’s industry is to be more innovative than other world regions. This requires a forward looking policy of closely coordinating innovation, competition, industrial, education and employment policies on european, national and regional level. european citizens and employees need to be prepared for innovation, by increasing their skills and improving working conditions. support for r&d must be increased by direct subsidies, tax cuts, access to specific loans and other financial means. support is needed to transform r&d success into new market-ripe products and services to cope with new needs. innovative enterprises, especially smes need to be supported. networks for innovation and job creation need to be established, involving companies,

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universities and technological institutions.3. Greening the economy: Transforming europe’s

economy into a carbon-free economy will not only contribute to growth, but also to improving living conditions in europe and to decreasing the burden on our environment. While labour costs constitute 20% of the costs in europe’s industry, the use of resources constitutes 40%. instead of continuing to lower wages, more emphasis must be put on reducing the use of energy and resources thereby making the european economy more competitive. Tighter standards for resource efficiency need to be set on the european level. information on options to increase the efficiency of production, support for the necessary training of employees and direct financial support for front-runners is needed. The green technology sector is growing fast despite the crisis and has a potential to create millions of new jobs and to contribute decisively to the economic growth of the european union. renewable energy, energy efficiency and recycling technologies need to receive increased support. The green restructuring process which will especially affect energy intensive sectors needs to be facilitated. employees need to be supported by means of training and re-skilling.

4. Corporate responsibility and corporate democracy: strengthening the role of employees within their enterprises is important to support innovation and the quality of work delivered. Therefore, work councils need to be strengthened, ownership of employees of “their” enterprise increased and trade unions supported. Business stakeholders need to stop preaching strengthened corporate social security but practise it instead.

5. Accessing global markets: in the future, europe’s economic growth will depend even more on the ability of european companies to compete on the global market. european companies, especially smes, need to access markets of third countries and offer their innovative

products and services worldwide. The framework conditions for international activities, especially for small and medium sized enterprises, need to be improved, for example by directly subsidising the export of innovative products such as green technologies, supporting language training for employees and providing contacts to foreign companies.

6. Strengthening SMEs: small and medium size enterprises are the driving force of europe’s economy. support must be given for innovation, greening, job creation and modernisation of equipment. Bottlenecks related to the development of smes, for example complicated and expensive patent schemes, need to be overcome. access to finances (microfinance, seed and venture capital), new technologies as well as affordable and high quality public services (such as broad band internet access) need to be improved.Training for entrepreneurship should be spread.

7. Anticipating industrial trends: in close cooperation with industry and other stakeholders, future industrial developments should be anticipated by supporting industry in adapting to prospective demands. industrial innovation, employment and education policies need to be coordinated for each sector (car, health, etc.). priorities for concrete measures and projects to support each sector need to be defined. The workforce needs to be provided with the necessary skills for future jobs, which requires careful forecasting and stronger education systems.

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MORE AND BETTER JOBS

EU DECISION

headline target

raise the employment rate of the population aged 20-64 from the current 69% to at least 75%

guideline 7:

INCREASING LABOUR MARkET PARTICIPATION AND REDUCING STRUCTURAL UNEMPLOYMENT

member states should integrate the flexicurity principles endorsed by the european council into their labour market policies and apply them, making full use of european social Fund support with a view to increasing labour market participation and combating segmentation and inactivity, whilst reducing structural unemployment. measures to enhance flexibility and security should be both balanced and mutually reinforcing. member states should therefore introduce a combination of flexible and reliable employment contracts, active labour market policies, effective lifelong learning, policies to promote labour mobility, and adequate social security systems during transitions accompanied by clear rights and responsibilities for the unemployed to actively seek work.

member states should step up social dialogue and tackle

labour market segmentation with measures addressing temporary and precarious employment, underemployment and undeclared work. The quality of jobs and employment conditions should be addressed by fighting low-wage traps, making transitions pay and ensuring adequate social security also for those on fixed contracts and the self-employed. employment services should be strengthened and open to all, with personalised services targeting those furthest away from the labour market.

in order to increase competitiveness and raise participation levels, particularly for the low-skilled, and in line with economic policy guideline 2, member states should review tax and benefit systems and the capacity of public services to provide the necessary support. member states should increase labour force participation through policies to promote active ageing, gender equality and equal pay and labour market integration of disabled, migrants and other vulnerable groups. Work-life balance policies with the provision of affordable care and innovation in work organisation should be geared to raising employment rates, particularly among youth, women and older workers. member states should also remove barriers to labour market entry for newcomers and support self-employment and job creation in areas including green employment and care.

guideline 8:

DEVELOPING A SkILLED WORkFORCE, PROMOTING JOB qUALITY AND LIFELONG LEARNING

member states should promote productivity and employability through an adequate supply of skills to match demand in the job market, with a combination of basic education, vocational training, lifelong learning,

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careers advice, second-chance opportunities and targeted migration policies. member states should develop systems for recognising acquired competencies, remove barriers to mobility, and focus their efforts particularly on helping those with low skills and increasing the employability of older workers.

in cooperation with business and social partners, member states should improve the quality of and access to training, strengthen career guidance and systematic information on new job openings and opportunities, and enhance anticipation of skill needs. investment in human development and participation in lifelong learning schemes should be promoted through joint financial contributions from governments, individuals and employers. To support young people and in particular those not in employment, education or training, member states should enact schemes to help recent school leavers find initial employment, including (but not limited to) professional apprenticeships, and intervene rapidly when young people become unemployed. regular monitoring of the performance of up-skilling and anticipation policies should help identify areas for improvement.

a progressive approach

Creating more and better jobs, investing in skills

The recovery process provides a unique opportunity to redirect growth for a greener and more inclusive future. Creating new jobs and “greening” existing jobs should become a priority and an important element of innovation and industrial policies as well as of supportive macro-economic policies. They should contribute to achieving an average employment rate of at least 75 % overall and to

reduce unemployment and inactivity.

One of the existing inequalities creating a risk of permanent social divides within our societies is between those with stable, well-paid jobs and those in precarious, low-quality jobs. The number of working poor has increased over the past years, especially in the times of crisis. The aim of the European Union to have full employment and social progress needs to be respected.

1. Mapping future job needs: employment developments across all sectors should be mapped for the entire european union. in close cooperation between european, national and regional administrations and together with the private sector and trade unions, models predicting the destruction of existing jobs and creation of new jobs across all sectors should be developed. The results should be taken into consideration in education policies across the european union, to equip europeans with the skills needed in the future.

2. Job creation: creating new jobs is a precondition for overcoming unemployment, achieving fair, green and smart growth and achieving balanced public finances. innovation, industrial, research, education and employment policies on the european and national level need to be better coordinated. For each industrial and service sector, future job needs must be analysed and the necessary support tools for enterprises provided. private investments creating new jobs must be facilitated by:

• reforming the financial market with the aim of redirecting funds from the financial market into the real economy;

• increasing trusts amongst banks and therefore simplifying access to credits;

• reducing labour costs, through shifting

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tax burdens away from labour towards capital, financial speculation and green house gas emissions.

european funds should be used more directly to create sustainable and high quality jobs, especially by supporting small and medium sized enterprises.

3. Decent work: many of the newly created jobs in the past have been of very low quality, precariousness has increased. With a view to the enormous social challenges in europe as well as to the need of strengthening europe’s global competitiveness by supporting innovation and high quality products, decent work in europe needs to be guaranteed. This requires the implementation of a european legislative framework on minimum wages, ensuring that in all member states minimum wages are set, either by the state or negotiated by social partners. additionally, european standards on the protection of workers need to be strengthened. a european framework directive on services of public interest must be adopted and implemented, ensuring that all employees have access to affordable high quality public services.

4. Green jobs: The crisis should be turned into an opportunity for creating jobs in the swiftly emerging green technology sector, including renewable energies and energy efficiency. increased funding for research and development, stronger regulatory frameworks as well as direct investments to support new technologies and support workers being affected by the restructuring process are needed.

5. Discrimination on the labour market: young people, women, migrants and other disadvantaged groups are particularly threatened by being unemployed. common targets on reducing unemployment, especially for these groups, should be agreed on at the european level. european funds, especially the european social fund, must be used to help integrating all europeans into the labour market. Targeted policies to integrate women into the labour market

must be launched, for example by stepping up child-care. internships can be an important tool to support people in entering the labour market, but to avoid exploitation, a european quality charter for internships should be adopted.

6. Innovation, education and lifelong learning: a highly skilled and innovative workforce is essential for europe’s competitiveness. The quality of education systems must be increased. active support to lifelong learning needs to be offered by the european and the national levels. a european network to support learning organisations, up-skilling in companies and public service strategies for lifelong learning must be developed, including tailor-made methods, validation and compensation of the learning outcomes. special attention must be paid to provide necessary protections to older workers and to encourage active aging, by allowing them to pass on the skills they acquired over a lifetime to new generations.

7. Balanced flexicurity: Flexicurity is the combination of flexibility and security in the labour market. it will not work, if more emphasis is paid to flexibility than to security. especially in times of rising unemployment and rising poverty, the social protection schemes need to be strengthened. employees need to be supported in the process of changing employers and changing working environments. every person becoming unemployed should be offered a job, re-training or a socially useful activity in a reasonable time. The crisis has proven the strength of internal flexibility, for example the introduction of working time accounts.

8. Increasing job quality: in the past years, working conditions and workers rights have deteriorated in many countries and the number of precarious jobs increased. european regulation on working rights needs to be strengthened, including an ambitious agenda against precariousness. Trade unions, works councils and the social

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dialogue need to be supported much stronger. companies should be encouraged to better practise corporate social responsibility.

9. Making work pay: equal pay for equal work in the same place must be guaranteed. This requires a revision of the posted workers directive, ensuring that economic freedoms do not overrule workers rights. additionally, the eu should come forward with specific targets to reduce the gender pay gap; for example by policies supporting women entrepreneurs and boosting quality jobs for women.

INVESTING IN YOUTH

EU DECISION

headline target

education target: school drop-out rate should be less than 10% and the share of population having completed tertiary or equivalent education should be at least 40% by 2020.

guideline 9:

IMPROVING THE PERFORMANCE OF EDUCATION SYSTEMS AT ALL LEVELS AND INCREASING PARTICIPATION IN TERTIARY EDUCATION

member states should invest efficiently in education and training systems and implement an integrated approach within all segments (pre-school, primary, secondary, vocational and tertiary) in order to improve educational outcomes and ensure access to quality education for all. reforms should aim to deliver the key competencies that every individual needs for success in a knowledge-based economy. Teaching careers should be made more attractive, teacher and student mobility promoted and universities modernised. member states should improve the openness and relevance of education systems by building national qualification frameworks and better gearing outcomes

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towards labour market needs. With a view to reducing the number of young people not in employment, education, or training, member states should take all necessary steps to prevent early school leaving. reforms should aim at facilitating young people’s entry into the labour market through integrated action covering areas such as careers advice and promotion of entrepreneurship.

a progressive approach

Raising educational levels and quality

Education policies have to bear in mind the headline targets of the Europe 2020 Strategy, namely reducing the share of early school leavers to 10% from the current 15% and increasing the share of the population aged 30-34 having completed tertiary education from 31% to at least 40% by 2020. Securing coverage of at least 90% of children between 3 years old and the mandatory school age and at least 33% of children under 3 years of age by 2010 are useful benchmarks. Additionally, the quality of the education systems must be improved, therefore increasing the skills of all Europeans leaving school.

Adaptation and capacity-building of education and training systems is necessary to improve their labour market relevance, their responsiveness to the needs of the knowledge-based economy and society, and their efficiency and equity. ICT can be used to improve access to learning and better tailor it to the needs of employers and employees.

Greater mobility for both work and learning purposes is also needed to access job opportunities more widely in the EU.. The remaining obstacles to mobility within the European labour market should be lifted, in particular those relating to transparency and the recognition and use of

qualifications and learning outcomes, notably through the implementation of the European Qualifications Framework. It will be important to make use of the agreed European instruments and references to support reforms of national education and training systems, as is laid down in the Education and Training 2010 Work Programme.

1. access to pre-school education should be enhanced.

2. The number of early school leavers should be significantly reduced.

3. inclusive education and training policies and action to facilitate access to initial vocational, secondary and higher education, including apprenticeships and entrepreneurship training should be significantly promoted.

4. The share of graduates with higher education should be increased.

5. The attractiveness, openness and quality standards of education and training should be raised, broadening the supply of education and training opportunities and ensuring flexible learning pathways.

6. possibilities for learning mobility for students and trainees should be enlarged.

7. access for all to education and training should be simplified and diversified, by means of working time organisation, family support services, vocational guidance and, if appropriate, new forms of cost sharing.

8. stereotypes of traditional male/female dominated

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career choices should be broken. Women’s participation in all fields of education should be encouraged, and the educational/vocational programmes within the care sector should be improved.

Supporting young people

The economic crisis has disproportionally affected young people, whose situation in the labour market and society in general was already fragile. The increasing precariousness of young people is especially alarming as it coincides with systemic problems posed by an ageing European society. An economy characterized by an increasing level of retired people and a decreasing working age population, should cherish its youth. European countries should do everything possible to avoid the creation of a lost generation. The youth pact should be reinvigorated.

The elimination of youth unemployment should be a priority, all measures to get young people into work and education should be explored. A truly knowledge based society in the future starts with investment in education now. Social security for young people is needed. Only with decent pay will research become a real career choice; only if entrepreneurship becomes a safe and easier choice can we expect young people to start businesses. Nobody wants to raise children in poverty: only once security is guaranteed will parenthood become a young people’s choice

1. governments should ensure that young people up to 25 who have been unemployed for 3 months are offered a place in either employment or education.

2. Fiscal incentives, youth employment requirements

in public procurement and a youth employment pact between governments and the social partners must ensure greater permeability of young people in the labour market.

3. national and european micro credit facilities must have specific programmes targeting young people that offer ample coaching and minimum income in the first year after opening of the business in order to make entrepreneurship a real option.

4. employment centres must offer personalized coaching and skills training as well as access to high speed internet to job seekers in order to optimally facilitate the job search.

5. extra investment in education is needed in order to be able to keep those young people who cannot find employment in education.

6. in order to improve young people’s societal position more effort must be made to minimize employment under contracts that do not contribute to the building up of social security reservations.

7. Through investment in child care, primary education and the elimination of pregnancy discrimination parenthood must become a real option from a younger age again.

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A FAIRER SOCIETY

EU DECISION

headline target

Target for the promotion of social inclusion in particular through the reduction of poverty: it should be formulated in such a way that it would aim at lifting at least 20 million people from the risk of poverty and exclusion by 2020. The overall number of people that are at risk of poverty or excluded should be measured on the basis of three indicators reflecting different dimensions of poverty and exclusion: the at-risk-of-poverty rate, the material deprivation rate and the share of people living in jobless households.

guideline 10:

COMBATING POVERTY AND SOCIAL ExCLUSION

member states’ efforts to reduce poverty should be aimed at promoting full participation in society and extending employment opportunities. efforts should also concentrate on ensuring equal opportunities, including through access to affordable, sustainable and high quality services and in particular health care. member states should put in place effective anti-discrimination measures. equally, to fight social exclusion and empower people, social protection

systems and active inclusion policies should be enhanced to create opportunities at different stages of people’s lives and shield them from the risk of exclusion. social security and pension systems must be modernised to ensure that they can be fully deployed to ensure adequate income support and access to healthcare — thus providing social cohesion — whilst at the same time remaining financially sustainable. Benefit systems should focus on ensuring income security during transitions and reducing poverty, in particular among groups most at risk from social exclusion, such as one-parent families, minorities, people with disabilities, children, the elderly, migrants and the homeless. member states should also actively promote the social economy and innovation in support of the most vulnerable.

a progressive approach

Ensuring high and sustainable social protection

National social protection systems have played an ever significant role in supporting and taking responsibility for those unable to afford a dignified standard of living. These systems are under growing pressure due to demographic trends and the hardships of the current crisis. Furthermore, there are increasing social divisions, tensions and inequalities within our societies which have to be addressed in solidarity. It is also important that Member States have a secure and sustainable social protection system. Although the structure and instruments of these systems vary among the Member States, common indicators and targets could support these policies. National social and health standards can contribute to the fight against poverty and social inequalities while supporting the social and economic development of the EU.

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1. social protection systems, including pensions and healthcare, should be strengthened and modernised, ensuring their social adequacy, financial sustainability and responsiveness to changing needs, while providing everyone in europe with adequate protection from social insecurities, such as health problems, unemployment and poverty.

2. active ageing should be promoted, so as to support participation and better retention in employment and longer working lives.

3. minimum income support measures, which are important social protection instruments in most member states and keep people from sliding into poverty, should be implemented.

4. social protection of short-term contracts, which especially affects women and pregnant women in particular, should be improved

Strengthening social inclusion

As a result of the crisis, many people face the risk of becoming socially excluded and pushed into poverty. Determined action is needed to strengthen social inclusion, combat social inequalities and reduce poverty by 25% (the headline target). This also requires measures that prevent exclusion and that support the integration of disadvantaged groups into the labour market. Furthermore, it is crucial to reduce regional disparities in terms of employment, unemployment and labour productivity, especially in underdeveloped regions. National and local active inclusion policies can increase labour supply and strengthen society’s cohesiveness and are a powerful means of promoting the social and labour market integration of the most disadvantaged.

Strengthened interaction is needed through the Open Method of Coordination in Social Protection and Social Inclusion.

Policies aiming at offering active labour market measures to the long-term unemployed should be pursued. Activation should be in the form of training, retraining, work practice, a job or other employability measure, combined where appropriate with on-going job search assistance. This approach should, at the same time, ensure that work pays for all workers, as well as remove unemployment, poverty and inactivity traps ensuring affordable access to basic services and providing adequate levels of minimum income to all.

Special attention should be paid to promoting the inclusion of disadvantaged people, including low-skilled workers, in the labour market, including through the expansion of the social economy, the access to micro-credit as well as the development of new jobs in response to collective needs. Combating discrimination, promoting access to employment for disabled people and integrating immigrants and minorities are particularly essential. Inclusion of those in our society who are not able to participate in the labour market must be ensured as part of social inclusion policies.

1. Active labour market policies: The integration of all people into the labour market is key to fighting poverty and social exclusion. supporting the creation of new jobs, facilitate additional training and education for people living at risk of poverty and strengthen job placement, especially for disadvantaged groups, must be top priorities of european policies. The implementation of the stability and growth pact needs to give room for the necessary investments at european, national and regional level.

2. Guaranteeing a minimum income: The eu should ensure that every european in need has access to a minimum income. a european framework directive on minimum income

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schemes should be adopted, stipulating that such schemes be established in all member states and defining minimum criteria on adequacy and accessibility. additionally, european minimum criteria for the adequacy of pensions in europe must be introduced, allowing all pensioners to live with dignity.

3. Reducing the number of working poor: The proportion of working poor in the european population is constantly increasing. reversing this trend is not only a precondition to reducing poverty and social inclusion, but it will ease the pressure on public households and have positive effects on consumption in europe, thus contributing to fair, green and smart economic growth. a european legislative framework on minimum wages needs to be adopted, ensuring that in all member states minimum wages are set, either by the state or negotiated by social partners. The power of employees within companies needs to be strengthened, to protect them from exploitation, for example as result of hedge funds and private equity taking over companies and downgrading working conditions.

4. Right to quality public services: a european framework directive on services of public interest must be adopted and implemented, ensuring that everyone has access to affordable high quality public services, including health care, education, public transport, energy, water and communication.

5. Access to housing: a proactive housing policy, ensuring that everyone has access to affordable housing, is a precondition for successfully fighting poverty and social exclusion. The right to adequate housing should be enshrined in european legislation and social housing actively supported. refurbishing houses, with the aim of increasing energy efficiency, of strengthening the use of renewable energy and of reducing energy poverty, should be actively supported by european funds.

6. Fighting discrimination: a number of disadvantaged groups, such as children, youth, one-parent

families, elderly, migrants, minorities, roma and people with disabilities face the highest risk of poverty and social exclusion. programmes to specifically support these groups should be set up. integration of minorities – such as roma – and migrants needs to be improved.

Coordinating migration and integration

Europe is facing a real demographic challenge that shakes our society which until-today has functioned in a stable and sustainable way when it comes to supporting it’s social and economic needs. This challenge has not only arisen in Europe but the rest of the world also, just like the challenge of migration. Both are a reality that today’s societies face and need to deal with. But migration is not only a reality but also part of the solution for Europe, to keep its market competitive and growing while remaining able to sustain and support all EU citizens.

However, migration cannot only be considered an economic factor, but as a process to build more dynamic and inclusive societies, allowing migrants the rights and duties of living and working in the EU. That is why conditions for a successful integration process, welcomed by EU citizens and migrant populations, should be implemented through an Integration Charter linked to migration policy and in respect of fundamental rights.

Migration policy should moreover be considered at European level, allowing equal and fair treatment of all incoming migrants and sharing the responsibility between the 27 EU Member States. More than ever, cooperation with third countries is crucial in a globalised world, to develop and improve the situations in countries of origin when it comes to

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infrastructure and decent living conditions.

1. The stockholm programme should be implemented with a clear social and human approach.

2. an integration policy should be implemented through an integration charter that goes hand in hand with the migration policy based on the stockholm programme.

3. a migration policy should be based on clear duties and rights of all migrants.

4. eu member states should apply a common approach on receiving and assisting refugees and asylum seekers, securing protection, respecting international agreements and fundamental rights.

5. illegal migration should be fought and based on common rules and values of the eu.

6. all eu member states should share the responsibility in managing and welcoming migration flows as well as address the challenge of integrating migrants.

7. labour market needs should be assessed, in order to define the needs for matching skills.

8. cooperation with third-country regions should be enhanced, in order to develop and enhance the socio-economic situations in countries of origin.

REGULATING THE FINANCIAL MARkETS FOR SUSTAINABLE GROWTH

a progressive approach

The magnitude of the financial crisis and the massive economic and social repercussions have exposed the fallacies of the so-called “self-regulation” approach and there now exists, at the global and European levels, a wide consensus on the need to achieve an appropriate regulation of all financial actors and products in order to promote stability, growth and jobs.

To ensure a more stable and sound financial system, Member States should contribute, through their national competent regulatory authorities, to the effectiveness of the macro and micro-prudential oversight of financial market participants.

The financial crisis unveiled that individual Member States cannot tackle supervisory and regulatory challenges or ensure effective crisis management of cross-border institutions. Therefore, one of the major challenges at the European level is to improve the capacity of the financial system to resist systemic shocks.

A European resolution framework for cross-border banks is essential to ensure the effectiveness of the new supervisory architecture. While the European Systemic Risk Board will have an important role by providing an early warning

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for system-wide risks, the European Banking Authority will ensure an appropriate coordination of supervisory responses between national competent authorities. This new institutional arrangement should address weaknesses existing at the macro and micro-prudential level.

The regulation of the financial system at the European level is essential to ensure both the future stability of financial markets and their positive contribution to growth, investment and job creation. The European Union will develop a European System of Financial Supervisors (ESFS) composed of a network of national financial supervisors and three new European Supervisory Authorities for the banking, securities and insurance and occupational sectors. This flexible network should improve the coherence of supervisory practices at the European level through harmonised rules and facilitate the management of cross-border risks.

1. stronger international supervision and more cooperation between all national regulatory bodies should be introduced. strong eu financial supervision must be established, comprising of a strong european systemic risk board and a european system of Financial supervisors.

2. universal legislation should cover all financial entities, products and transactions; no financial market player should be left unregulated, including hedge and private equity funds.

3. Tax havens and offshore financial centres that are free of regulation and legislation should be covered by a new international regulatory initiative.

4. accountable and transparent credit risk rating and robust and reliable accounting regimes should be ensured.

5. adopting coherent, effective and all encompassing directives on capital requirements and on hedge funds and private equity funds while also adopting and strictly implementing the recommendations on derivatives, consumer protection and on the remuneration of top managers working in the financial sector. all financial actors should be covered by common regulation.

6. initiatives to reform corporate governance must be taken: accounting standards and corporate taxation should be revised in order to favour reinvestment of profits and long-term investment; corporate social responsibility regarding the various stakeholders should be encouraged.

7. To pursue a new initiative for a financial transaction tax, contributing to financial stability and ensuring fair burden sharing by financial actors, also for discouraging short-term speculators, and generating new resources for public exchequers to tackle global challenges like climate change.

8.consumer protection for financial products must be strengthened and financial education developed.

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hoWcaneuropeFosTer JoBcreaTion?

maria João rodriguesOctober 2009

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iiPOLITICAL PRIORITIES TO FOSTER JOB CREATION

the european experience regarding job creation, has showed that a special policy mix should be developed combining the following priorities :

- macroeconomic policies (including monetary, fiscal and wage policies) achieving a better combination between macroeconomic stability and growth;

- active trade, industrial and innovation policies to support the redeployment of investment and job creation towards new activities which are more knowledge-intensive and low-carbon and, therefore, with more added value;

- strong regional policy to support the catching-up of the lagging regions;

- ambitious research, education and training policies to renew the knowledge base of growth and jobs;

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- active employment policies aiming at strengthening the human capital, attracting more people into the labour market and improving adaptability; and

- promoting social inclusion and modernising social protection in order to make it more adequate, adaptable and sustainable.

in the current situation of major imbalance between labour supply and demand, job creation should be actively promoted in the framework of the eu2020 strategy, in order to ensure an effective recovery in all member states, which should be consistent with a new and lasting growth model. This will require not only a better coordination of the national policies, but also the development of the current european policies and notably:

a/ A stronger coordination of the national macroeconomic policies

in order to take advantage of the european spill-over effects on growth, member states should coordinate their macro-economic policies, including public investments, tax incentives for private investments, according to a common set of priorities for investment and job creation. new financial instruments should also be developed with this purpose. surplus countries can give a higher contribution to european demand than deficit countries.

b/ a European energy policy

The sustainability, independence and security of europe’s energy supplies will depend on large-scale investments in our energy sources, distribution and infrastructure. These new investment areas have important potential for

promoting jobs, growth and long-term prosperity.c/ a European industrial and innovation policy

a new european framework to promote innovative and sustainable industrial development should be developed, generating synergies between new national efforts and ensuring their consistency with the internal market. For the recovery to bring transformational economic change to the european economy, there must be better coordination of innovation, industrial, research, education policies. state aids to struggling sectors, suffering massive job lay-offs, should not result in unfair competition and should ensure equal treatment to cross-border branches.

d/ European actions to support employment, re-skilling, mobility and social inclusion

social and employment policies should be adapted to secure the recovery. it is important to safeguard jobs as far as possible, support the unemployed back into employment as fast as possible and stimulate the creation of new jobs. This crisis should also be seen as an opportunity for a european-wide radical re-skilling of the labour force.

e/ More coherent European external action to support

the recovery in cooperation of the other partner countries

strategic and regulatory convergence towards similar priorities of sustainable development should be actively promoted by the european union using all its external policies and all the available channels: bilateral, multilateral and g-groupings. This will be particularly important to protect european jobs from unfair competition pressures.

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INNOVATION, THE CENTRAL ENGINE FOR JOB CREATION

- innovation turns knowledge into added value, leads to new products and services and should become the main engine for a smarter growth with more and better jobs. over the recent period, innovation policy has gone through important developments, but new momentum is needed to strengthen this engine. This new momentum should be given by a stronger focus on user’s needs, demand and market opportunities and a more effective connection between innovation, research, education and job creation.

- it is up to business to identify and grasp the market opportunities, but these initiatives can be supported by a more pro-active state, with better coordination between trade, cooperation, public procurement and standardisation policies, which can create market opportunities, and research, innovation and education policies, which can enable their full exploitation.

- apart from improving the general conditions, the european and the national innovation policies should also focus on special catalysts to speed up the innovation process. The approach based on clusters is particular useful to develop partnerships for innovation, job creation and competence building, involving all the relevant actors: companies, research institutions, education and training institutions and financial bodies.

These partnerships for innovation and job creation should be launched in order to foster the creative process

which is critical to renew both the competitive factors and the employment structure. moreover, networks and measures to disseminate the new technological and management solutions among smes can play a key-role in the same direction.

at european level, a single strategic platform should be created in each sector to bring together all key actors and to coordinate existing instruments: technology platforms, skills expert panels, joint technology initiatives, lead markets, clusters and high level industrial groups. The critical process of building innovation capacity begins at national level but should be more actively supported and coordinated at european level.

recent experiences suggest there is a critical path to develop an innovation policy as a catalyst to the transition to a knowledge intensive economy and the creation of jobs:

1/ to use the european agenda as a leverage to introduce this strategic goal in the national agendas;

2/ to spread a richer concept of innovation, taking into account its different dimensions: technological and organizational, in processes or in products and services, based on science or in learning-by-doing, using or interacting;

3/ to highlight the implications of the innovation system approach for the coordination of policies;

4/ to define the priority areas of an innovation policy and prepare a tool box of operational measures;

5/ to open the access to this tool box in order to support innovating projects and companies whatever their sector;

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6/ to focus on some clusters in order to illustrate the advantages of developing partnerships for innovation and job creation, as a good practice which can be followed by other clusters;

7/ to dynamise the national innovation system, by focusing on the missions and the interactions among its bodies, including the flexibility of labour markets;

8/ to reform public management with implications for innovation;

9/ to spread skills for innovation and to train innovation managers;

10/ to improve governance for innovation, by improving the internal coordination of the government and the relevant public departments, by creating public awareness and by developing specific consultation and participation mechanisms with the civil society.

- Managing restructuring process and job creation

innovation is also connected with restructuring and potential job losses. The restructuring processes underway in europe should be placed in this broader context of redeploying the european economy to new activities with more added-value and providing new and better jobs. in order to be successful, this redeployment should be underpinned by a more strategic management of human resources, encouraging a more dynamic and future-oriented interaction between labour supply and demand. otherwise there is the risk that bigger shortages, gaps and mismatches of skills will coexist with structural unemployment.

improving the management of the restructuring process requires evolving:

- from the traditional passive approach which puts the focus on reducing the social impacts of the restructuring process with social plans in the restructuring companies. This is necessary, but not sufficient;

- to the active approach, which involves various instruments of the active labour market policies and of the regional development policies to move workers to new jobs. This is also necessary, but not sufficient;

- and to a pro-active approach which mobilizes the several instruments of the innovation policy, in a good mix with the trade, competition, employment and training policies, in order to create stronger framework conditions for more and better investments and jobs. Taking into account the current trends for rapid change in the global economy, this approach should be urgently developed because it can prevent the tensions of a restructuring process which tends to be permanent.

This pro-active approach to manage restructuring is particularly relevant for a regional development policy able to promote employment.

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INVESTMENT IN HUMAN CAPITAL, THE MOST STRATEGIC INVESTMENT FOR EUROPE

Job creation in a knowledge intensive-economy can only take place if underpinned by a regular investment in human capital to address new skills needs. its purpose should be not only to raise the educational levels, but also to generalize new key competences and to provide new occupational profiles.

- Defining more ambitious education and training targets

The eu2020 strategy should commit to raise educational levels with four main concerns:

- The importance of cognitive education as a basis to increase the performance in basic education and in lifelong learning. a first chance for cognitive education should be provided very early, during pre-schooling education. a second chance should always be available irrespective to the age.

- The upper secondary level of education is considered the basis for a better performance in lifelong learning. high quality teaching as well the involvement of the community and the family are critical to prevent the drop-outs until this critical stage.

- more ambitious targets should be defined for the higher levels of education and training. a permanent identification of skills should be provided by stronger interface between higher education and research institutions and companies. a very sophisticated knowledge management is required to train higher specialised workers. These should be some of the purposes of the partnerships for innovation and the european networks for innovation already mentioned.

- The access to regular training activities should become a normal ingredient of the labour contract and the collective agreements, connected with working time and costs sharing between the company and the worker. Furthermore, the individual initiative should be fostered by learning accounts.

- Renewing skills for a knowledge economy

Beyond raising educational levels, two different kinds of skill gaps should be addressed: the new basic competences to be spread in all qualifications and the new occupational profiles to be targeted by education and training.

most of the emerging jobs are requiring new personal competences (learning to learn, team working, networking, creativity, entrepreneurship, leadership, defining a project), new technical competences (pc user, internet user, telecommunications user, environment-friendly behaviour) and theoretical competences (foreign languages, european and global citizenship, scientific developments, understanding cultural diversity).

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Besides spreading these new basic competences in all qualifications, it is also necessary to address permanently the skills gaps regarding the new occupational profiles. For instance, in the information and communication technologies there are emergent occupational profiles such as: software & applications development; software architecture and design; multimedia design; iT business consultancy; product design; integration engineering; systems specialist; digital design; radio frequency engineering; data communications engineering; and communications network design.

- A European support to lifelong learning strategies

The eu member states are committed to develop national strategies for lifelong learning, which should be supported politically and financially at european level. The experience of the most successful cases shows that the following priorities should be taken into account:

a. to define the goals for lifelong learning in terms of not only educational levels but also new jobs profiles and competences;

B. to develop a new infrastructure for lifelong learning;c. to create a diversified supply of learning opportunities

able to provide more customised solutions:- to develop the new instruments of

e-learning and to explore the potential of the digital Tv;- to turn schools and training centres into

open learning centres;- to encourage companies to adopt learning

organisations;- to shape the appropriate learning mode for

each target group; and- to spread new learning solutions for the low

skilled workers.d. to foster the various demands for learning and to

create a demand-led system:- to improve the framework conditions for

lifelong learning;- to develop a dynamic guidance system over

the life course;- to renew the validation and recognition

system; and- to create compensations for the investment

in learning.e. to spread new financial arrangements in order to

share the costs of lifelong learning;F. to improve governance for lifelong learning, involving

all the stakeholders along the following lines.

a permanent and inclusive system of lifelong learning at european scale should be created. generalising access to erasmus opportunities for learning mobility should be part of this endeavour.

THE FINANCIAL INSTRUMENTS TO SUPPORT JOB CREATION

The financial and economic crisis is not over yet. it was controlled, but not really overcome. The most likely scenario is still a very sluggish growth with rising unemployment and increasing social and regional inequalities across europe.

This means that economic policies to sustain demand

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and foster job creation should be a key priority of the upcoming eu2020 strategy. structural reforms and supply-side policies are certainly needed to move to a smart, green and inclusive growth, but demand side policies should not be forgotten, particularly in the current situation. To restore net job creation should be the top priority for social, economic and even financial reasons, because this is certainly the best way to rebalance our public finances.

- A stronger coordination of macro-economic policies is needed according to the following lines:

- The coordination of budgetary policies at european level will be important not only to consolidate public finances, but also to foster european growth.

- The coordination of budgetary policies regarding the common priorities of public spending towards a greener, smarter and more inclusive growth is a precondition to benefiting from the spill-over effects across member states.

- in the framework of the revised stability and growth pact, the member states able to redirect their public expenditure and tax structures towards these objectives should be allowed to have more time to reduce their public deficit and debt, provided they can demonstrate that this will contribute to higher growth and a consolidation of their public finances.

- To support job creation and ensure social fairness, the tax burden cannot be put on labour but rather moved to carbon and financial sources.

- The surveillance procedures should follow-up not only the indicators of the public deficit and debt, but also growth, competitiveness, private debt, employment and social cohesion (see macroeconomic surveillance).

The available financial instruments should be swiftly adapted for this purpose and complemented by some new ones.

- Speeding up and refocusing the Structural Funds

regarding european structural Funds and cohesion Funds, it is not enough to simplify the systems for advances and reimbursement, which is still to be ensured in practical terms. it is necessary to anticipate the multi-annual programming, to reduce co-financing and to strengthen management structures.

- Increasing the scale of the EIB action

The european investment Bank can add a guarantee instrument to the first anti-crisis package, which should be focused on major initiatives for climate protection, public transport and large infrastructure projects, where neither the volume nor the long maturities of financing are provided by the market system due to significant market failures. an eiB guarantee could mobilize investments doubling the current effort.

as these programmes are driven by loans and paid back out of resulting revenues, there will be no burden for the next generations. as the european investment Bank has the power to borrow on international capital markets, this power should be used so that savings are mobilized to make the european

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economy sustainable and stronger.

- Realigning the Community budget

The community budget should be adapted to contribute directly to the economic recovery and to the eu2020 strategy, starting with the proposal for the 2011 budget and going further in the next financial perspectives.

- Eurobonds for long term investments and job creation

in the present context, characterized by international competition for financial resources, it could be useful to examine the possibility of converting national bonds into eurobonds as an important mechanism to reduce the cost of the long term investments for a greener and a smarter economy. The aim would be to reduce the spreads which are being paid by public debt to launch new investment projects, supporting business in general by decreasing the cost of capital, attracting domestic and foreign savings. a european agency could be created to organize the common issuance of eu denominated bonds, with the guarantees to be provided by all participating member states.

- Reforming the financial system to support job creation

last but not least, financial supervision must be quickly enforced at european level, to ensure that the agenda for the financial regulation and restructuring is more swiftly implemented. our financial systems must be not only

stabilized but also re-focused on real investment, growth and job creation.

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hoW

IIITHE EUROZONE CRISIS

AND THE ECONOMICAND MONETARY UNION

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theeuro-Zonecrisis and thereFormoF The eu economicgovernance

maria João rodriguesMay 2010

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The European Union is now confronted with the need of undertaking broad and deep reforms in its economic governance. The “Greek crisis” led to the

invention of new instruments to deal with sovereign debt but has also unveiled more general and structural problems in the euro-zone. We can now understand that its long term sustainability will depend on several conditions to be met:

- Fiscal responsibility coupled with a last resort solidarity regarding sovereign debt

- A reformed financial system to ensure financial stability and promote growth

- A stronger coordination of economic policies combined with structural reforms to enhance growth potential

- The reduction of the internal divergences. On the long term it is impossible to ensure the nominal convergence between the euro-zone members without increasing their real convergence.

Several European instruments are missing to meet these conditions and the need of urgent reforms in economic governance is made clear by the current challenges:

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- Ensuring the external credibility of the euro-zone, in financial and political terms

- Fostering the economic recovery while improving fiscal consolidation

- Launching a long-term strategy for a smarter, greener and inclusive growth with the means to ensure success

These challenges are completely intertwined: the strength of the euro-zone depends not only on fiscal consolidation but also on ensuring a stronger recovery while reducing the internal divergences. This complex equation can only be solved by combining national and European instruments. In the current level of interdependence, the Member State’s efforts regarding fiscal consolidation, growth and structural reforms can only succeed if they are supported by stronger coordination and stronger European instruments regarding fiscal consolidation, growth and structural reforms.

Moreover, all EU governments are now being confronted with a difficult dilemma: how can they begin to reduce their public deficits and debt whilst simultaneously fostering the economic recovery they badly need to counter rising unemployment? This “catch-22” situation certainly requires new developments of the available instruments of European economic governance, and it must be borne in mind that the level of interdependence among EU Member States is such that the time has come to coordinate, not simply to avoid negative spill-over effects, but also to take full advantage of the positive ones.

In this paper we have built, first of all, a more comprehensive and systematic theoretical framework to analyse the economic governance of the European Union. Secondly, bearing in mind this framework, we make a brief

assessment of past and recent developments. Finally, we can address the missing governance mechanisms by presenting some proposals of reform.

1. A Framework to Develop Economic Governance

Effective economic governance should make use of both European and national instruments to ensure that four fundamental functions are carried out:

- fiscal consolidation- financial stabilization- managing external relations- and promoting sustainable growth (by economic

stabilization, allocation and redistribution of resources)

Table 1 in annex shows how these various functions can be carried out using various macro-economic policies, namely monetary, budgetary, tax and wage policies. More specifically, we identify the main instruments that are already used, those activated with the financial and economic crisis and, finally, those that do not yet exist but should be developed urgently.

2. A Limited Historical Experience

The economic governance of the euro-zone is still a “work in process”, reflecting its short historical experience in this field. It began with the coordinated preparation of the conditions to create a monetary zone, followed by a coordinated exercise to control inflation and further consolidate public finances. The coordination of budgetary policies to promote sustainable growth, which is an implicit

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part of the economic leg of the Economic and Monetary Union, lagged behind since its creation. Some years later, it was established as the fourth strategic priority of the Lisbon Strategy, when this one was adopted in 2000 as a comprehensive development agenda for the European Union. Nevertheless, this coordination for growth was soon downplayed to give way to the priority goal of coordinating fiscal consolidation.

In the meantime, the German domestic development problems arising from unification, as well as other national difficulties led to a revision of Stability and Growth Pact in 2005. This allowed some room to differentiate consolidation trajectories and to respond to different structural reform and investment needs. Nevertheless, even this limited room of manoeuvre was questioned by pressures for uniform fiscal consolidation, with the argument that all Member States confronted increasing problems with the sustainability of social protection – which is certainly the case. Apparently, the idea did not consider that the best way to cope with such pressures is to increase the potential for growth and to foster investment and job creation. In this context, the monitoring of the quality of public finances was only about promoting efficiency, and their effectiveness to attaining these central strategic objectives was downplayed.

The result was that growth remained a secondary goal subordinated to the focus on fiscal consolidation, with the aim of reaching a near balance or surplus public budget. ECB action was shaped by the same hierarchy of goals, guided by a Treaty-based mandate that establishes inflation control as a clear priority. Finally, the management of external relations remained incipient, given the basic problems posed by external representation in the Bretton Woods institutions or the G7/8.

3. Coping with the Financial and Economic Crisis

The financial and economic crisis subjected EU economic governance to tough tests, confronting the Union with the need to deploy new instruments or create them from scratch:

- First, regarding financial stabilization: we recall the stronger liquidity and a set of unconventional measures provided by the European Central Bank, a regulatory package to govern the financial system in line with G-20 international commitments, and the creation of two supervisory bodies, the European Systemic Risk Board and the European System of Financial Supervisors;

- Second, regarding economic stabilization: the automatic stabilizers were deployed, together with additional fiscal stimulus packages to provide financial support to banks in order to avoid bankruptcies and restore credit, and to businesses in order to prevent massive job destruction:

- Third, regarding allocation of resources: the threats to the Single Market posed by protectionist reactions by some Member States were addressed by a stronger monitoring and coordination of State aids to support banks and companies;

- Fourth, regarding redistribution: there was an added budgetary effort to permit higher expenditure on social policies, coupled with the front loading of Structural Funds

- Fifth, the emergence of G-20 at leaders level generated pressures to reform the EU’s external

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representation, not only within the G-groupings but also in the Bretton Woods institutions and the bilateral summits with the Union’s international partners, while there were major uncertainties about the ratification and implementation of the Lisbon Treaty.

The crisis was managed as a result of this exceptional public intervention, but we cannot say that it has been overcome and even less prevented. In order to overcome this kind of crisis, it will be necessary to ensure sustainable growth in today’s globalised conditions, and in a way that takes ageing and climate change into account. Preventing such crises, on the other hand, requires addressing its more fundamental roots, notably insufficient regulation of the financial system and corporate governance as well as major global economic imbalances.

Moreover, the crisis has also revealed specific Euro-zone problems: first, speculative attacks against non-euro-zone countries were addressed by strengthening the Community Facility for balance of payments, and through the first intervention of the IMF in the history of the European Union. Later, a new form of speculation emerged, which affected the sovereign debt of euro-zone member States – Greece offering the most acute example of this – revealing another clear institutional failure in the institutional architecture of the euro-zone.

After a painful period if three months of political declarations and ad-hoc solutions, the euro-zone finally agreed on creating a Community instrument to support Member states in risk of a sovereign debt default as well as an instrument based on national guarantees (Special Purpose Vehicle).

4. Urgent Developments for the Euro-Zone Governance

Collective political vision and leadership will be necessary to develop the governance of the euro-zone. Some priority reforms can already be clearly identified (see Box below) and we present with more detail those which are still not agreed or in implementation.

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THE PRIORITY REFORMS FORTHE EURO-ZONE GOVERNANCE

a/ undertaking the planned reforms of the financial system

b/ Building the european financial supervision bodies

c/ equipping the euro-zone with a permanent mechanism to prevent sovereign debt default

d/ improving the surveillance regarding fiscal consolidation with ex-ante coordination and a stronger focus on the long term sustainability of the public debt

e/ coordinating the redirection of public expenditure to promote key investments

f/ making the best of the positive spill-over effects, increasing european aggregated demand.

g/ coordinating the shift of the tax burden to new sources

h/developing of a new european instrument to create better conditions for member states to issue national debt

i/ monitoring and reducing the macro-economic imbalances in the euro-zone

As regards financial stabilization, it is crucial to regain sovereignty over speculative pressures exerted by financial markets. This will require:

a/ Undertaking the planned reforms of the financial system

b/ Building the European financial supervision bodies and enforcing their decisions

c/ Equipping the euro-zone with a permanent mechanism to prevent sovereign debt default, by coupling national fiscal responsibility with a last resort effective European solidarity. This mechanism should not only protect the euro-zone from speculative attacks, but also reduce the level of public debt spreads.

The most daunting challenge, however, will be ensuring fiscal consolidation whilst boosting recovery. Moreover, recovery cannot be seen as a return to the past, but rather as a transition toward a new low-carbon, knowledge-intensive and more inclusive growth model. Basically, the euro-zone faces two central choices:

- Either to prioritise fiscal consolidation and sacrifice recovery, or to prioritise recovery while paving the way for consolidation. Investment and job creation are essential for a more effective strategy of fiscal consolidation as they reduce the costs of social protection and increase tax revenues. Higher rates of growth and concomitantly higher public revenue, together with returns generated by public investments, can be help to reduce public debt. He cuts to introduce in public spending should not

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damage this central process- Either to impose a uniform pace for

consolidation or leave some room of manoeuvre to foster real convergence, accommodating different investment needs, welfare system reforms, patterns of specialisation and their implications for the asymmetric shocks stemming from the financial and economic crisis.

Depending on which choices are made, the euro-zone can expect two different scenarios:

- If it chooses to move uniformly to attain fiscal consolidation, it risks internal fragmentation, with many regions stagnating or trapped by recession

- In order to prevent such tensions, the urgent response should combine fiscal responsibility with stronger coordination of economic growth policies and with new European instruments finance growth

In order to deal with this central dilemma over the next few years, fiscal policies should undergo some important changes:

d/ improving the surveillance regarding fiscal consolidation with ex-ante coordination and a stronger focus on the long term sustainability of the public debt

e/ coordinating the re-direction of public expenditure to promote key investments to foster a more low-carbon, knowledge-intensive and inclusive growth model and to prioritise jobs creation, making a clear distinction between “good” and “bad”

spending cuts. Member States that are more able to undertake this shift should have more time to reduce their public deficit and debt. The improvement of the quality of public finances should be rewarded

f/ to make the best of positive spill-over effects, increasing European aggregated demand. The starting point should be to estimate the aggregate effect of Member state public investments projected for the coming years.

g/ coordinating the shift of the tax burden to new sources, notably pollution and financial transactions, so as to avoid overburdening labour costs, which would damage jobs creation and social fairness. If it is to work properly, this re-direction of tax policies also requires better European coordination.

h/ Developing of a new European instrument to create better conditions for Member states to issue national debt, in order to support new long term investments needed to promote the transition to a more low-carbon, knowledge –intensive and inclusive growth model. The issuance of euro-denominated bonds is already happening successfully within the framework of the Community Facility to support non-euro-zone EU Member States with balance of payments problems.

i/ Monitoring and reducing the macro-economic imbalances in the euro-zone. Some macroeconomic imbalances were magnified by the crisis and are now more visible in the current accounts and the balance sheets of the households and companies. Their underlying causes might be explained by

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unsustainable public spending, wage developments or by lack of productivity improvements. Nevertheless, in the present conditions, they are also explained by lack of demand for investment and consumption at European level, inequalities in income distribution, increasing unemployment and poverty, deeper regional inequalities and lack of effective instruments to finance public budgets. Therefore, multilateral surveillance should follow-up these different dimensions in order to identify the appropriate and specific solutions. Beyond the national specific solutions, there are general principles which should be implemented. Macroeconomic imbalances can be reduced by better conditions for recovery in all Member States, which requires more European coordination.

These developments are possible within the current legal framework:

- Operationally, these reforms require a very precise updating of broad economic policy guidelines, followed by multilateral surveillance “to ensure closer co-ordination of economic policies and sustained convergence of the economic performances of the Member States” (TFEU, Art 121.2,3 and 4).

- Hence, surveillance and recommendations should be based not only on public deficit, public debt and economic growth indicators, but also on trade and external balances, the quality of public finances, investment, employment and the goal of making the transition towards a more low-carbon, knowledge-intensive and inclusive economy.

- The revised Stability and Growth Pact (see

European Council conclusions in March 2005 Paragraphs 2.1., 3.1., 3.3. and 3.7) provide room of manoeuvre to increase the time available to reduce excessive deficits, according to the effort to re-direct public finances and to this more general assessment of each national case.

- A final test of consistency should involve cross-checking stability and growth programmes with national reform programmes under the EU 2020 Strategy.

- Finally, the new Chapter 3a of the TFEU on the euro-zone strengthens the scope for coordination and monitoring, including external representation.

Indeed, this is the other major EU economic governance development that is urgent:

j/ It is necessary to ensure the more consistent external representation of the euro-zone in the Bretton Woods institutions and the G-20, to promote better external conditions for the implementation of these internal priorities. This is especially important in the areas of financial regulation, recovery coordination, monitoring protectionism and improving environmental and social standards.

The European Union needs to reform its economic governance if it wants to consolidate the euro-zone, deliver a real recovery and implement the EU2020 Strategy. Otherwise, it may face a lost decade, marked by a fragile recovery or stagnation, an EU 2020 Strategy that is less effective than the Lisbon Strategy, deeper regional and social inequalities and a weaker euro-zone.

A final question for you to reflect on: do you really believe

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that the implementation of the EU2020 Strategy will be more successful than that of the Lisbon Strategy if the instruments are basically the same and when starting conditions are so much worse

The development of EU economic governance must certainly take political centre stage.

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BIBLIOGRAPHY

• malcolm Townsend (2007), The Euro and Economic and Monetary Union An historical, institutional and economic description, london united kingdom, John haper publishing

• leila simona Talani, Bernard casey (2008), Between Growth And Stability The Demise and Reform of the European Union’s Stability and Growth Pact, cheltenham, uk, edward elgar publishing

• marco Buti, andré sapir (2002), EMU and Economic Policy in Europe, The Challenge of the Early Years, cheltenham, uk, edward elgar publishing

• david marsh (2009), The Euro, The Politic of the new global currency, new haven and london, yale press

• m. aglietta, c.de Boisiez, d.Bureau, a. gauron, p. herzog, p. Jacquet, p-a muet (1998), Coordination européenne des politiques économiques, paris, France, la documentation Française

• michel dévoly (2004), Les politiques économiques européennes, enjeux et défis, France, Éditions du seuil

• robert Boyer (1999), Le gouvernement économique de la zone euro, paris, France, la documentation Française

• J-v louis, h. Bronkhorst (1999), The euro and European integration, Bruxelles, Belgique, p.i.e, peter lang

• a. Bénassy-Quéré, B. coeuré (2010), Économie de l’euro, paris, France, edition la découverte

• association d’économie Financière (2010), L’euro en 2019, lille, France

- pierre Jaillet, introduction

- Jacques delors, l’union économique et monétaire a besoin d’une impulsion politique

- marco But, paul van den noord, deuxième décennie de l’union économique et monétaire avant la crise

- stefan collignon, les enjeux pour la zone euro dans les dix années à venir

• d. Begg, J. von hagen, c. Wyplosz, k.Zimmermann (1998), emu: prospects and challenges for the euro, Blackwell publishers, oxford, uk

• european commission, (2008), emu@10: successes and challenges after ten years of economic and monetary union, luxembourg, luxembourg

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shapingtheeconomic union___________________________________

For a Progressive Reform ofthe EU Economic Governance

maria João rodriguesNovember 2011

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the current debate and reform of the eu economic governance can open a new chapter in the history of the economic and monetary union. after an

assessment of the current euro-zone crisis, this paper develops a comprehensive view on how can we use the ongoing reforms of the eu economic governance to shape the emu. its purpose should be not only to overcome the current euro-zone crisis, but also to pave the way to foster a new growth model in the eu and all its member states.

1. Crisis in the euro-zone or of the euro-zone?

There are two different ways to look to the current euro-zone crisis: a crisis in the euro-zone or a crisis of the euro-zone.

according to the first version, the main problem has to do with the lack of fiscal discipline in some peripheral countries which led to unsustainable public debts damaging the credibility of the euro. hence, the logic solution should be to strengthen fiscal discipline and to impose austerity even at the cost of recession in these countries, which should learn a lesson. ultimately, if they default, their negative effect can

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be contained because they are peripheral economies.according to the second version, the need to

strengthen fiscal responsibility is also accepted, but a more comprehensive diagnosis is proposed. some fiscal and macro-imbalances were already at work before the financial crisis, but they were deeply worsened by its impact leading to a recession, rising unemployment and banks rescues requiring stimulus packages with strong implications for public deficits. This shock has hit the euro-zone as a whole, but the recovery process was easier for the member states with more fiscal space and/or more reliance on exports to outside europe.

This differentiation in the recovery was then turned into an increasing differentiation in the financing conditions (spreads) within the euro-zone, which were magnified by some financial operators learning how to extract extra-profits from the euro-zone flaws. First, when exploiting some countries’fears to default by offering them loans at higher price; second, when finally the euro zone could create its defence mechanism, by exploiting some countries’s fears regarding its tough conditions leading to a forced recession.

in this second version about what is happening, there are two reasons why we are in face of a systemic crisis of the euro-zone:

- first, while some differences in the spreads across member states can be accepted as normal, these increasing divergences are worrying because they will also turn into divergences of their investment conditions, their growth and employment rates as well as their public deficits and debts;

- These cumulative divergences will be magnified by the strong interconnections among banks across the euro-zone, creating a domino effect

which will be very difficult to control and can turn fragmentation into collapse.

2. What is at stake: the euro-zone and globalization

ultimately, what is at stake is to strengthen the euro-zone in order to reposition Europe for the new emerging global competition. in its fundamentals, europe is well placed to take the lead in building the competitive advantages of the future focusing on a new growth model, a greener, smarter and inclusive one. What is missing is a stronger launch of this strategy overcoming the major flaws in the euro-zone management.

The financial and economic crisis has exposed extensively these flaws:

- they are not only the weak coordination fiscal policies to ensure the necessary discipline in a common monetary zone; they are the need to have more european coordination of tax policy, notably if new tax sources (such as green or financial taxation) need to be introduced to re-balancing the budgets,

- they are also the lack of instruments to ensure macro-economic stability, since member states lost their traditional instruments but these were not replaced by others at european level. When the manipulation of the exchange rate to foster growth is no longer possible by definition, it is crucial to ensure a reasonable interest rate to enable recovery. This depends on controlling inflation- the main task of the european central Bank – but also on improving the public debt management –something which seems to be beyond its normal remit.

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as long as new instruments are not available, macroeconomic stabilisation in face of strong shocks will no longer be possible at least for some euro-zone countries, meaning they can only adjust by lowering wages or destroying employment. needless to say that investing into a new growth model will become for them an almost impossible task. one can reply these countries need to make structural reforms to foster their structural competitiveness; they certainly need to make more than they are doing but, in the meantime, they will go to a recession and further risks of insolvency and default. This will increase the systemic risks which were referred above for the euro-zone as a whole. In such conditions, the euro-zone will certainly not be a strong platform for Europe to compete at global level. it would become instead an interesting area for other global competitors to buy some strategic assets cheaper.

3. The priorities to strengthen the long-term sustainability of the euro-zone

To overcome this outlook, we need to have a more comprehensive view on the priorities to strengthen the long-term sustainability of the euro-zone. They seem to be:

a/ Fiscal responsibility coupled with a last resort solidarity regarding sovereign debt

b/ a reformed financial system to ensure financial stability and foster growth

c/ a stronger coordination of economic policies combined with structural reforms to promote a new kind of growth

d/ The reduction of the internal divergences. on the long term it is difficult to ensure the nominal convergence between the euro-zone members

without increasing their real convergence.

This last issue has been overlooked in the management of the euro-zone. its internal divergences do not have only to do with different commitments with fiscal discipline or with structural reforms, but also with different stages of competitive development and with different patterns of industrial specialisation. These differences involve different risks of asymmetric shocks, requiring adapted solutions to be supported at european level.

moreover, the reduction of macro-economic imbalances depend not only on the effort of each member state, but also on providing the appropriate european general conditions: a reasonable interest rate for all member states, a higher european growth rate, a european bank framework to ensure responsible lending and borrowing, a european financial support for catching-up regions.

The new euro-zone pact should consider these four priorities and not only the first two ones, as the initial german proposal was doing. The euro-plus pact adopted in march 2011 has introduced some improvements, but still remains imbalanced and uncomplete.

4. Shaping the euro-zone reforms in the good direction

The current reforms of the eu economic governance should be shaped to progress in these priorities.

in fact, major reforms of the eu economic governance are already underway, covering the following building blocks:

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- The europe 2020 strategy for growth and jobs

- The european semester and the new coordination process of fiscal, economic and social policies at european level

- The reform of the stability and growth pact

- The new procedure of macro-economic surveillance

- The new single market agenda

- The community budget

- The new instruments for financial stability

- The reform of the financial system and the new supervision system

- The euro-plus pact as a new general and political agreement for deepening the coordination between the euro-zone members and the others wanting to join

We need to have a comprehensive view of all these building blocks to shape the overall direction of these reforms and set a new compromise to strengthen the euro-zone. There are two major strands in these reforms:

- The coordination of national policies, not only budgetary and macro-economic policies, but also economic and social policies in general

- Stronger European instruments: not only

the european financial supervision bodies, the next community budget and its programmes, but also the need to create a permanent european Financial mechanism, able to assist in sovereign debt crisis, to improve debt management and to support key investments.

These reforms should pave the way for a very much needed qualitative leap: building an economic union, to be coupled with the current monetary union.

Central question: How should these reforms be conducted in order to advance the above mentioned priorities to strengthen the euro-zone sustainability (see Table 1)?

a/ The european semester should improve the consistency between the european and national decisions and the coherence between the stability and convergence programmes and the national and reform programmes, creating more positive synergies between growth, structural reforms and fiscal consolidation

b/ The single market agenda should open new market opportunities, while actively promoting tax convergence and the upward convergence in social and environmental standards

c/ The macro-economic surveillance should reduce the macro-economic imbalances with a balanced approach, focusing on sustainable growth as its main objective; should also improve the cross national coordination of deficit and surplus countries, in order to increase the positive spill-over

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effects and to counter the negative ones

d/ The Community budget should fund stronger community programmes to support to the eu20202 strategy and provide structural funds for catching-up countries, with stronger conditionality regarding the eu2020 objectives

e/ The revised Stability and Growth Pact should ensure stronger fiscal discipline, reward the quality of public finances, improve the coordination of tax sources and social contributions and ensure public space for the eu2020 investments and for catching-up investments

f/ The European Stability Mechanism should reduce speculative pressures over the euro-zone, ensure reasonable spreads among member states, work as a last resort solidarity against sovereign default and enable key national public investments which do not find other financing alternatives

g/ The European supervision and regulation of the financial system should ensure stronger financial stability, reduce speculative pressure on sovereign debt and more focus of the financial system on supporting growth and investment according to the eu2020 objectives

h/ The Euro-Plus Pact should deepen the coordination between the euro-zone members regarding not only budgetary, tax and financial policies, but also economic, social and environmental policies for sustainable development

against this framework, the EU 2020 would have better conditions to be implemented, involving all member states, increasing the international attractiveness of europe

for new investments and strengthening europe’s global competitiveness.

5. Striking new compromises

The fine-tuning of all these instruments will face many divergences requiring specific compromises which are interconnected in a more general compromise.

•new compromises regarding the Single Market:

- opening or protecting the national markets? opening, combined with support to capacity building and protection of better standards

- standards harmonization or flexibility? more convergence, combined with support to capacity building

•new compromises regarding macro-economic surveillance:

- reducing the imbalances of the deficit or of the surplus countries? Both

- reducing the current account and competitiveness deficits or the unemployment rates? Both

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- changing countries’ behaviours with sanctions or with incentives? With both

- overcoming imbalances by national efforts, but also by better european coordination

•new compromises regarding the Community Budget:

- less or more resources? The same, but a new kind of resources

- less or more structural funds? The same, with stronger conditionality

- Focus on excellence or easier access to the community programmes? Focus on excellence and support to capacity building to be provided by structural funds

•new compromises regarding the Stability and Growth Pact:

- straight fiscal tightening blocking all public investments or keeping fiscal space for investments? selective spending cuts and fiscal space specially for key eu 2020 investments

- spending cuts or new revenues? selective spending cuts and new sources of revenue (financial and green)

- Tax harmonization or tax flexibility? Tax

convergence

- social contributions and retirement age harmonization or social flexibility? social convergence promoting active ageing and discouraging early retirement

- automatic or discretionary rules for fiscal discipline? semi-automatic and smarter rules

•Finally, new compromises regarding the European Stability Mechanism:

- providing loans or buying national bonds? Both

- higher or lower interest rate? lower, i assuming that public creditors are considered senior

- more or less resources? more to minimize use

- sovereign default or not? To be avoided by a stronger preventive action

- strong conditionality or not? strong but balanced, considering fiscal consolidation and growth

- larger euro-bonds issuance or not? yes, with a cap and an access price in line with the national risk

Two of these issues deserve a more detailed development in the next sections because they are interconnected at the

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heart of a new Euro-zone Pact:

- the transition from the current eFsF, european Financial stability Facility to the new esm, european stability mechanism

- the coordination and convergence of national economic policies in the framework of the so-called european semester

6. The transition to the European Stability Mechanism

The transition from the current eFsF, european Financial stability Facility to the new esm, european stability mechanism should be stepped up in order to deactivate the epicentre of the financial pressure hitting the euro-zone and to restore financial stability for all member states. This transition can proceed by taking the following steps, in a gradual metamorphosis:

- regarding its roles: control and prevent sovereign debt crisis; support key investments which cannot find other funding solutions; improving debt management of the euro-zone members

- regarding its instruments: providing conditional credit lines and loans, buying in the primary and secondary markets, issuing euro-bonds to provide loans; issuing euro-bonds to buy national bonds; special issuance of euro-bonds to fund key investments; to turn a capped tranche of national bonds into euro-bonds

- regarding the financial base to ensure aaa rating: national guarantees with senior status; a provisional credit line by the ecB; joint guarantee; own reserves and capitalisation (by buying and selling bonds)

- regarding conditionality: fiscal re-balancing and banks restructuring; fiscal consolidation, sustainable growth and structural reforms

- regarding the interest rate: higher than german bund, but reasonable enough to enable fiscal consolidation and recovery

- regarding the amount of resources: large enough to deter financial speculation

7. More coordination and convergence of national economic policies

The coordination of the national economic policies at european level in the framework the european semester will by translated into the presentation by all member state of:

- their stability and convergence programmes, indicating their medium term objectives for fiscal consolidation and for macroeconomic re-balancing and their priorities to achieve them

- their national reform programmes, indicating their national targets to meet the eu2020

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headline targets and their priorities to achieve them as well as to implement the eu2020 flagship initiatives

These two national programmes should be made coherent in the framework of the integrated guidelines for growth and jobs, encompassing the broad economic guidelines and the employment guidelines, aiming at a policy mix reaching three main objectives: promoting a greener, smarter and inclusive growth, re-balancing the national budgets and reducing the macro-economic imbalances.

in order to make consistent progress in these three objectives when national economies are strongly interconnected, this coordination should also involve a certain level of convergence which should engage particularly the euro-zone member states and all the others wanting to join. This joint convergence effort should notably focus on:

The following indicators:

a/ total unit costs and unit labour costs ( low competiveness countries should increase productivity, high competitiveness countries should increase internal demand)

b/ growth rates and well being indicators

c/ public debt rates (mTos considering different investment needs)

d/reasonable interest rates for private and public investments

e/minimum investment rates in r&d, education and infrastructures

f/unemployment rate (general, women, young, elderly people)

g/ stress tests indicators

The following policy measures:

- coordinated innovation and industrial policy, supported by structural funds with stronger conditionality

- framework for public debt sustainability

- tax sources and levels (common consolidated tax base, minimum corporate taxes, new sources of taxation)

- promoting active ageing and the employment rate, closing the gap between effective and legal age, while considering professional specificities

- convergence of minimum social standards (precarious work, minimum income schemes)

- crisis management regime for banks at the national and european levels

The efforts to be deployed by member states towards these convergences should be followed up at european

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level with peer pressure, recommendations, sanctions and incentives to be provided by:

- the stability and growth pact (fines/ more time to consolidate budgets)

- the macro-economic surveillane

- the european stability mechanism ( access and interest rate to be paid to use euro-bonds)

- the community Budget (stronger conditionality related to the structural funds, project selection in the community programmes)

The euro-plus pact defined in February 2011 was an attempt to deepen this coordination and convergence. some progress was made, but it remained an imbalanced and uncompleted framework. For a detailed assessment see the Table 2 below.

8. Central dilemmas for the European economic policy

Beyond overcoming the sovereign debt crisis, the most daunting challenge in the short term will be ensuring fiscal consolidation whilst boosting recovery. moreover, recovery cannot be seen as a return to the past, but rather as a transition toward a new low-carbon, knowledge-intensive and more inclusive growth model. Basically, the euro-zone faces two central choices:

- either to prioritise fiscal consolidation and sacrifice recovery, or to prioritise recovery

while paving the way for consolidation. investment and job creation are essential for a more effective strategy of fiscal consolidation as they reduce the costs of social protection and increase tax revenues. higher rates of growth and concomitantly higher public revenue, together with returns generated by public investments, can help to reduce public debt. The cuts to introduce in public spending should not damage this central process

- either to impose a uniform pace for consolidation or leave some room of manoeuvre to foster real convergence, accommodating different investment needs, welfare system reforms, patterns of specialisation and their implications for the asymmetric shocks stemming from the financial and economic crisis.

depending on which choices are made, the euro-zone can expect two different scenarios:

- if it chooses to move uniformly to attain fiscal consolidation quicker, it risks internal fragmentation, with many regions stagnating or trapped by recession

- in order to prevent such tensions, the alternative scenario should combine fiscal responsibility with stronger coordination of economic growth policies and with new european instruments to finance growth

in order to deal with this central dilemma over the next few years, economic policies should undergo some important changes:

a/ improving the surveillance regarding fiscal

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consolidation with ex-ante coordination and a stronger focus on the long term sustainability of the public debt

b/ coordinating the re-direction of public expenditure to promote key investments to foster a more low-carbon, knowledge-intensive and inclusive growth model and to prioritise jobs creation, making a clear distinction between “good” and “bad” spending cuts. member states that are more able to undertake this shift should have more time to reduce their public deficit and debt. The improvement of the quality of public finances should be rewarded.

c/ to make the best of positive spill-over effects, increasing european aggregated demand. The starting point should be to estimate the aggregate effect of member state public investments projected for the coming years.

d/ coordinating the shift of the tax burden to new sources, notably pollution and financial transactions, so as to avoid overburdening labour costs, which would damage jobs creation and social fairness. if it is to work properly, this re-direction of tax policies also requires better european coordination.

e/Developing of a new European instrument to create better conditions for Member states to issue national debt, in order to support new long term investments needed to promote the transition to a more low-carbon, knowledge -intensive and inclusive growth model. The issuance of euro-denominated bonds is already happening successfully within the framework of the community mechanism to support non-euro-zone eu member states with balance of payments problems and euro-zone member states as well as with the recently created eFsF, european Financial stability Facility.

f/ Monitoring and reducing the macro-economic imbalances in the euro-zone. some macroeconomic imbalances were magnified by the crisis and are now more visible in the current accounts and the balance sheets of the households and companies. Their underlying causes might be explained by unsustainable public spending, wage developments or by lack of productivity improvements. nevertheless, in the present conditions, they are also explained by lack of demand for investment and consumption at european level, inequalities in income distribution, increasing unemployment and poverty, deeper regional inequalities and lack of effective instruments to finance public budgets. Therefore, multilateral surveillance should follow-up these different dimensions in order to identify the appropriate and specific solutions. Beyond the national specific solutions, there are general principles which should be implemented. macroeconomic imbalances can be reduced by better conditions for recovery in all member states, and this requires more european coordination.

9. Moving to a new EMU architecture

This final section addresses the central issue for the future of the eurozone and of the European integration: how can we complete the architecture of the emu by building on its current features and ongoing reforms? These reforms of the economic governance are now quite comprehensive and involve the coordination of the economic policies as well as the development of new european instruments.

a reference to the experience of federal systems will also

be made, not because this is feasible in the eu but because it can give a sense of direction. There is a quite large variety of federal systems according to the way the functions of

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allocation of resources, the redistribution of resources and of macro-economic stabilization are performed at the different levels of governance: local, state or Federal level. There are two particular issues in the experience of federal systems which are relevant for the current european debate:

- is the role of macro-economic stabilization necessary in a way or another? yes it is, to ensure a smoother path of sustainable growth while the necessary adjustments take place in allocation and redistribution of resources to cope with new challenges

- What should be the response when particular State(s) or region(s) are facing special difficulties? The central problem is always to strike the right balance between the effort to make by this state and the one to be made by the Federal level, when it comes these three main functions.

We urgently need to deepen the european debate about these issues. in retrospective terms, we can remark that:

- Before the launch of the single currency, these three functions were mainly played by the national level, with a small complementary role of the community budget when it comes allocation and redistribution. macro-economic stabilization could be ensured by the exchange rate, monetary and budgetary policies at national level;

- With the creation of the eurozone, its member states can no longer use exchange and monetary policies for macro-economic stabilization; they are only confined to the budgetary ones, and in

a more constrained way according to the limits set by the stability and growth pact.

This uncompleted construction is only sustainable as long as there are converging growth rates and interest rates across member states, and as long as there are not major symmetric or asymmetric shocks disturbing this convergence.

if there is major shock- which is now the case since the financial crisis of 2008 – the emu will be confronted with the two central issues above defined. an effort needs certainly to be made by the hit states themselves, but this effort should be complemented by new developments at European level, notably if the macro-stabilization role of the national budgetary policies is to be reduced in order to diminish the public debt burden, which is the case now. These new developments are particularly:

- a permanent mechanism to ensure reasonable costs for public debt service in all euro-zone members, even if some differences are kept among them;

- a function of macro-economic stabilization to be introduced in the community budget in order to support particular regions or groups under stress;

- more convergence in tax policies;

- a European growth strategy combining new investments with a coordinated agenda for structural reforms.

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These new economic developments require stronger political coordination at european level and therefore, a new political legitimacy at european level - which should be strengthened in the european council, the council of ministers as well as the european council.

against this background, we can now detail the necessary developments of the EMU, Economic and Monetary Union in the following terms:

a/ National budgetary policies:- in the current emu, play a role of macro-economic

stabilization under the limits defined by the sgp;

- in a new emu, if this role is more limited by national law and by a revised sTaBiliTy and groWTh pacT, it needs to be developed at european level;

- We should bear in mind that, in federal systems, this role is more limited at state level because it was tranferred to the Federal level.

b/ European budgetary and economic coordination:- in the current emu, the surveillance of the

mstates’ budgetary policies proceeds according to the stability and growth pact; the macro-economic imbalances are not under surveillance and correction;

- in a new emu, there is a revised sTaBiliTy and groWTh pacT with stronger prevention and correction procedures of mstates’ public deficits and debts as well as a new macro-economic surveillance is put in place. moreover, there is a coordination of budgetary and macro-economic policies to maximize sustainable growth at european level;

- We should bear in mind that, in federal systems, the limits of mstates’ public deficits and debts are defined

at Federal level and the overall budgetary and macro-economic policies are defined at Federal level.

c/ Public debt management:

- in the current emu, public debt issuance and loans are managed by national agencies;

- in a new emu, debt issuance is also partially managed by a european public Financial authority (building on eFsF-esm); the ecB should also play the role of lender of last resort;

- We should bear in mind that, in federal systems, a Federal Treasury can borrow and issue public debt.

d/ The Community budget:

- in the current emu, is mainly funded by national contributions and can finance community programmes and structural funds to reduce regional divergences;

- in a new emu, it can be more funded by own resources. moreover, structural funds can also be used for macro-economic stabilization supporting specific regions and groups;

- We should bear in mind that in federal systems, the federal budget has a much bigger size, is funded by federal taxes and can finance Federal programmes supporting specific regions to reduce structural divergences and macro-economic imbalances.

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e/ The European growth strategy:

- in the current emu, is based on coordinating mstates structural reforms complemented by some quite small community programmes;

- in a new emu, the coordination of structural reforms at european level becomes deeper and these community programmes become larger;

- Whereas in federal systems, Federal programmes and federal structural reforms complement the mstates’ ones.

f/ The executive power:

- in the current emu, is based on mstates governments, the european council, the eu council of ministers and the european commission;

- in a new emu, is also based on a eurozone government at pms and ministerial level, with permanent presidents. in the current conditions, this is an unavoidable complexity, in face of:

- Federal systems with permanent president and ministers.

g/ The legislative power:

- in the current emu, is based on mstates parliaments and governments, the eu council of ministers and the european parliament;

- in a new emu, it is also based on a eurogroup council of ministers; later on, a special committee for the eurozone in the european parliament, creating a stronger european democratic legitimacy, beyond the national legitimacy provided by mstates’ parliaments and governments. in the current conditions, this is an unavoidable complexity, in face of:

- Federal systems, where the central democratic legitimacy comes from a Federal congress with a senate and a house of representatives.

in conclusion, the current reforms of the eu economic governance should be shaped bearing in mind a more comprehensive architecture for the emu. a emu more fitted for the future should be equipped with:

- a european strategy for a new growth model, smarter, greener and more inclusive, to be translated into national policies, budgets and stronger european instruments

- a community budget, based on new own resources and able to provide leverage to a longer general re-allocation of resources focusing on the key strategic priorities of the union; also able to reduce the regional divergences and the macro-economic imbalances

- a european public finance authority, monitoring the national budgets in their quantitative and qualitative objectives, ensuring coordinated discipline and providing the basis for:

- a european agency able to issue euro-bonds to finance long term investment needs and to improve debt management;

- a european stability mechanism, able to

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provide assistance in case of sovereign debt crisis- a european framework for the financial

system regulation and supervision- a euro-zone pact deepening the

coordination, convergence and the external representation of the euro-zone

This vision shows how the current crisis of the euro-zone and the ongoing reforms of the economic governance can provide an opportunity for a qualitative leap in the emu, if a pro-european and progressive leadership is more influential.

Table 1:THE REFORM OF EU ECONOMIC GOVERNANCE- COMPREHENSIVE OVERVIEWFine-tuning its policy instruments to strengthen the sustainability of the euro-zone

PRIORITIES FOR THE EUROZONE SUSTAIN-ABILITY

EU POLICY INSTRU-MENTS

promoting a neW kind a oF groWTh

ensuring Fiscal responsi-BiliTy

ensuring Financial sTaBiliTy

increasing internal conver-gence

eu2020 sTraTegycommunity pro-grammesnational reform programmes

Beyond gdp measuring growth3 strategic priorities10 guidelines7 flagships

structural reforms for more effective and efficient public finances

increasing the attractiveness for new invest-ments

generalising the imple-mentation of the eu2020 strategy

single markeT new market opportunities

new sources of taxationTax coordina-tion

Financial markets integration and reform

Tax and social convergence

macro-economic surveillance and correction

create conditions to implement eu2020coordinate spill-over effects

Facilitate budget re--balancing

strengthening national attractiveness for new invest-ments

correcting the macro-economic im-balances with a balanced approach

eu BudgeT community pro-grammesstructural FundseiB

providing additional financial support to the eu2020

reducing national bud-getary effort

providing a guarantee to project bonds

eu support to catching-up

sTaBiliTy and groWTh pacT

ensure fiscal space for eu2020 investments

stronger fiscal disciplinereward the quality of pub-lic financenew sources of public revenue

credibility of the medium-term objec-tives

ensure fiscal space for catching upinvestments

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european sTaBiliTy mechanism

enable key national public investments

last resort solidarity against sovereign defaultmutualisation of debt issuance

reduce specu-lative pres-sures over the euro-zone

ensure reason-able spreads among mem-ber states

european supervi-sion sYstem

Financial sysTem reForms

make financial system sup-port eu2020 objectives

reducing speculative pressure on public debt

stess tests, regulations, reserves, bo-nus to ensure responsiblefinancial investment

european central Bank

general conditions to promote growth

ensuring stable condi-tions for low interest rates

inflation control

last resort to ensure access to

Table 2: ASSESSING THE EURO-PLUS PACT

positive negative

emu development stronger economic unionpermanent financial stability mechanismstronger coordination of fiscal and economic policiesconcern with internal convergence

no coordination for growthno stronger coordination of social policiesonly focus on fiscal convergenceThe role of the community budget is ignored in the overall architecture of the emu

general priorities employment was added to fiscal sustainability and to competitiveness

promoting growth and job creation is not a central priorityreforming the financial system neither

speciFic prioriTiescompetitiveness

investment in education, r&d, innovation and infrastructures is mentioned

The relationship between wages and productivity remains central to increase competitiveness. risk of making wage and social benefits cuts

speciFic prioriTiesemploYment

lifelong learning and not only flexicurity

no reference to upward convergence of social standards

speciFic prioriTiessusTainaBiliTy oF puBlic Finances

convergence on retirement age is more nuancedFinancial transaction tax is referredlegal framework rather than constitutional debt break

debt sustainability is not considering fiscal space to investThere is no real commitment regarding new tax sources to rebalance the budgets

speciFic prioriTiesFinancial reForm

more precise bank stress tests no clear european framework to deal with bank restructuringno clear commitments to pursue the financial reform

governance more references to community methodmore references to the role of social partnerseuropean council and not ecofin taking the lead

many ambiguities regarding the community methodmany ambiguities regarding the role of social partnersimbalance between council formations.no reference to the european parliament

Financial sTaBiliTy mechanism

more resourcesnew instruments( buying in the primary market)possibility to reduce interest rate

no possibility to buy bonds in the secondary marketsinterest rate still too highimbalanced conditionalityrole of the imFno joint guaranteeissuance of eurobonds for too limited purposes

Table 3: ASSESSING THE 21 JULY 2011 PACkAGE

issues positive negative

general approach recognizes for the first time general nature of the eurozone crisis and , im-plicitly the risks for europe as a whole

Falls short on a systemic solution, on the quantum leap which is necessary for the emu architecture.patchwork approach remains

greece recognizes for the first time the need for growth and a marshall planreduces interest rates and extends maturities

marshall plan not clear at allambiguities in the way to restructure the debt, involving the private sector but without default. The best solution would be a swap of greek bonds against eFsF bonds (eurobonds)

stop contagion ireland and portugal will also benefit from lower interest rates and longer maturitiesFlexibilization of the eFsF, allowing preventive measures, loans without adjustment programmes and interven-tion in the secondary marketsrecognizes for the first time the need to support growth. decides better combination between structural funds and loans

The reform of eFsF is not strong enough regarding its scope, the absence of a joint guarantee and a larger use of eurobonds in order to improve debt management.We need a european debt management agency

Falls short on new financial means to support investment and growth (euro-bonds, FTT)

general deal on eco-nomic governance

makes a connection between more solidarity, responsibility and coordina-tion (in budgetary, fiscal and economic policies)

The general bias in the reform of the economic governance remainsstability and growth pact with no room for investmentmacroeconomic surveillance imbalancedeuro plus pact without concern for growth , employment and the social dimension

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Table 4: COMPLETING THE ARCHITECTURE OF THE EMU

Main features Current EMU New EMU Federal systems

National budgetary policies

-national budgetary policies play the role of macro-economic stabilization under the limits defined by the sgp

-This role is more limited by national law and by a revised sgp

-This role is more limited at state level and it is tranferred to the Federal level

European budgetary and economic coordination

-surveillance of the ms budgetary policies according to the stability and growth pact

-The macro-economic imbalances are not under surveillance and correction

-revised sgp with stronger prevention and correction procedures of ms deficit and debt-new macro-economic surveillance-coordination of budgetary and macro-economic policies to maximize sustainable growth

-The limits of ms public deficit and debt are defined at Federal level

-The overall budgetary and macro-economic policies are defined at Federal level

Public debt management

-public debt issuance and loans by national agencies

-partial debt issuance by a european public Financial authority (building on eFsF-esm)

-Federal Treasury can borrow and issue public debt

Community budget

-Funded by national contributions

-Financing community programmes and structural funds to reduce regional divergences

-more funded by own resources

-structural funds can also be used for macro-economic stabilizationsupporting specific regions and groups

-much bigger size-Funded by federal taxes-Financing Federal programmes-supporting specific regions to reduce structural divergences and macro-economic imbalances

European growth strategy

-coordinating ms structural reforms plus some small community programmes

-These community programmes become larger

-Federal programmes and federal structural reforms complementing the mstates ones

Executive power ms governmentseuropean councileu council of ministerseuropean commission

idem plus eurozone government atpms and Finance ministers level with permanent presidents

Federal government with permanent president and ministers

Legislative power

ms parliaments and governmentseu council of ministers and european parliament

-eurogroup councilof ministers;-later on also european parliament - special committee for the eurozone-ms parliaments and governments

Federal congress with senate and house of representatives

emu,Quovadis?

maria João rodriguesFebruary 2013

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a monetary union cannot survive without a fiscal union and this one cannot work without a political union. Furthermore, an economic union without

a social dimension will destroy the european social model. The european integration is now confronted with crucial choices.

The european union economic governance is being transformed by the combined effect of a sequence of different crisis:

- the limits of a growth model which is no longer sustainable in the present context of globalization

- the financial crisis starting in 2008 - the economic and social crisis which have

followed - the eurozone crisis combining sovereign

debt with bank debt and exposing the imbalances in the eurozone and flaws of the emu architecture

- the crisis of the eu integration triggered by the need of major reforms in the economic and monetary union

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This paper will focus on the implications of the eurozone crisis for the current reshaping of eu economic governance. it will elaborate on the possible choices to complete the economic and monetary union.

1. Crisis in the Eurozone or of the Eurozone?

There are currently two different narratives about the ongoing eurozone crisis: a crisis in the euro-zone or a crisis of the euro-zone.

according to the first version, the main problem has to do with the lack of fiscal discipline in some peripheral countries which led to unsustainable public debts damaging the credibility of the euro. hence, the logic solution should be to strengthen fiscal discipline and to impose austerity even at the cost of recession in these countries, which should learn a lesson. ultimately, if they default, their negative effect can be contained because they are peripheral economies.

according to the second version, the need to strengthen fiscal responsibility is also accepted, but a more comprehensive diagnosis is proposed. some fiscal and macro-imbalances were already at work before the financial crisis, but they were deeply worsened by its impact leading to a recession, rising unemployment and banks rescues requiring stimulus packages with strong implications for public deficits. This shock has hit the euro-zone as a whole, but the recovery process was easier for the member states with more fiscal space and/or more reliance on exports to outside europe.

This differentiation in the recovery was then turned into an increasing differentiation in the financing

conditions (spreads) within the euro-zone, which were magnified by some financial operators learning how to extract extra-profits from the euro-zone flaws. First, when exploiting some countries’fears to default by offering them loans at higher price; second, when finally the euro zone could create its defence mechanism, by exploiting some countries’s fears regarding its tough conditions leading to a forced recession.

in this second version about what is happening, there are two reasons why we are in face of a systemic crisis of the euro-zone:

- first, while some differences in the spreads across member states can be accepted as normal, these increasing divergences are worrying because they will also turn into divergences of their investment conditions, their growth and employment rates as well as their public deficits and debts;

- These cumulative divergences will be magnified by the strong interconnections among banks across the euro-zone, creating a domino effect which will be very difficult to control and can turn fragmentation into collapse.

2. A New Framework, But Still Many Problems

over the last three years of intensive political creativity a new framework was developed to address the key problems of the emu, which can be summed up as follows:

Regarding fiscal discipline (with new legislation, the euro plus pact and the new inter-governmental Treaty on stability, coordination and governance):

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– a commitment to balanced budgets;

– a new focus on public debt and not only deficits;

– more automatic and tougher sanctions;

– closer monitoring of the member states under financial assistance;

– many new commitments to structural reforms and spending cuts were made by the member states.

regarding financial stability:

– new regulations for financial systems concerning capital requirements, hedge and equity funds, some derivatives and bonuses;

– new european supervisory bodies and regular stress tests on banks;

– instruments to respond to sovereign debt crisis (eFsF and esm);

– new roles for the ecB.

regarding growth (europe 2020 strategy):

– a long-term strategic commitment for smarter,

greener and inclusive growth;

– european flagship initiatives;

– national reform programmes;

– an annual growth survey and recommendations for the member states.

regarding macroeconomic imbalances (with new legislation):

a new process of macroeconomic surveillance to monitor major problems of external and internal economic and social imbalances, with a more symmetrical approach.

regarding governance (with legislation and a new Treaty):

– reorganisation of the annual cycle to prepare national budgets and national reform programmes with ex-ante european coordination, meaning more shared sovereignty (european semester);

– regular eurozone summits with a permanent president and leading team, including the president of the european commission and the president of the eurogroup; a inclusive approach regarding the member states willing to join;

– involvement of the national parliaments and the

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european parliament in the discussion of eurozone issues;

– more systematic coordination of the eu with its international partners (the imF and the g20).

despite these important policy developments, the eurozone crisis is still going on. The problems include:

– unsustainable debt levels in some countries;

– diverging levels of borrowing costs between countries;

– diverging growth trends, in several instances negative;

– a general trend towards recession and rising unemployment;

– increasing spillover effects for the global economy: the eurozone crisis has become a global problem;

– political opposition to further european solidarity in some member states;

– political opposition to more structural reforms, taxes and spending cuts in other member states;

– a widespread sense of a loss of democratic control over general living conditions. europe is now perceived by many as strongly shaping their lives, but not susceptible to democratic influence at national level.

in fact, these problems are now so deep and central in many member states that the exit from this crisis can shape the future not only of the emu, but also of european integration and europe’s position and role in the world.

3. The New Instruments of the EMU: a Critical Assessment

so far, the instruments which have been developed to cope with the euro-zone crisis have been designed more in the intergovernmental direction. even when setting a new balance between national responsibility and european solidarity, the european dimension has mainly been understood as just a sum of the national dimensions. a paradigm of mutual insurance has been preferred to a more federal paradigm:

- in the european instruments to rescue member states in risk of sovereign default. When this greek crisis irrupted in 2010 an already existing instrument was considered: the eFsm, the european Financial stability mechanism, which had been created to deal with the balance of payment problems of the non-eurozone eu member states, but which could be easily adapted to the euro-zone members. This mechanism is managed by the european commission and can make loans to the member states with the new resources it can mobilise in the markets by issuing euro-bonds with a guarantee provided by the community budget.

This typically federal solution remains active (now

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for ireland and portugal) but is kept in small size. a new instrument was instead built from scratch, starting with eFsF and now enshrined as permanent in the lisbon Treaty: the european stability mechanism. it is based on national financial guarantees to be authorized by the national parliaments each time a new loan needs to be decided and to be attached to tough conditionality.

- in the european mechanism to rescue banks, as far as this will also depend on this european stability mechanism

- in national fiscal policies, which are being framed with increasingly tighter rules with new regulations to reform the stability and growth pact (“6 pack” and “2 pack”) and particularly with the new intergovernmental Treaty on stability, coordination and governance. nevertheless, the coordination of spill-over effects of the national fiscal policies remains very weak, and an aggregate fiscal policy for the euro-zone is not even conceptualized.

- in the new process of macro-economic surveillance, this one is mainly focused on the macro-economic imbalances of each national case, implicitly assuming that the ideal situation would be each member state to have a surplus in the current account and even in the balance of payments as a whole. This, if ever possible, would make europe a very competitive economy but also a worrying factor of global imbalances… This new process of macro-economic surveillance is certainly very useful to identify national problems to be addressed, but should also consider the spill over effects notably

between deficit countries and surplus countries in the euro-zone, as well as be used to discuss the most appropriated policy-mix for the euro-zone as a whole.

The economic implications of this new architecture are the following: from now on, it is possible to reduce the spreads of sovereign debt and private credit, but it is not possible to reduce the divergences between member states regarding investment rates, growth rates and unemployment.

The final economic outcome of this situation is that some member states have lost the basic conditions to implement the common eu strategy for a new growth model (europe 2020 strategy), replacing it by an current organized destruction of viable companies and viable jobs triggering a dis-organized emigration flow with brain-drain.

and the final political outcome of this situation is that national policies of some member states are now more shaped by the national parliaments and governments of other countries (the creditor ones). one can naturally ask for how long can this situation can be sustainable in economic, social and political terms… The nature of the european integration is certainly changing.

4. Redesigning the instruments for a sustainable EMU

The current new instruments were forged in extreme situations, where the choice was between a collective abyss and a patch-worked solidarity.

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now, that the risk of eurozone break-up seems less dramatic but the crisis is far from over, it is time to consider a more systemic and federal approach for a crisis which is systemic.

against the previous background, this approach can be logically developed according to the following steps and building on the existing instruments:

a/ all eu member states and therefore all eurozone members should have the conditions to implement the eu strategy for a new and more sustainable growth model, greener, smarter and inclusive. This requires a particular combination of investments and reforms which should be coordinated at european level according to the new schedule defined by the so-called european semester. This means that the consistency of national policies with the european policies is to be checked at european level before final adoption by the national governments and parliaments. This should also be used to identify the kind of european support which should be provided to complement the national effort.

b/The same should happen with the solutions to address the macro-economic imbalances, and which should combine national efforts with support by a eurozone budget, in case of asymmetric shocks. on the top of this surveillance of national imbalances, a more general macro-economic coordination should take place in order to define the better policy-mix for the eurozone as a whole.

c/ The fiscal coordination should supervise the national efforts for fiscal consolidation as well as identify the needs for complementary european support.

d/ The european support for investment and structural convergence should be provided by the eu community budget via the community programmes or the structural funds, to be aligned with the europe 2020 strategy.

e/ The european support for macro-economic stabilisation which is required to address specific problems of the eurozone should be provided by a complementary eurozone budget based on eurozone taxes and borrowing in the markets via eurobonds issuance.

f/ The european support via the community budget or via the euro-zone budget should attached to a conditionality to be aligned with the eu priorities – assuming they are defined in a balanced way

g/ The european stability mechanism should focus its activity on a rescuing role regarding sovereigns. When requested by a euro-zone member state, and under conditionality, it should also use its capacity of issuing euro-bonds to buy in the public debt primary markets.

h/ The european council, the council, the european commission and the european parliament should organize themselves internally to deal with the euro-zone issues more effectively. The national parliaments should also be better involved insofar they frame the national governments positions at european level.

We also assume that the ongoing process to build up a banking union with a single supervisory system, a bank resolution mechanism and an harmonised deposit guarantee will be completed soon, as this is a crucial pillar to overcome the euro-zone crisis. This means that all over this process, the ecB will build up a new role dealing more

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specifically the financial stability.

5. A Social Dimension for the EMU

another central issue is the need to include a social dimension in the emu. if there is not a clear frame for social coordination and convergence when the member states accept sharing higher levels of their financial, budgetary and economic sovereignty, the normal consequence will be intensification of competition between them, notably by downgrading their social conditions.

This is something economic theory can predict with a high level of certainty. This trend will first affect the euro-area members with lower competitiveness and will spread gradually to all the others, creating a downward spiral based on a institutionalized social dumping, which will downgrade, wages, social contributions, social standards and ultimately the basic ingredients of quality of life and of forward looking competitiveness in europe. later on, this trend will also undermine the economic, financial and fiscal stability of the emu, due notably to uncontrolled movements of people and capitals.

Therefore, which are the minima conditions to consider this indispensable social dimension when reshaping the emu towards the new envisaged one?

- a clear definition of basic social standards to be respected in the euro-zone, and to be promoted in the relationship between the eu and its external partners

- a definition of targets for social progress in the frame of the european growth strategy

- a stronger monitoring and coordination of social reforms and jobs plans in the frame of the national reform programmes

- stronger means for social investment to be considered in the community Budget and in the european surveillance of the national budgets. These means for social investment should be used as conditional incentives for the progress in these social targets and reforms

- a surveillance of the macroeconomic imbalances and a better macroeconomic coordination, which should also consider their social indicators and not only the economic and financial ones

- The development of a european Fund to cushion major social macroeconomic shocks, if there is higher coordination of euro-zone member states regarding tax and social contribution policies

Finally, these developments also require an adaptation of the current institutional setting:

- meetings to improve the coordination of social ministers regarding the specific issues of the eurozone, which should also involve the european commissioner for social affairs

- a more active role of the european parliament in the different stages of the european semester and its internal organization to deal with the specific issues of the eurozone

- The development of procedures of social dialogue able to cope with the specific issues of the euro-zone

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The development of a genuine emu is now a central process for the success of european integration. Four integrated frameworks are being considered for this development: financial, economic, budgetary and political. if we want to ensure the long term sustainability of the emu, a social dimension should also be considered when defining the content of each of these frameworks. The following ideas can be added to next version of this document, building on what is already underway.

how can the social dimension be considered in the items already included in these four frameworks?

Integrated economic framework

- The europe 2020 strategy for growth and jobs is central in this framework and involves key-targets, guidelines and measures at european and national level which concern the social dimension, notably employment, education and social inclusion. national job plans are also being requested. sustaining the european social model should also be a central concern of this strategy.

- The macro-economic surveillance is based on a set of indicators which also include social indicators, notably (un)employment rates and unit labour costs (labour costs/labour productivity)

- if there are contractual arrangements concerning the implementation of the national reform programmes, they should be based on a balanced approach also considering the social dimension

- The investment instruments to be develop at european level to complement the national ones, should

also include social investment as a key priority: this should be the case of eiB, of community programmes, of structural funds and of specific instruments such as the globalization Fund

- The euro plus pact should consider not only more upward convergence on social contributions but also more upward convergence on social standards

- The european economic external action should also be active about promoting better social standards in our external partners, in order to reduce the social dumping pressure

- The Treaty on stability, coordination and governance (Tscg) refers promoting employment among its key-objectives(article 9)

Integrated budgetary framework

- The new fiscal discipline rules already defined by the reformed stability and growth pact (with 6/2 pack and Treaty on scg) considered that the medium term objectives to be defined for fiscal consolidation need to take into account the effects of economic cycle. This should enable to use social spending as countercyclical tool.

moreover, when measuring the quality of public spending, the quality of social investment should be considered a central priority.

- The ex-ante coordination of the national budgets at european level, should be balanced and consider the social situation in each country

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- The special fiscal capacity in the eurozone can take the shape of european fund to deal with asymmetric shocks and to complement the national efforts to re-balance a country in economic and social terms

- The instruments for joint management of the public debt can create better financial conditions for an effective reform of the welfare system rather than its downgrading.

Political framework

- The enhanced role of the european parliament and the interface with the national parliaments should also include the follow-up of the european semester including the europe 2020 strategy and the national reform programmes

- The eurozone governance should also involve the ministers of labour and social affairs

- social dialogue also needs to play a specific role in this governance

6. The Political Processing: Configurations, Sequences and Treaty changes

This development of the emu architecture should involve not only all euro-zone member states but also, by appropriate means, all eu member states willing to take part of this monetary zone. This crucial development for the european integration should be kept as inclusive as possible.

The legal solutions should first exhaust all the possibilities

open by the lisbon Treaty, notably the article 136 which is specific for the euro-zone and the method of enhanced cooperation which allows to move forward with all member states willing to do so.

nevertheless, some of the new instruments can overcome the limits of the lisbon Treaty and, in this case, other solutions should be considered: either a proper revision of the eu Treaties based on a european convention or if, this is not at all possible, an intergovernmental Treaty designed to include in these eu Treaties as soon as possible.

in any case, the next european elections will be crucial to define the mandate for the eu Treaties revision which is needed. in the meantime, all the possible steps should be taken to develop this new architecture according to a sequence which should be able to:

- to disentangle the sovereign crisis from the banking crisis. The ecB can play a key role by intervening in public debt secondary markets and by strengthening banks supervision;

- at the same time, to shift to a better balance between investment, growth and jobs creation on the one hand and fiscal consolidation on the other hand

- to use these new conditions to pursue the necessary structural reforms for a more sustainable growth model with more political support and strategic consensus between the key stake holders.

all in all, we need to start by having a more comprehensive view on the priorities to strengthen the long-term sustainability of the euro-zone. They seem to be:

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aBacksTopFor divergences intheeuro-Zone

maria João rodriguesMay 2013

- a/ Fiscal responsibility coupled with a last resort solidarity regarding sovereign debt

- b/ a reformed financial system to ensure financial stability and foster growth

- c/ a stronger coordination of economic policies combined with structural reforms to promote a new kind of growth

- d/ The reduction of the internal divergences. on the long term it is difficult to ensure the nominal convergence between the euro-zone members without increasing their real convergence

- f/ Democratic decisions at european level about all this

This is the kind of new deal we need to really overcome the eurozone crisis and to reset a credible and appealing path for the european integration.

a

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T he Eurozone crisis has generated unprecedented divergences between Member States, starting with spreads in public debt issuance and interest

rates in private investment which were translated into divergences in investment and growth rates, followed by divergences in unemployment and poverty rates and are leading to the rise of anti- E and sometimes, anti- European movements and sometimes, anti-German movements. That is why the Eurozone crisis, in spite of several relevant measures which were introduced, is turning into a major crisis of the Economic and Monetary Union and of European integration.

Clear reform efforts should be undertaken by the Member States under difficulties, but they cannot succeed if they are not complemented by major reforms of the EMU in order to overcome its systemic flaws. A proper banking union and a proper fiscal union are crucial to reduce these divergences because they can reduce the differences of financing costs of private and public investment when they are no longer reasonable, which is the case now.

To understand why, we will clarify the nature of the divergences within the Eurozone and we will compare the

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EMU with other monetary zones before elaborating on the kind of fiscal union which should be developed in Europe.

1. What kind of Divergences do we have in the Eurozone?

These divergences between Member States are explained by different capacities to cope with three different kinds of challenge:

First challenge: cyclical divergences created by asymmetric shocks hitting particular regions or counties due to their pattern of productive specialization. This kind cyclical divergences of growth and employment will always exist due to a natural - and desirable – variety of productive specializations. In other monetary zones, these divergences are reduced by federal instruments for macro-economic stabilization. In the EMU, the national instruments with this purpose were reduced to a small room of manoeuvre in the budgetary policy and there are no instruments at European level. This means that if an Eurozone MS is hit by an asymmetric shock, there are few means to avoid the social impact in terms of wage and benefit cuts and job losses

Second challenge: the higher pressure of globalization and the need to move to a new growth model more knowledge-intensive and less carbon-intensive, adapting structures and preparing people to new jobs. This transition requires an important amount of new investments and of structural reforms – in business framework conditions, labour markets, social protection, education, innovation systems- which should be better coordinated at European level, because they have many spill-over effects. So far, the divergences between the Eurozone MS have increased by lack of investment means and coordinated reforms. These

structural divergences in competitiveness have led to macro-economic imbalances which were not identified and corrected in time.

Third challenge: the recent financial crisis leading to a

general credit crunch and magnifying the macro-economic imbalances which were already building up in the Eurozone. More recently, the crisis of the Eurozone interconnecting high sovereign debt with high bank debt has created cumulative divergences between Member States regarding financing conditions, investment rate, growth rate, unemployment rate and sustainability of welfare systems. The instruments which were created so far- notably the European Stability Mechanism and the new ECB instruments - are able to reduce the divergences regarding the financial conditions, but not the other divergences regarding growth and the social indicators.

If these EMU flaws are nor addressed, the most likely sequence of events will be:

- In the most vulnerable Eurozone countries: important reduction of wages, social benefits first; followed by important jobs losses triggering a recessive spiral; uncontrolled emigration

- In the other Eurozone countries, increasing pressure on their social standards; risks of social dumping

- In the EU as a whole, erosion of the existing instruments to provide a social dimension; reduction of the aggregate internal demand, shrinking the internal market; systemic pressure towards lower growth or recession.

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2. How can we brake these divergences?

A new policy sequence is needed to brake these divergences:

- Refocusing on the comprehensive development objectives defined by the Europe 2020 Strategy and to be implemented by all Member States in the framework of the European Semester

- Introducing additional social indicators for macro-economic surveillance

- Developing a macro-economic coordination to improve the overall policy-mix with a symmetric approach ( deficit and surplus countries)

- Improving the coordination of the major structural reforms

- Improving the coordination of main priorities of economic social policies (using the integrated guidelines)

- Improving the framework conditions for internal migrations wit better social integration (portability of rights, etc)

- Developing forward-looking investments, notably social investments in training, active labour market policies, child care

- Defining the room of manoeuvre for these investments in the investment rules of the SGP

Wage adjustments, job losses, migration, structural reforms but also investments, job creation and income transfers will also certainly be ingredients of the next life period of the EMU. But there is a big political choice to be made about the axis which will be preferred:

- Either a Eurozone of internal divergences with deep internal contrasts regarding wages, social benefits, unemployment rates and migration flows;

- Or a Eurozone of internal convergences, with more coordinated reforms and investments, and with upward trends in growth, employment, inclusion and social sustainability.

Nevertheless, in the current financial situation, this can only be possible if a banking union makes real progress and if some kind of Eurozone fiscal capacity is defined. This second idea deserves further elaboration.

3. Can Monetary Integration Work without Fiscal Integration ?

What are the basic conditions for a monetary zone to work and survive? A rich and long international experience tell us two basic conditions are required:

- sufficiently integrated markets and mobility of factors to facilitate a certain degree of convergence between the competitiveness of the Member States

- monetary integration must be coupled with a considerable degree of fiscal integration.

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The current European debate recognises these two conditions but is divided about the importance to be given to the convergence objective as well as about the meaning to be given to fiscal integration:

- for some, this is just about defining and enforcing a common fiscal discipline;

- for others, this is also about coupling this common fiscal discipline with a common budget based on some common taxes and with better instruments to issue and manage public debt.

The available international experience shows that fiscal unions with shared currency have a basic set of similar features:

- common principles of fiscal discipline in the sub-central governments

- in this common framework, sub-central governments enjoy different degrees of fiscal autonomy to meet their financial obligations with their own fiscal resources

- a central government with a relevant budget based on own tax resources and a Treasury responsible to issue common debt.

The roles of this central government budget are usually the following:

- a macro-economic stabilisation and anti-cyclical function to protect regions under asymmetric shock, whatever their relative level of wealth (richer or poorer regions);

- a mutualisation of risks if there is mutualisation of the decision-making, notably on

issuing public debt- a redistributive function, involving a

transfer of resources from more competitive and wealthy regions to less competitive and wealthy ones. A VFI (vertical fiscal imbalance) between income and spending is accepted to enable this redistribution, provided free rider and moral hazard are prevented.

4. What kind of Fiscal Capacity is needed in the EMU?

The fiscal union in the European Economic and Monetary Union has precise principles of a common fiscal discipline, but:

- its macro-economic stabilisation function remains very weak, because its instruments at national level are now reduced to very a tight fiscal room of manoeuvre and they are not complemented by instruments at European level

- it is silent about the need of a Eurozone budget and its possible roles. The discussion about equipping the euro-zone with some kind of “fiscal capacity” has just started.

- it is still incipient about the possible ways to mutualise risks and decision-making about debt issuance. The European Stability Mechanism is used to issue euro-bonds at small scale but the discussion of conditions to issue euro-bonds at larger scale is being postponed

- The EU Community budget plays a re-distributive role but only at a small scale.

In order to reduce dangerous internal divergences, the EMU should be equipped with a proper fiscal capacity able

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to cushion asymmetric shocks, whatever the Member State, and able to promote catching-up and structural convergence between Member States by focusing on capacity building. The financial resources of this fiscal capacity (preferably own resources) can provide a basis for borrowing via Eurobonds in order to finance European investments, complementing the national ones. This can become an embryo of European Treasury.

Of course, such a development of the Economic and Monetary Union should be based on a New Deal whereby Member States should accept:

- stronger European supervision on their banks, if a common bank resolution and deposit guarantee is build up

- stronger coordination of their economic and social policies and reforms, if a fiscal capacity is build up

- stronger sharing of sovereignty at European level, if the decisions are taken in more democratic terms.

The recently created Eurozone Summit should start dealing with these issues and be accountable in face of a stronger democratic role to be played by the European Parliament and national parliaments.

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hoW

IVEUROPE ANDTHE WORLD

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For

For agloBalneWdeal

maria João rodrigueswith the collaboration of Thierry soret, James howard,

Jan kreutz and with the contributions of the geneva groupNovember 2009

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INTRODUCTION

1. A COORDINATED RESPONSE TO THE RECESSION

1.1 A budgetary stimulus for growth, jobs and structural change

1.2 More ambitious policies for smart and green growth

1.3 Social Policies to protect people and to support change

2. SWIFT ACTION TO ACTIVATE AND REGULATE THE FINANCIAL SYSTEM

2.1. Urgent measures for financial stabilization to support savings, investment and jobs

2.2 Regulating the financial system to support growth and sustainable development

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3. FOSTERING THE TRANSITION TO A LOW-CARBON ECONOMY

3.1. Large-scale investments for green growth and jobs

3.2. Effective and fair mechanisms to share the costs

3.3. Policies to ensure social justice in this transition

3.4. Striving for a global agreement on fighting climate change

4. A WORLD TRADE SYSTEM THAT WORkS FOR PEOPLE

4.1. Opening markets is necessary to ensure growth and alleviate poverty

4.2. For trade opening to benefit all, appropriate domestic regulations are needed

4.3. For developing countries good domestic policies but also development aid

4.4. WTO, a forum to discuss and monitor the use of trade policies

4.5. The importance of an open international trade during the financial crisis

5. STRENGTHENING THE DEVELOPMENT POLICIES

6. IMPLEMENTING THE DECENT WORk AGENDA AND MANAGING INTERNATIONAL MIGRATIONS

6.1. Implementing the decent work agenda

6.2 Managing international migrations

7. ENSURING PEACE AND SECURITY

8. SHAPING THE GLOBAL NEW DEAL

8.1The main principles of a Global New Deal

8.2 The Global New Deal as a win-win game

8.3 The policies at the heart of a Global New Deal

9. RESHAPING GLOBAL GOVERNANCE

BIBLIOGRAPHY

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Introduction

t he current crisis can only be consistently overcome by a Global New Deal. This is a systemic crisis and a global crisis requiring systemic and

global solutions.

This is systemic crisis of a market economy which has been driven by the share value, by the short term financial return as the main criteria, sacrificing investment, growth, jobs, wages, environment and the general well being in the planet. it should be replaced by a market system where initiative and entrepreneurship should be supported by a sound financial system in order to foster growth, productivity, jobs and prosperity in the framework of sustainable development. a new new deal should be settled in order to turn that vicious circle into this virtuous circle, raising the demand in a sustained way.

This is a global crisis, starting in the usa, but spreading very swiftly throughout the world, with the financial crisis feeding in the economic crisis and the other way round, threatening to turn the recession into depression. underlying this crisis there are major economic and financial imbalances: american growth depending on external credit,

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chinese or other emerging economies fostering their exports to the detriment of their internal demand, too many countries still in an underdevelopment trap, a very uneven distribution of the benefits of globalization across the world and within each country. a global new deal should be settled for a better international balance allowing to raise the global demand in a sustained way and making globalization work for all.

This crisis is coming on the top of another crisis. This financial turmoil is bursting in a special moment of our history when the gap between global problems and governance was already becoming evident in several areas: a multilateral deal for trade and development is still in pain to be born, migrations flows are expanding without concerted management and climate change is still without the appropriate response.

nevertheless, climate change is increasingly being understood as a matter of survival, as an imperative to change our patterns of production and of consumption, our way of life. moreover, counteracting the current recession requires urgent action to sustain demand, growth and jobs. in this particular juncture there is a unique window of opportunity, where we have a clear choice:

- either each country retrenches in an individual and isolationist and reaction, by hindering trade, regulating financial markets and postponing the transition to a low carbon economy and reducing development aid because they seem too expensive for public budgets. The final and general outcome will then be depression, inefficient financial system plus uncontrolled climate change;

- or there is international cooperation to

sustain demand, growth and jobs exactly by opening trade, fostering the transition to a low carbon economy and supporting developing countries catching up. national protectionism should be replaced by global protection.

if there is an increase of public expenditure because of these initiatives, this a case where next generations will be grateful to pay for more public debt in the future. There are historical moments where the traditional budgetary wisdom looking for balance is no longer a choice for political action: either it dares to move beyond or it will be responsible for a long term regression. moreover, the only chance to rebalance public finance depends now on resuming sustainable growth.

Therefore the concrete measures to be taken now to tackle the recession will shape the future for the next generation, for good and ill. The current crisis can lead to a major economic, social and environmental regression, but it is also creating a unique opportunity to speed up the implementation of the strategic priorities which had already been identified to shape globalisation making it work for all.

over the last decades, the progressive forces at world level have been warning about the accumulation of risks and injustices regarding people and the planet. now, when the failures of the current economic and social system are undeniable and the collapse of the neo-liberal agenda is generalized the time has come to restate our values, our vision and our proposals for a new direction to be taken, transforming our societies, improving our and new generations’ lives. This is also the time to overcome the illusions of some social-democrats when advocating a compromise with economic neo-liberalism.

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our values are values for the humanity as a whole: social justice with more equality and equal opportunities, peace and security, respect for human rights and democracy, protecting the planet, providing people’s needs, ensuring more and better jobs and decent work, regulated markets and better public services, providing multiculturalism and living together in openness.

our ambition must be clear: to rebuild the global economic order in the direction of more sustainable growth, more social equality, more financial stability, open and fair trade and a decisive commitment to reverse poverty and climate change.

Bearing in mind these values and this ambition, we have now a special responsibility to act, building a global coalition to define and put in motion a Global New Deal. These should be our priorities for action:

-a coordinated response to the recession- improving the regulation of the international financial system- Fostering the transition to a low-carbon economy- promoting fair trade - strengthening development policies- implementing the decent work agenda

The implementation of a global new deal combining these policies will require a redistribution of global income, access to knowledge and development opportunities by reshaping some of the instruments for trade, technology, finance and taxation. it will also require a redistribution of power and a major overhaul of the global governance structures, giving more voice and influence to emerging and developed countries, involving civil society and rebalancing the four major areas of global regulation: finance, trade,

environment and labour.

The present gap between global problems and global governance is just unacceptable and crucial reforms of global governance can no longer be delayed.

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+ unprecedented initiative of global coordination to rescue the financial system and sustain global demand+ emergence of the g-20 at leaders level, which can provide important mechanisms to govern the global economy+ The Framework for strong, sustainable and balanced growth defined by the g-20, launching a process of mutual assessment of policy frameworks and their implications for the pattern and sustainability of global growth, while trying to identify potential risks to financial stability. The 20 members will agree on shared policy objectives for fiscal, monetary, trade and structural policies to collectively ensure more sustainable and balanced trajectories of growth+ a charter of core values for sustainable economic activity (macro-economic policies for long term objectives, rejection of protectionism, regulation of the markets for sustainable development, financial markets serving the needs of households, businesses and productive investment, sustainable consumption and production, internationally development goals, need of a new economic and financial architecture+ a global Jobs pact was adopted by the ilo and underlined by the g-20 and un assembly- The fundamental crisis is not over. many developed and developing countries were badly hit. The recovery process will be long. What is at stake is not only to recover but to renew the foundations of our development model. deep transformational reforms are needed in the financial system, corporate governance, welfare systems, patterns of consumption and production and global governance- Will the g-20 remain a consultation forum or can it become a driving board for economic governance? in this case serious issues of legitimacy and effectiveness should be addressed in connection with the reform of the un system

- Negative developments + Positive developments

1. A COORDINATED RESPONSE TO THE RECESSION

The real economy and financial markets are linked and must be tackled simultaneously. This should be the essence of all proposals. The crisis should be viewed as a historic opportunity to bring forth transformational change in our economies, leading the way for truly sustainable and socially fair long-term development.

We should also be clear about the political approach to be taken. This is not just a recession requiring a recovery. This is a systemic and global crisis requiring key changes in the capitalist system and a new global governance order, necessary for the emergence of a new development model.

The response to the recession should focus on the following objectives:

- Safeguarding employment and preventing mass unemployment by counteracting the down-turn and supporting demand by households and companies;

- promoting the transition to a smarter and greener economy;

- Protecting people, especially lower income groups as well as supporting their move to new and better jobs.

The response to the recession should combine a budgetary stimulus, more ambitious policies to promote structural change and social policies providing more security in change. hence, this response must also contribute

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towards medium and long-term strategic goals.

however, developed, emerging and developing countries can be in very different conditions regarding their policy space. some of them can afford stimulus packages using public budgets, others can at least borrow in the markets, but others just cannot. For these last cases, it is crucial to support trade, to develop new imF credit lines and to review its conditionality in order to allow counter-cyclical policies. moreover, monetary policy, leading not only with interest rate, but also with exchange rate, can also play a very relevant role to respond to the recession.

- The recession has pushed tens of millions closer to the edge of survival, but no significant debt relief was provided. loans are useful, but they cannot be taken by countries which have too much debt

- imF is still not allowing counter-cyclical policies in many national cases. most of the 50 agreements between the imF and low and medium-income countries prescribe pro-cyclical policies such as budget cuts and monetary tightening - The exchange policy can play a role, notably by the realignment between the yen and the dollar, but this discussion is still blocked

- Negative developments + Positive developments

1.1 A budgetary stimulus for growth, jobs and structural change

These objectives should be central to design the budgetary stimulus to support demand, either from private and public investment or from consumption. in order to take advantage of the international spill-over effects on growth, the involved countries should coordinate their economic

policies, combining public investments and incentives to private investments with selective, fair and effective tax incentives focusing on priorities, such as:

- speeding up the construction of new energy and broadband networks;

- promoting the greening of products and services, including buildings and cars;

- developing comprehensive programmes to support smes;

- improving the coordination of research and education programmes with innovation in new areas of investment and jobs creation;

- supporting existing jobs while helping to retrain the existing workforce, such as schemes to enable employers to prevent job cuts by combining reduced working time with publicly-subsidised training programmes;

- providing tailor-made access to new skills for new jobs ;

- Building social infrastructures and supporting the development of family care services.

The policy mix should have as its primary aim to safeguard jobs and prevent unemployment, making the most of the multiplier effect of further public expenditure. The precise mix between increases in public expenditure and selective tax incentives should be decided by each country according to criteria of effectiveness and fairness

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and to its national specificities, notably its level of debt and deficit and the scope of its problems. Finally it is important to underline that the recovery will also depend crucially on restoring banks lending (see 2.1)

The countries able to redirect their public expenditure and tax structures according to these priorities, should be allowed to run higher public deficits, provided they can demonstrate they will contribute to consolidate their public finances by fostering the growth rate.

selective tax incentives should have as their primary purpose to stimulate domestic demand in a socially fair and effective way. The following measures could be considered: tax incentives for green products and services, for labour intensive services such as personal or catering services or reductions in the tax burden in lower incomes or in some basic products. governments should be encouraged to reduce social security contributions of wage earners and to increase direct aid to more vulnerable households.

+ The g-20 agreed on coordinating the scale, time and sequencing of exit strategies- When designing the exit strategies, avoid early withdrawal, assume that growth is more important than the deficit, focus on employment and internal demand, develop new sources of growth

- Negative developments + Positive developments

1.2 More ambitious policies for smart and green growth

structural policies for smarter and green growth should also be strengthened in the stimulus packages, turning the

recession into an opportunity for new investments, job creation and fostering structural change for sustainable development.

even in recession, it is possible to create jobs in several sectors: increasing energy efficiency, spreading low carbon technologies, urban renewal, transport, education and health services, personal services, business services and modernizing manufacturing sectors according to new standards of energy, design, safety and quality. This will be particularly important not only to offer job opportunities to a higher-skilled youth generation coming onto the labour market, but also for workers who are losing their jobs in sectors undergoing restructuring. This will require a better coordination of innovation, industrial, research, education and retraining and employment policies at all relevant levels:

- governments should improve the coordination of these policies, in particular to support regional partnerships for growth, innovation and jobs as well as cross border initiatives.

- regarding infrastructure for a smarter economy, broadband network should be extended to more regions, allowing the access to the latest generation of internet platforms, by combining private and public resources.

The fight against climate change demands a transformation in almost all economic sectors, bringing important new opportunities for more and better jobs and social fairness in our societies. “green” economic measures for the recovery could include immediate implementation of the following measures:

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- Tax credits/government premiums on energy efficiency related household investment (high energy efficient heating systems, building isolation, solar panels). These measures would be very positive for jobs in the building sector - being hit very hard by the crisis now - and in the industries producing these materials;

- Tax credits/government premiums for cleaner cars and collective transports;

- power generation and storage: renewing electricity power generation capacity, including renewable energies, will require investment in interconnection into energy grids, with emphasis on facilitating decentralized production and links to and from regions rich in renewable sources like wind or solar. all these infrastructure projects will create high-value jobs;

- energy efficiency: investments and tax incentives are now needed to renovate public and private buildings and housing, increase the efficiency of lighting, heating and cooling systems, developing inter-modality transports and promote new technologies for energy efficiency in goods and services.

+ The g-20 agreed on reducing fossil fuel subsidies- most of the key decisions for this transition towards a low-carbon economy are still blocked.

- Negative developments + Positive developments

- 1.3 Social Policies to protect people and to support change

social policies should be clearly adapted to cope with the recession, protecting people while supporting them to move to more promising employment and living conditions. Fairness in the response to the recession should be our main guiding principle and a special concern should be kept for the most vulnerable, those who always suffer more during a crisis. against this background, the priorities for social policies should be:

- To promote access to employment, particularly to young workers, requiring stronger proactive action, as a central priority, based on a better coordination of labour market, education and industrial policies;

- Wage developments should be monitored and supported in order to ensure sustained private consumption. Wages should continue to be aligned with productivity gains and protecting purchasing power. The social partners have a key role to play. Fair wages, stable jobs, stronger collective bargaining and more equality in pay are central for the recovery process;

- access to new skills for new jobs should be the goal of major programmes providing tailor-made solutions of education and training to those who will need a “knowledge lift” to get a new job. schemes to enable employers to prevent job cuts, such as combining reduced working time with publicly-subsidized training programmes, should be implemented;

- To submit planned mass lay-offs to a stronger supervisory scheme, ensuring that all other alternatives

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have been exhausted. employers who receive state aid should reimburse it if they have laid off staff while at the same time using their financial resources to pay bonuses, dividends to shareholders or buy company shares to increase share value;

- in parallel, unemployment protection and insurance should be strengthened and linked to more effective labour market policies. employment in the social economy sector should also be supported to provide solutions;

- The housing market due to its social importance and its spillover effects on the whole economy should be as much as possible protected from recession with measures such as: reducing the cost of mortgages, supporting first-time buyers, protecting against repossession, and promoting the social housing sector;

- Income support, notably for lower income groups, to maintain purchasing power (for example, targeted tax cuts and credits, including income tax rebates) and policies to ensure the affordability of basic goods such as electricity and gas;

- Finally, older workers and elderly people require special attention. priorities should include the protection of their savings by guaranteeing bank deposits, enabling a better assessment of financial products, through the implementation of consumer information and protection measures, and ensuring the sustainability of their pension schemes in the three pillars of the social protection system, particularly the first pillar.

+ With the global Jobs pact, decent jobs were put at the heart of the recovery and reform process- The worst can still come because there is a time lag between economic recession and unemployment rise. The ilo foresees more 59 million unemployed in the world by the end of 2009. more than 200 million can fall into extreme poverty and the working poor can rise up to 1,4 Billion

- Negative developments + Positive developments

2. SWIFT ACTION TO ACTIVATE AND REGULATE THE FINANCIAL SYSTEM

2.1. Urgent measures for financial stabilization to support savings, investment and jobs

Restoring bank lending and promoting good banking is crucial for a quick, sound and lasting recovery. The concept of “good banking” can be defined by a set of criteria such as developed retail services, strong deposit business, diversification, and closer relationships with customers. This concept should become a driver for the unavoidable restructuring process which should be carried out in the banking sector. a long term strategy to strengthen and developing good banking meeting the real needs of citizens and business should frame the public intervention in this sector.

in spite of the already adopted measures, guaranteeing deposits, ensuring more liquidity and supporting inter-banking lending, the credit level remains very insufficient to overcome the recession. it is important to recognize that

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the problem is not only of liquidity but, in several cases, of solvency. Therefore, stronger measures are needed to tackle this crucial bottleneck:

- Restructuring bank balance sheets in order to isolate the effect of the impaired assets. “Bad banks” and insurances can be considered but in other cases, recapitalizing banks will be necessary. in any case, clear conditions should be set for them to get public support: presenting restructuring plans and ensuring transparency, equal treatment of their cross border branches and a fair costs sharing between tax-payers and shareholders;

- Recapitalizing banks by bail-out of creditors or by debt-for equity swaps. appropriate conditionality should be set including maintaining their credit lines to companies and households, rationalizing executive pay and complying with the improved regulation of the financial system. government representation in the board can also be considered, leading to temporary nationalization if necessary;

- most of all, pressing all banks to play their role of providing credit to companies and households in order to sustain the level of economic activity, investment and job creation at local and regional level. The incentives for bankers, traders and fund managers should revised in order to change their behaviour: their bonuses should be set according to the longer term outcomes;

- Special credit facilities should be created for smes to be provided, if necessary, by regional

development funds;

+The g-20 decided to adopt contingency and resolution plans for systematically important financial firms- The G-20 was unable to define a common approach to stress tests on banks

- Negative developments + Positive developments

2.2 Regulating the financial system to support growth and sustainable development

Fully regulated, transparent, efficient, cost effective and stable financial markets are a basic condition for long-term investments in the real economy and smart green growth goals. We have now seen that systemic risks cannot be avoided by relying on market-based “diversification” of risks. The futures markets and, more broadly, lightly regulated credit risk transfers cannot continue to be comparable to gambling without rules.

We can no longer accept the perverse effects of unregulated financial markets on the real economy. The source of this economic recession lies in the lack of an efficiently regulated financial market. The costs are clear: unemployment is going up and negative economic growth will now hit our countries. We can no longer continue to believe that the only purpose of regulation is to prevent market instability. Regulation should also ensure an efficient link between financial markets and the real economy. Therefore, all financial institutions, transactions and products should be covered by regulation for transparency, efficiency and stability.

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Tackling the economic recession must be our priority, but this must be combined with the development of better regulation for stable, transparent and efficient financial markets. in the absence of this tandem of action, there will be a downward spiral between recession and financial turmoil. The financial markets are part of the answer to the recovery.

at this stage we need to go much further than political recommendations. it is time to act decisively. Financial markets should comply with the following principles as the basis for future market regulation and efficiency:

Ensuring proper public oversight and regulatory coverage of financial markets:

- Universal legislation covering all financial entities, products and transactions. no financial market player should be left out of the system, for example hedge and private equity funds. in addition, a careful and continuing analysis needs to be undertaken to monitor and identify operations of financial market players which could cause systemic risks;

- Stronger international supervision and more cooperation between all national regulatory bodies;

- Tax havens and off shore financial centres that are free of regulation and legislation must be covered by regulation through a new international initiative. We must fight tax evasion resolutely;

-

+ The g-20 decided to improve over the counter derivatives markets- The g-20 was still unable to enhance the scope of regulation and oversight on securitization markets, credit rating agencies and hedge funds

- Negative developments + Positive developments

Introducing mechanisms to prevent pro-cyclicality:

- Mandatory “capital requirements” for all financial players. capital requirements must accurately reflect risks, with higher minimum capital ratios that are proportional to asset growth and asset risk, and to the complexity of asset classes and to leverage levels. This also applies to long loans to hedge funds and private equity;

- Executive pay and remuneration schemes should be in line with long term performance goals. mechanisms to ensure that earnings reflect losses as well as profits should be established;

- All short-selling should be properly regulated. detrimental short selling that exacerbates crises should be curbed by regulatory authorities.

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+The g-20 agreed to develop internationally agreed rules by the end of 2010 to strengthen the quality of bank activity and mitigate pro-cyclicality+The g-20 stated that bonuses should avoid excessive risk taking; be aligned with long term value creation and be subject to claw back; be transparent+The g-20 agreed to work on an international framework for a transaction tax

- Negative developments + Positive developments

Ensuring accountable and transparent credit risk rating:

- The existing system should be reversed: risk should be observable from the beginning and associated with clear responsibility. Financial institutions need to bear some of the lending risks themselves in the future;

- provide, they should provide a third rating free of charge. in addition, we should examine how to broaden rating measures.

Ensuring robust and reliable accounting regimes:

- a new strong standard of transparency and disclosure for all financial players. This has to be done in an efficient and comprehensive way and is a first step towards effective regulation. Transparency and disclosure will allow regulatory authorities to track the actions of financial players in a better way. Transparency is a means to better regulation and not an end in itself;

- new and more transparent financial accounting standards are needed so that operations are clearly stated

in balance sheets. The convergence of accounting rules between europe and the usa needs to move faster and will contribute to tackle the off balance sheet transactions.

+ The g-20 agreed on achieving a single set of high quality, global accounting standards by mid 2011

- Negative developments + Positive developments

Developing a new financial landscape for the real economy:

- Alternatives to for-profit private banking, such as credit unions, cooperative banking, mutual insurance and other community-based and public financial services, should be promoted to ensure a balanced and robust domestic financial services sector;

- measures should be in place to promote an effective interplay between sovereign wealth funds and efficient and transparent financial markets. The imF code of practice on sovereign wealth funds (adopted in october in 2008) is far below recognised international governance and transparency standards – such as those of the oecd – and needs to be considerably improved.

- protecting workers’ interests, by such means as ensuring that employees are informed and consulted during all takeovers, including those that are leveraged.

The afore-mentioned principles to improve the regulation of the financial system should be extended worldwide, if the process launched by the Washington g20

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summit is to be successful. The core competences and the composition of the imF and FsF (Financial stability Forum) must be bundled and enhanced.

The governance of the international Financial institutions should be deeply reformed in order to increase their legitimacy and effectiveness. Their heads should be appointed in the future through open, merit based selection processes. The imF quotas should be further revised in order to give more voice to developing and emerging countries.

The imF is also a liquidity-providing institution. We need to need to increase very substantially its resources in order to strengthen its capacity to rescue default developing countries and emerging economies and provide them with short and long term credit. Conditionality must be revised in order to promote the economic recovery, support their trade and their counter-cyclical policies. additional funding should also be provided by increasing the issuance of special drawing rights (sdrs). The development of regional monetary funds should also be encouraged.

it is also important to raise the effectiveness of crisis prevention measures and early warning. To work towards a real Bretton Woods ii reform, we can no longer continue with the “soft” regulation of Basel ii. in the longer term, we need a global regulatory framework and a global regulator to improve financial market efficiency.

+ creation of the Financial stability Board in order to include major emerging economies as well as to coordinate and monitor progress in financial regulation+ The g-20 launched the Framework for strong, sustainable and balanced growth to be monitored by the imF+ contribution of over $500B to a renewed and expanded imF new arrangements to Borrow (naB)+expansion of special drawing rights (sdr) allocations, with 100 out $283B available to supplement emerging and developing economies reserves- imF is still not allowing counter-cyclical policies in many national cases. most of the 50 agreements between the imF and low and medium-income countries prescribe pro-cyclical policies such as budget cuts and monetary tightening

- Negative developments + Positive developments

3. FOSTERING THE TRANSITION TO A LOW-CARBON ECONOMY

The transition to a low-carbon economy will involve a major transformation in our patterns of production and consumption, requiring large-scale investments, mechanisms to share the costs and policies to ensure social justice in this transition.

3.1. Large-scale investments for green growth and jobs

The large-scale investments to increase the energy efficiency and to spread renewable sources of energy mean, first of all, a huge opportunity for growth and jobs creation. Four priorities should be pursued by all countries:

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- To build new equipments for renewable energies;

- To develop a network for more intelligent collective management of the available energy;

- To spread the access to low-carbon collective and individual means of transport;

- To encourage the construction of public and private buildings with better energy efficiency.

This will require a long term effort in research and innovation, standardisation, finance and assistance in order to:

- diffuse existing low carbon technologies, developing near commercial technologies and creating breakthrough technologies;

- define globally coordinated energy standards

- coordinate public funding in all countries and targeted concessional finance for developing countries around sectoral programmes.

3.2. Effective and fair mechanisms to share the costs

To curb the current climate trends will imply a commitment to per capita emissions by 2050 of around 2T co2e as a world average. The principle of common but differentiated responsibilities and respective capabilities must serve as a framework to progress towards climate

justice and to share the economic costs of this transition:

- Developed countries must take the lead due to their historic responsibilities, resources and technological capacities. at the cop15 meetings in 2009, developed countries should commit to cutting emission by 80-90% from 1990 levels by 2050 with credible interim targets;

- Developing countries will also need to make substantial cuts, but should not be asked to take on binding national targets until developed countries provide the example of lower carbon growth and until the relevant institutions and frameworks provide financial and technological support for both mitigation and adaptation in the developed countries. By 2020, developing countries, subject to developed country performance, will need to take appropriate and binding national targets;

- Finally, emerging economies should be able to define targets now, under the assumption they will get technological transfers to support for this transition.

This requires to define a tax system and/or a cap-and-trade system which will ensure not only effectiveness, by imposing an absolute limit on emissions and efficiency by reducing the costs of action, but also equity, by generating private sector flows to developing countries, which can then be used for low carbon growth. in the medium-long term, forests should be fully integrated into global carbon emissions trading or other financial instruments in order to reduce deforestation and to promote biodiversity and local livelihoods.

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3.3. Policies to ensure social justice in this transition

The national implementation of mitigation and adaptation policies requires impact assessment, consultation and protection of those communities that are particularly exposed to emission reduction policies.

The tool box to deal with restructurings should be strongly developed: training for the new technologies, retraining for other jobs, assistance for reintegration into the labour market, the support to entrepreneurship and economic diversification in order to create alternative jobs; social dialogue and collective agreements to manage this technological transition at national, regional or international level can be particularly important.

In the developing countries, the response to climate change requires radical policies to reduce poverty, including access to decent housing, food security, access to safe drinking water, health services, sustainable transports and minimum income:

- a commitment to eradicating poverty, promoting equality and realising sustainable development, while reducing emissions requires concrete steps to introduce a social dimension in the cdm, clean development mechanism and in the eT, emission Trading projects.

- Further financial means should be mobilised to enable this a transition in a fair way. at national level, tax systems should be adapted and bank credit lines should be developed with this purpose. at international level, development aid should be deployed in this direction. so far, the gap between the available and the necessary financial

means for adaptation is still huge.

3.4. Striving for a global agreement on fighting climate change

The agreement on fighting climate change should take place in three key phases:

- at copenhagen 2009: determine international targets, establish developed and emerging countries caps and set developing countries responsibilities; to define a shared vision on how to protect the most vulnerable;

- 2010-2020: build effective and cooperative institutions on finance and technology as a basis for establishing developing country caps;

- post-2020: all countries should take part of an international cap-and-trade system and adhere to technological agreements.

This requires to create a new institutional framework which can manage within a single, linked process, the development of the cap-and-trade system including global sector agreements, the creation of systems to supervise and verify delivery, the coordination of research and innovations initiatives regarding low-carbon technologies, the assessment of risks for climate change and the mechanisms for dispute resolution.

The creation of a World Environmental Organization (WEO) should be considered in order to manage this process, streamlining/replacing the overlapping roles of

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the bodies comprised by the current governance regime: the un environment programme, the global environment Facility, the environment management group, the oecd environment directorate, the commission for sustainable development, ecosoc and the environmental chamber of the international court of Justice. g-ns, as a form of “mini-lateralism” can also play a role to provide new impetus to the negotiation.

+ The g-20 reaffirms the common but differentiated responsibilities and the need of an agreement including mitigation, adaptation, technology and financing- But is not able to progress on emission reduction targets, financing developing countries and financial instruments

- Negative developments + Positive developments

4. A WORLD TRADE SYSTEM THAT WORkS FOR PEOPLE

4.1. Opening markets is necessary to ensure growth and alleviate poverty

another area where the progressive movement should encourage increased international cooperation is international trade.

Trade opening and reducing trade barriers under the right conditions, has been, is and will remain, essential to promote growth and development, to improve standards of living and to tackle poverty reduction. opening markets to foreign products and services provide diverse sources of gain through increased efficiency, the realization of economies

of scale, greater product variety and higher productivity. For all these reasons, opening trade has the potential to boost national incomes and bring wealth and economic benefits.

4.2. For trade opening to benefit all, appropriate domestic regulations are needed

But while opening trade can create wealth and development, it does not mean it is good for every person, every country, every time. Trade opening creates winners but it also creates losers. it creates adjustments costs which we cannot ignore. in addition, for many countries trade opening cannot translate into wealth and development unless bottlenecks in domestic productive capacities are also properly tackled.

The progressive view should be that governments must address these domestic policy changes together with the opening-up agenda. in other words to be beneficial to all people market opening must be accompanied with appropriate domestic policies and regulations setting up active economic and social policies.

progressives should emphasize that trade opening does not and should not equate de-regulation. indeed, to be most effective trade opening should take place within a set of multilaterally agreed rules guaranteeing fairness and justice. These are the rules built over more than 60 years by the members of the World Trade organization. These rules ensure non-discrimination in trade relations, i.e. that domestic and foreign operators are subject to the same set of rules and conditions.

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4.3. For developing countries good domestic policies but also development aid

in the case of developing countries, many of which lack the necessary financial resources, development aid is essential to face the costs of adjustment but also to unlock production bottlenecks. To move from making trade possible to making it happen, poor countries need financial resources to address infrastructure and supply-side constraints. This is the very purpose of aid for Trade: to help developing countries, particularly the poorest among them, to build supply-side capacity and trade-related infrastructure with the goal of expanding their trade and benefit from the new trading opportunities resulting from the WTo doha round. progressives should support this complementary agenda.

4.4. WTO, a forum to discuss and monitor the use of trade policies

it is important that the multilateral trade rules built by WTo members be subject to regular discussion and monitoring to ensure that they are applied in a manner supportive of development and growth. The WTo, in addition to being the forum where trade rules are negotiated, also provides a forum for regular discussion and peer-review of the way in which its members apply trade rules and of the way more trade translates into more welfare. Through notifications, dialogue and monitoring members ensure that national trade policies are supportive of WTo rules and obligations. Through dialogue and discussion many differences can be addressed without necessitating recourse to dispute settlement. progressives should support a strengthening of WTO monitoring of trade policies which should look

at all trade-related aspects of sustainable development including decent work concerns as an essential ingredient of a system of global governance. This is particularly the case at this moment when the economic crisis is creating protectionist pressures which risk stalling the trade engine of growth.

4.5. The importance of an open international trade during the financial crisis

The financial crisis has transformed into a massive economic crisis which is affecting all countries, whether developed or emerging economies. Trade has become a casualty of the crisis. Just as trade increased faster than world growth in the last years, the recession will also provoke a stronger trade reduction; This is due to the technological changes that have taken place in recent decades. a contraction in trade risks stalling one of the remaining engines of world growth which is that of emerging economies, whose growth is highly linked to trade.

in these circumstances it is extremely important to ensure that trade remains open and that it is part of the stimulus needed for the economic recovery. Trade must be seen as part of the response to the economic crisis. progressives should support a rapid and satisfactory conclusion of the doha round negotiations capable of contributing to rising living standards in all parts of the world. The conclusion of the Round would mean more and better rules to regulate multilateral trade. more rules because the round could give birth to new agreements on new areas which respond to today’s needs. This is the case of an agreement curbing fishery subsidies which contribute to the depletion of our oceans. or an agreement to open trade in clean technology,

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in environmental goods and services which could help countries curb emissions. or an agreement to facilitate trade by cutting customs red tape. or an agreement to ensure that trade does not cause worsening respect for core labour standards in some countries and sectors. Better rules because the round could deliver greater fairness in the existing rules by addressing distortions which today penalize developing countries such as trade harmful agriculture subsidies, with cotton being a case in hand, or tariffs which penalize developing countries moving into higher value added products.

in a context of economic recession and job losses a progressive agenda on trade should include the following elements:

1. Support for the rapid ans satisfactory conclusion of the on-going negotiations capable of contributing to rising living standards in all parts of the world under the Doha Development Agenda. a multilateral agreement on trade could send the signal that the international community continues to cooperate in delivering solutions to global problems. it would mean reinforcing a system of multilateral rules which was borne 60 years ago and which has helped manage in an orderly manner trade relation among countries. a doha deal would rebalance the current multilateral trading rules in favour of developing countries, a struggle on which developing countries have invested a lot of time and political capital.

it would also be the most effective instrument against isolationist tendencies which can be so harmful to the economies of the poorest and weakest countries. The current package on the table would represent annual savings in tariffs in the order of $ 150 bio. This would mean

that current tariffs would be halved, thus reducing the scope for adopting protectionist measures.

2. in the context of a serious economic recession which will hit the poorest and weakest harder, progressives should insist that resources for Aid for Trade be mobilized, that funding continues to flow, that aid promises be kept. it is therefore imperative that the international community delivers on its aid for Trade commitments.

3. progressives should also press for swift action to ensure availability and affordability of trade finance, which is necessary to ensure that trade keeps flowing, in particular in developing countries.

+ swift implementation of the Trade finance initiative+ The g-20 calls for refraining from raising barriers to investment on trade in goods and services- The g-20 has not a clear commitment on concluding the doha round

- Negative developments + Positive developments

5. STRENGTHENING THE DEVELOPMENT POLICIES

Beyond energetic recovery plans, more effective regulation of the financial systems and swifter transition to low carbon economies, there is a more powerful solution to raise the global demand in a sustained way: this is to foster the catching up process of the developing countries. in fact, a long term solution to overcome this crisis will require to face the central paradox of the current global economic order: developing and emerging countries financing the demand in developed countries which is then translated

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into unsustainable patterns of production and consumption.

The catching up of developing countries is certainly requiring not only the right choices in their internal development strategies and in their governance structures, but also the appropriate framework conditions. Beyond the need to raise the levels of development aid and to comply with the right-off of the debt in the highly indebted countries, the following framework conditions should be underlined:

- A fairer trade regime to promote development. This means reducing the subsidies to agriculture in the usa and the eu, accepting better pricing of natural resources, establishing preferential treatment with developing countries and allowing them to set agreed tariff structures which are compatible with industrial policies and development agendas. a fairer approach to trade should combine access to new markets for all countries involved with the concern with capacity building as well as the improvement of the environmental and social standards in the developing and emerging countries;

- A better use of knowledge as a global public good and a key-leverage for development. These concerns should be present when defining the access to knowledge and the intellectual property rights. The general TRIP regime should be more balanced, encouraging not only innovation but also diffusion and use. specific Trip regimes for developing countries should be considered notably regarding health and sustainable development and the need to protect traditional knowledge. The Trips related to contagious diseases should be

dramatically reduced. The global innovation system should evolve by opening the access to research programmes and by mobilising more resources for joint innovation projects between developed and developing countries,

- a financial and technological support by the developed countries to the transition to low carbon economies in the developing countries (as already seen in section );

- a financial and technological support by the developed countries to the transition towards a more balanced demographic regimes in the developing countries;

- a financial and technological support by the developed countries for institutional building of social protection systems and labour standards enforcement; access to basic education and health care should be extended to the entire population

- multinational companies should be given incentives for better corporate social responsibility not only in their home base but also when acting abroad;

- shifting the focus of the multilateral development banks towards institutional building for economic and social policies and construction of infrastructures and energy systems;

- a major reform should be considered in the international financial system: to issue special drawing rights as a global reserve currency to

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support developing countries, particularly when they face trade or capital accounts shocks;

- last, but not least, a Global Development Fund should be created to support development policies and to be financed by global taxes such as financial transaction taxes or carbon emissions taxes.

+ contribution of over $500B to a renewed and expanded imF new arrangements to Borrow (naB)+ expansion of special drawing rights (sdr) allocations, with 100 out $283B available to supplement emerging and developing economies reserves+ new trust fund to support the Food security initiative+ scaling up of the renewable energy programme+ World Bank to focus on food security, infrastructures and green growth- The imF is still not allowing counter-cyclical policies in many national cases. most of the 50 agreements between the imF and low and medium-income countries prescribe pro-cyclical policies such as budget cuts and monetary tightening- difficulties to implement the mdgs and to comply with the commitments regarding oda, including aid for Trade and debt relief

- Negative developments + Positive developments

6. IMPLEMENTING THE DECENT WORk AGENDA AND MANAGING INTERNATIONAL MIGRATIONS

6.1. Implementing the decent work agenda

The implementation of the agenda for decent work is relevant in all countries and will be crucial to underpin all the catching up process in developing and emerging

countries. it involves the key priorities to ensure the lift of working conditions and the focus on employment and social protection as the key interfaces between economic and social development. hence, in the framework of comprehensive strategies for sustainable development, it is important to make a regular monitoring of the priorities of the decent work agenda:

- human rights at work: progressive elimination of child labour and ensuring the core labour standards;

- employment and incomes: ensuring pro-employment macro-economic policies, promoting jobs creation and restructuring management, supporting the access to jobs and incomes with education, training and active labour market policies;

- social protection: adjusting to social change; extending social protection; ensuring its sustainability;

- social dialogue: promoting social dialogue at the different levels, company, sector and country levels; widening the agenda of social dialogue.

all countries should ratify and implement the relevant ilo conventions while strengthening ilo supervisory role and capacity to provide technical assistance to the implementation of the decent work agenda.

The implementation of these priorities requires a more effective coordination of the un agencies where undp and ilo can play a particularly relevant role. The interfaces of these agencies with the Bretton Woods institutions and the

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WTo are also crucial. They should be strengthened by the ecosoc in institutional terms and by the ceB in operational terms, but a stronger political multilateral body seems to be missing in order to ensure the horizontal coherence and the vertical consistency of all the relevant policies for sustainable development. The general political framework to drive this process will be presented in section 8.

+ Theg-20 commit to implement recovery plans that support decent work, help preserve employment and prioritize job growth+ The g-20 agreed that the current challenges do not provide an excuse to disregard or weaken internationally recognised labour standards+ The g-20 convened the g-20 labour ministers for early 2010, which should push the maintenance and creation of decent jobs even higher in the agenda, focusing on the implementation of the global Jobs pact- The worst can still come because there is a time lag between economic recession and unemployment rise. The ilo foresees more 59 million unemployed in the world by the end of 2009. more than 200 million can fall into extreme poverty and the working poor can rise up to 1,4 Billion

- Negative developments + Positive developments

6.2 Managing international migrations

With about 200 million persons, approximately 3% of our world population are migrants. These figures are forecasted to increase further, including as an effect of globalised markets, climate change and increases in world population.

By enhancing career perspectives and seeking their fortunes, migrants contribute to the welfare of their families and to the economies of their region of origin, including through important monetary transfers. accumulated

global remittances account for more than 2, 8 billion us$ annually, more than double the financial commitments made worldwide under oda. They clearly contribute to stabilising local and regional economies in periods of crisis. enhanced outreach to migration diaspora provides a useful tool for national governments to increase monetary flows and optimise migration induced welfare effects.

against the background of sectoral skills shortages and declining populations in developed countries, the effective management of migration has become an essential policy tool for underpinning growth potential.

a fair global deal in structuring the movement of people will consist in realising and extending the cooperation potential between economies of origin and destination. The particular challenge is already today to organise migration flows in respect of the social, economic and political cultures involved, whilst supporting a reasonable level of global responsibility and international solidarity.

an additional element of a fair and viable migration deal is to affirm a decent degree of income, provide for social protection and make sure that human rights are respected. This will require combined efforts of all parties concerned. countries of destination must provide reasonable assurances as concerns employment opportunities in the formal economy while fighting exploitative informal labour relations to the detriment of the migrants’ community. in turn, countries of origin should intensify their efforts in the promotion of legal migration and the discouragement of irregular migration flows.

however, the movement of persons cannot be limited to labour market processes. Family reunification, education,

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escape from violent conflict, serious discrimination, human trafficking or climate change induced displacements are some or the reasons for which people are nowadays on the move.

Future migration management frameworks must allow for an integrated handling of migration flows inline with evolving international standards that are sensitive to above mentioned social, economic and political considerations, based on relevant principles including the respect of human rights, addressing the specific protection needs of asylum seekers, refugees and vulnerable groups, including the principle of subsidiarity and international solidarity. This has to include the burden sharing principle putting in place a fully functioning resettlement scheme.

considerable efforts must be undertaken by the international community to match up to the challenges related to fair migration regimes which balance opportunities with interest and needs without, overstraining absorption capacities of countries of destination, taking into consideration the interests of countries of transit and safeguarding the functioning of economies of origin.

most governments still see migration as a domestic policy issue. They are, however, in many cases engaged in regional processes, working together on a wide range of migration management topics like labour migration, migration and health, migration and development and counter trafficking and smuggling activities.

The next sensitive step for an improved global migration, operational and implementation oriented policy seems to be the coordination amongst and cooperation of those regional processes.

an inter-institutional policy task force should be established in order to organise and reinforce collective efforts towards the elaboration of mutually supported migration management frameworks at regional and inter-regional levels. in this context, relevant un agencies, the iom and related actors must bundle their competencies more effectively. as the geneva based global migration group has consistently failed to promote adequate policy developments, enhanced managerial structures must be conceived so as to ensure that organisational, intellectual and operational capacities are put to work in synergy.

Working structures, mandates and administration of the global Forum on migration and development should be reinforced as part of a sweeping overhaul of the unfortunate past record of that body so as to allow for enhanced research, policy development, coalition building, best practice development and dissemination, while serving as a best practice model for similar activities beyond the migration and development nexus.

Finally, these efforts should lead de facto to the setting up of a Global Migration Alliance which organises evolving policy work on the basis of rolling plan of action.

7. ENSURING PEACE AND SECURITY

peace will remain the most difficult challenge for humanity. We cannot take it for granted, as the numerous conflicts during the last few decades clearly demonstrate.

Without peace there will be no prosperity, freedom or sustainable developments, which are all essential social-democratic values. This is what we have witnessed from 60 years of peaceful development in europe. apart from the

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regrettable Balkan conflict, europe has been spared major conflicts for the longest period in its history, which has paved the ground for a period of high prosperity, freedom and respect of the rule of law.

however, the bi-polar world of the cold war gave way to security uncertainties and the collapse, last year, of the liberal “globalization model” urge us to rethink about how to reshape a new world order (economically, politically and socially). indeed, we are witnessing multi-polar tendencies at international level and not stable and long-lasting multi-polar balance of power systems. Within such an asymmetrical, heterogeneous and instable multipolar scenario, conflicts are possible regarding financial and trade issues, terrorism, oil, water, food-shortages, poverty and climate change, to name but a few. The key for peace lies in the way in which we all manage the threatened resources of our planet. a global new deal should be adjusted to accommodate the needs and aspirations of people in the developed and the developing worlds. This brings us to the key question: What can provide stability in today’s world?

The objectives of peace and security should be redefined and adjusted to the context of a new international balance of powers. peace should be the overall aim through the active consent of major and minor powers alike, expressed globally within the framework of a reformed united nations. The security council’s permanent membership needs to become more diverse, and at the same time build a new institutional relationship to better reflect the new power constellations of our era. The preservation of peace inside and outside national borders should be reinforced through the adoption of the ‘responsibility to protect’ framework by all major international players.

security has to be reintegrated into the social-democratic corpus of ideas and needs to go beyond prevention of crime and terrorism. Firstly, a secure global new deal ought to be redistributive from the developed to the developing world on conditions of mutual respect for binding environmental targets applied flexibly to all un members. secondly, social security should become a policy target through the introduction of minimum goals as defined in the ilo decent Work agenda. universal respect of core labour standards should become the norm in all countries worldwide. Both from an economic and social point of view security should be understood as a requirement for stability.

8. SHAPING THE GLOBAL NEW DEAL

so far the issues of trade, energy, finance, labour and development have been under negotiation in disconnected international arenas. nevertheless, the current financial and economic crisis will put great pressure on policies for recovery and development and on the regulation of the financial system opening the possibility to connect them with the ongoing negotiations on energy in the run up to the copenhagen summit on climate change. moreover, if the renewal of the leadership in the usa and in the eu allows, new conditions can be fulfilled to complete the doha trade agreement.

This particular confluence of trajectories of international negotiation can create a unique window of opportunity to negotiate the general terms of a Global New Deal, which should then facilitate the more specific negotiation in each particular arena. in this interaction between, on the one hand, a global overarching deal and, on the other hand, particular agreements, it is difficult to say which will be

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struk first, but what really matters it to keep this interaction alive. To make the best of this window of opportunity, it is important to agree on the approach to take when framing and negotiating this global deal. Three main concerns should define this approach:

- The global new deal should aim achieving a compromise for the global development in the 21st century, as a similar compromise has been achieved in the 20th century for national development in some countries;

- This global new deal should be defined in terms of win-win game in order to get large acceptance;

- a global new deal should be comprehensive, because the global challenges and global policies are interconnected and because it will be easier to work out a win-win game.

8.1 The main principles of a Global New Deal

The central problem to be addressed by the relevant actors aiming at re-launching growth and development is not a crisis of overproduction but a crisis of insufficient and unsustainable demand and also a crisis of the available governance structures. Therefore, the main principles to define a Global Deal should be sustainability, opportunity, social justice and participation:

- To re-launch growth in the framework of sustainable development should be the central goal of this deal;

- This new development trajectory should be designed to create new opportunities and to ensure social justice for all

- The global governance structures should be reformed to include the relevant actors in order to be able to define, implement and monitor this global deal.

it is also important to stress that global new deal will be necessary to sustain the national new deals where they have been or can be achieved.

8.2 The Global New Deal as a win-win game

The possible content of a global deal to be convincing need to be defined in terms of gains to be obtained and contributions to be given by three different kinds of partners: developed countries, developing countries and emerging countries.

To pave the way for sustainable growth with social cohesion and respect for the environment, this global deal requires:

- From developing countries, a growing integration in the global economy, accompanied by programmes aimed at building their national capacity in economic, technological and educational terms, ecological control, fight against poverty and enhancement of working conditions – which often have as a prerequisite a democratic governance and the respect for human rights;

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- From developed countries, the opening of their markets to developing countries’ exports, the correlate redeployment to other activity areas, the strengthening of the cooperation and the financial aid to developing countries, and the change to sustainable consumption and production patterns.

- From the emerging countries, their deeper integration in the global economy coupled with their convergence with better standards in the environmental, social and intellectual property areas, to be supported by a stronger mobilization of national and international financial and technological means.

8.3 The policies at the heart of a Global New Deal

Therefore, this Global New Deal should be translated into new orientations for the international policies mainly regarding: the financial system; trade; environment and energy; development; labour, employment and migrations. What is at stake is:

- To define global rules to manage international interdependency and the global public goods notably environment, knowledge, macro-economic and financial stability, human health, global and regional commons;

- To promote an agenda for sustainable development in all countries;

- To correct the deep asymmetries of world development.

some building blocks of this Global Deal have been under elaboration notably since 2000:

- The millennium development goals, adopted by the general assembly of the united nations, in 2000 (un, 2000);

- The monterrey consensus, which defined, in early 2002, a commitment to improve the financial instruments for development;

- The new round of negotiations in international trade, launched in doha in 2001, with the commitment to focus more on developing countries(WTo, 2001);

- The progressive recognition of the decent Work agenda at all levels of the un system (ilo, 2001);

- The current negotiations to prepare the post-kyoto agreement on climate change, energy and environment, according to the road map defined in Bali, 2007.

nevertheless, the progress in these areas has also faced many opponents: states which resist opening up their markets (such as some european countries and the usa); countries which resist increases and enhancement in their direct aid to development (idem); companies which persist in environmentally and socially unsustainable behaviours; holders of technological rights which block the diffusion of

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better solutions for health or environment; some corrupt elites in developing countries who divert financial aid to other ends; last, but not least, a financial system driven by short term returns. still, more recently, the general awareness on the need to address global challenges seems to be increasing quite widely, including in public opinion.

in order to overcome these difficulties, a new political momentum should be created at the highest political level, using the windows of opportunity opened by the crisis.

+ The emergence of the g-20 at the leaders level, prompted by the financial and economic crisis, led to the gradual renewal of the global agenda- nevertheless the negotiation of a general or even partial global deals is still at a very early stage. Which should be the better sequencing of partial deals ?

- Negative developments + Positive developments

9. RESHAPING GLOBAL GOVERNANCE

A Global New Deal should be translated in multilateral rules, with a clear identification of the bodies in charge of defining and implementing them as well as of the mechanisms for dispute settlement.

To create the necessary political momentum, the negotiation of a global deal should be pursued in two different tracks, the informal track of the g-201 and the formal track of the un system, WTo and Bretton Woods institutions.

1 We assume that the g-20 will become more relevant than the g-8 or even the g-8+5

on the one hand the political commitment which is needed at the highest level can only be provided, so far, by an informal group composed by the main players of the global economy, a g-n. But, on the other hand, the full institutionalization and operationalization of a global new deal should involve all the un member states and all the relevant agencies of the multilateral system. This will lead to the more fundamental challenge of renewing the multilateral system.

The un member states should be animated by a fundamental principle of a renewed multilateralism: the principle of responsible sovereignty which entails duties and obligations to other sovereign states and therefore a stronger capacity to address global challenges collectively. it is important to understand that multilateralism can enhance sovereignty by pooling sovereignty. a new multilateralism should be based on shared leadership as well as on developing multilevel governance, improving the synergies between the actions to be taken at international, regional, national and local levels. in this framework, regional integration can play a very relevant role by providing coherent possibilities of adapting the implementation of the multilateral rules.

For a renewed multilateralism, it is also crucial to strengthen the legitimacy and the effectiveness of several central bodies and agencies of the multilateral system. This also requires to address the central institutional problem which is re-weighting votes according to the actual relative power and resources of the involved countries and avoiding particular veto powers. This is particularly evident regarding the imF and the World Bank, where reforms such as an eu seat and more voting power for the emerging economies

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should no longer be delayed.

moreover, the design and implementation of a global new deal will require to revise the relationship between the four normative pillars of the global economic order: trade, labour, finance and environment, the last two ones also requiring major up-dates.

This revision can only be achieved by combining public political pressure with a stronger political drive in the multilateral system. This political drive should be given by a triangle composed by the united nations bodies, by the international agencies (including WTo and BWs) and by the g-20. hence:

- The relationship between un bodies and these international agencies should be strengthened by the ceB, un chief executives Board;

- The relationship between the g-20 and the international agencies should be strengthened by their involvement in the g-20 process;

- and, finally, the relationship, between the un bodies and the g-20 should be strengthened by the concerted effort of g-20 members in the un bodies.

The un general assembly is supposed to provide strategic guidance to the un agencies. at a more operational level, the current ECOSOC should improve its role of coordination of the various policies and un agencies through proper accountability mechanisms and of follow-up of their implementation as well as strengthen its

development cooperation Forum and its humanitarian aid Forum. nevertheless, given their current composition and voting rules, a stronger political drive can only be provided by the g-20.

on the longer term, the G-20 should improve its composition with an appropriate representation of the different constituencies. a first step is to improve the involvement of the relevant macro-regional structures. later, it can evolve to become a UN Global Sustainable Development Council able to ensure, at the highest political level, the coordination of the relevant policies, the follow-up of the key-commitments and the response to new challenges.

still, the decisive push for reform can only be given by a major coalition striving for a Global New Deal.

Building a coalition to push for this process of defining, implementing and monitoring a global deal should involve all the relevant actors, but some of them have a particular responsibility:

- The usa with its new leadership engaged in new american trajectory

- The eu, as the most advanced example of multilateral commitment with an agenda for sustainable development

- australia and Japan with their new progressive leaderships

- The Brics as emerging global players- The macro-regions engaged in a process of

regional integration- The international trade-union organisations- The multinational companies and the

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employers federations- The international platforms of ngos- The universities and academia- The globalized media

When building this coalition, these actors, beyond their representation in the official multilateral bodies, should also be involved in international networks to deal with particular global issues with a purpose of advocacy or of policy-making. Finally a policy coherence initiative should be developed with a good selection of these actors in order to test the possible content of a global new deal.

The implementation of a global new deal combining these policies will require a major overhaul of the global governance structures, giving more voice and influence to emerging and developed countries, involving civil society and rebalancing the four major areas of global regulation: finance, trade, environment and labour.

The present gap between global problems and global governance is just unacceptable and major reforms of global governance can no longer be delayed.

+ The composition of the g-20 meetings is evolving with regard to the un agencies and the macro-region organizations+ The g-20 stated: the heads and senior leadership of all international institutions should be appointed through an open, transparent and merit based process- The tiny reallocation of imF voting power in 2006 had been insignificant. now the g-20 has made the commitment of 5% reallocation, but there is still resistance from the european side on the way to do it. still, developed countries will keep the veto power, particularly the usa with a 16,9% share, as most of decisions require 85% of the votes. moreover there are no specifications about the composition of the imF executive Board- in the World Bank, the voting power for developing and transition countries increased only 3%- is the g-20 a decision-making body or just a consensus-making body?- is there a political strategy to make this crisis an opportunity for reforming the un system ?

- Negative developments + Positive developments

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Foraprogressive europeaneXternal action___________________________________

Strategic Partnerships anda New Global Economic Agenda

maria João rodriguesDecember 2010

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1. INTRODUCTION

the european union has an ambitious agenda for a new growth model, for sustainable development combining its economic, social and environmental

dimensions, but it cannot achieve it in isolation. This was the case of the lisbon strategy and will be also the case of its successor, the europe 2020 strategy. The implementation of this internal agenda needs to be supported by an international process of strategic convergence in the same direction, able to create a win-win game, to avoid risks of race to the bottom and to strengthen collaboration to face common global challenges.

This should be the one of the main goals of the new generation of external policies of the european union in the framework of the lisbon Treaty regarding two main strands: defining its proposal for a new global agenda and defining partnership and cooperation agreements with Third countries. a new approach to strategic dialogue on development issues should be used to deepen the agenda

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for these partnership agreements. What can be the specific role of the european union

in this international process of strategic convergence?The european union can play a very relevant role in spreading new references for a new development agenda, by different means:

- by providing a positive example in implementing a new development agenda in its own member states;

- by intertwining this new development agenda with its enlargement and neighbourhood policies;

- by connecting this new development agenda in the various components of its external action: cooperation policy, trade policy, foreign policy and external projection of its internal policies regarding countries, macro-regions and multilateral organisations.

This concern should be more systematically integrated in the new generation of the external policies of the european union, to be redesign according to the larger scope defined by the lisbon Treaty:

- a new generation of the eu cooperation programmes is being prepared, based on the new political orientations defined by the “european consensus;

- a new approach is being developed in trade policy in connection to the europe2020 agenda,

which aims at preparing europe for globalisation using trade combined with basic standards as a major lever for growth and more and better jobs;

- a broader approach should be developed for the external action of the union, which combines cFsp, trade and cooperation policies with the external projection of the internal policies of the union. This means that the external action of the eu should also integrate the external dimension of policies such as research, environment, education and employment;

all these external policies should play a stronger role in developing the external dimension of the europe2020 agenda, projecting its main strategic priorities to the outside world, notably:

1. Trade policy, in opening new markets and improving standards;

2. cooperation policy, in capacity building to improve standards and to improve policy coherence regarding the millennium development goals;

3. research, education and culture policies in improving international cooperation;

4. social policies, in supporting decent work strategies;

5. energy and environmental policies, in spreading the carbon emissions trade and the renewable energies;

6. macroeconomic policies, in ensuring international financial stability.

some implications of this framework can be drawn to identify critical points in the various agendas of external action which are being developed by the european union:

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- in the multilateral agenda, to reform the financial system, to re-balance BWs institution governance, to achieve a trade agreement in the doha round and to strengthen multilateral governance for environment;

- in the regional agenda (enlargement and neighbourhood), to foster convergence and catching-up

- in the development agenda, providing aid for trade, fight poverty, deepening the strategic dialogue for sustainable development and improving policy coherence in development strategies;

- in the transatlantic agenda, to progress in regulatory convergence in Trips, financial markets and energy;

- more generally, in the agenda with strategic partners, deepening the strategic cooperation for sustainable development, encompassing climate change, environment, energy, social inclusion and creating a win-win game in trade;

- in the agenda with the macro-regions, the same plus deepening the dialogue on regional integration.

hence, among the key objectives of the external action of the union it is important to include, together with peace, democracy and human rights, the promotion of sustainable development:

- by improving global economic, social and environmental governance

- and by encouraging the strategic convergence of the national strategies of the eu partners to this goal of sustainable development.

This paper intends to propose a preliminary framework to develop these two strands of the eu economic external action.

2. WORkING WITH THE EU ExTERNAL PARTNERS FOR A SRATEGIC CONVERGENCE

2.1. An international convergence?

The europe 2020 strategy defines a european way for greener, smarter and inclusive. knowledge has become the main wealth of nations, companies and people, but can also turn into the main factor of divide. hence, investing in research, innovation and education, developing a knowledge-intensive economy society is now the key-leverage for competitiveness and prosperity.

many other countries are making the same choice. not only the usa and Japan, the first to start, but also india, china, south korea, Brazil and many others. There is an international movement in the same direction, as this report intends to illustrate:

- Japan is preparing a very comprehensive plan for innovation focusing on citizens needs;

- india has created a knowledge commission

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which is elaborating a larger development agenda for india;

- china has adopted five-years plans introducing new concepts such as the role of knowledge and innovation, the concern with social inclusion and environment in the framework of the chinese concept of harmonious society, equivalent to the updated concept of sustainable development;

- Brazil, after an ambitious foresight exercise called “Brazil 3 Times”, has adopted an ambitious agenda for development emphasizing the role of knowledge, social inclusion and concern with the environment;

- the usa are launching initiatives to keep the lead in a more competitive knowledge economy and an important reforms are taking place in the health system, education and employment public services;

- several macro-regions, from latin america to africa are adopting development agendas moving in this direction.

From the european view point, this international movement should be welcomed for two reasons:

- this is the right choice to make in order to develop these countries;

- this is also the european interest because europe cannot implement this agenda isolated, it needs other partner countries to go in the same direction.

nevertheless, a central question is now emerging: under which conditions can we have a win-win game? how can we have a race to the top and not a race to the bottom

concerning social and environmental conditions in this transition to a knowledge intensive economy?

This paper assumes that some conditions should be fulfilled:

1. To develop our relationships as global partners facing common challenges;

2. To set common basic standards to define a level playing field;

3. To turn the strategy for a knowledge intensive economy into a more comprehensive development agenda.

a strategic dialogue should be developed with this triple purpose.

2.2. The need of a new kind of strategic dialogue

a strategic dialogue on development issues should be organised between partner countries in a globalised world in order to frame a better use of all these instruments of external action. We are assuming that the method for this strategic dialogue will be more effective if it reverses the traditional sequence of many international dialogues and organises the discussion according to the following steps:

1. First, a general discussion on common challenges we are facing together as global partners;

1. secondly, a general discussion on development strategies and on some implications for internal policies to meet these challenges;

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2. Thirdly, a discussion on new ways of cooperation for capacity building in order to spread better standards;

3. Finally, a discussion on the implications for international relationships, mutual opening of markets, for global standards and global governance.

This process of strategic dialogue should be developed at:

- high level, involving top representatives of the council and the commission, who should meet on a regular basis, define the agenda and discuss selected topics;

- multi-stakeholders level, involving key stakeholders of civil society, meeting in different arrangements (workshops, conferences, fora).

some key assumptions should underlie this dialogue:

- the dilemma between globalisation and protectionism should be overcome by an effective multilateralism combined a strategic regionalism;

- europe as a civilian power, should use its external policies to project its internal policies;

- in the exchange with partner countries, access to knowledge and institutional learning should play an increasing role;

- a typical example of win-win game can be created by combining mutual opening of the markets and access to knowledge on the conditions of raising standards in the environmental, social, intellectual property rights and political fields.

2.3. Preparing a strategic dialogue for sustainable development

The organization of this strategic dialogue for sustainable development should be based on two main strands:

a/ promoting a more systematic identification of all the initiatives of international cooperation between the eu and these partner countries in the fields covered by the europe 2020 agenda, notably:

- science and technology- education and training- entrepreneurship and innovation- environment and energy- market integration- employment and social affairs- regional development

b/developing a strategic dialogue for sustainable development, dealing with the following kind of issues.

kEY ISSUES FOR A STRATEGIC DIALOGUE

This open list of key issues can be useful to inspire a new kind of strategic dialogue between partner countries in a globalised world.

development strategY

- do you have a political agenda defining a long term development strategy?

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- Which are the main challenges to be faced by this strategy?

- What is your approach on globalisation, its challenges, its opportunities ? how should you compete in a global economy?

- is this development strategy combining the economic, social and environmental dimensions?

knoWledge

- What is the place of knowledge, involving research, innovation and education, in this strategy?

- What is your approach on a knowledge based society?- how can you build an inclusive knowledge society?- Which are your main goals in research policy?- Which are your main goals in innovation policy?- Which are your main goals in education policy?

industrial policY

- Which are you main orientations in competition policy?- To what extent can you speak of industrial policy?- Which are your main competitive advantages and how

can you improve them?

social policY

- What are your main problems of employment and what are your main priorities to cope with them ?

- What are your main problems of social exclusion and how are you dealing with them?

- how are you building your social protection system ?

- how are you building your health system?

environment and energY

- What are your main problems of environment and how are you dealing with them?

- What are your main problems of energy and how are you dealing with them?

macro-economic policy

- Which are the main goals of your macro-economic policy?

- how is your macro-economic policy supporting your development strategy ? are there some trade-offs?

national governance

- Which are the main coordination procedures in the government and public administration regarding this development strategy?

- Which are the main mechanisms to involve civil society in its implementation ?

- What is the role of local authorities?- Which are the main political and financial means to

implement this strategy?

gloBal governance

What are the implications of this development strategy for the international coordination of economic, social and

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environmental policies? What can be the role of WTo regarding these issues? and the role of undp? and the role of ecosoc?

From this european experience, we can already draw the following responses, which can be used in a strategic dialogue with eu partner countries:

1. We need to design and implement a new comprehensive agenda for sustainable development combining the economic, social and environmental dimensions. synergies between these three dimensions should become more important than trade-offs.

2. We should neither sacrifice social conditions to competitiveness nor the other way round. in order to overcome this dilemma, we should renew both.

3. The triangle of knowledge (research, innovation and education) plays a central role in this agenda.

4. it is not enough to invest in research. it is crucial to turn knowledge into added value through innovation. innovation provides a new approach for capacity building, which overcomes the protectionist approach to industrial policy.

5. innovation is: not only in processes but also in products

and services not only technological but also in

organization, management, skills and culture not only for high-tech companies and high

skilled workers but also for all companies and people

6. entrepreneurship, taking the initiative to mobilize new resources to address new problems, should be encouraged everywhere, beginning in schools and universities, ensuring one-stop shop and seed capital for start-ups and supporting innovative companies to reach their markets.

7. The information and communication technologies provide the basic infrastructures for a knowledge society. in order to overcome the risk of digital divide, they should provide better access to all citizens in schools, health care, leisure and all the public services.

8. social policy can become a productive factor provided that: it equips people for change, to move to

new jobs by providing new skills and adequate social protection it increases equal opportunities

9. a sound basic and secondary education is a key factor for better life chances. nevertheless, learning opportunities should be provided for all over their life cycle.

10. social protection systems should be built and recalibrated to cope with the demographic change.

11. respecting environment is not against investment and jobs creation. it can rather turn into

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new opportunities for investment and jobs creation.

12. macroeconomic policies should ensure macroeconomic stability, but also a stronger focus on key investments for the future in research, innovation, education, infrastructures and social conditions.

13. multilevel governance should be reformed for a better implementation of this agenda at local, national, regional and international levels. in all of them, we need more horizontal coordination of the relevant policies and a stronger involvement of the relevant stakeholders.

14. a cultural openness, initiative, participation and partnership are key ingredients for a successful implementation of this agenda.

3. IMPROVING GLOBAL ECONOMIC, SOCIAL AND ENVIRONMENTAL GOVERNANCE

3.1 Strengthening the international coordination to tackle the crisis and to foster sustainable development

The global nature of the financial and economic crisis has demanded swift, joint international action. eu member states should agree on strong, common european position for international negotiations, notably in the g20 process and in the multilateral institutions. restarting banking activities, regulating the financial system, coordinated recovery, supporting developing countries, promoting the necessary structural adjustments and reforming global governance should be the strategic priorities. specific

priorities are presented below:

a. strengthening the recovery plans and their international coordination, making the best of their spill-over effects and ensuring their consistency with the long term goals of sustainable development.

b. restoring bank lending to business and people according to a common framework ensuring clear conditionality for public support. The key principles to improve the regulation of the financial system should be extended worldwide, if the g20 process is to be successful.

c. The core competences of the imF and FsB (Financial stability Board) must be enhanced in order to raise the effectiveness of crisis prevention measures and early warning. We need to increase its resources very substantially in order to strengthen its capacity to rescue default developing countries and emerging economies and provide them with short and long term credit. conditionality must be revised in order to promote the economic recovery, support their trade and counter-cyclical policies. additional funding can also be provided by increasing the issuance of special drawing rights (sdrs).

d. The governance of the international Financial institutions should be deeply reformed in order to increase their legitimacy and effectiveness. Their heads should be appointed in future through open, merit-based selection processes. Beyond thwe steps already taken,imF quotas should be further revised in order to give more voice to developing and emerging countries.

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e. development aid must be stepped up to meet the target of 0.7%gdp and transnational schemes for cooperation with developing countries should be urgently implemented by reducing the co-financing of recipient countries. all multilateral development banks should be assured of more capital resources. new international financing instruments should be developed to pursue the millennium development goals.

f. credit lines to support trade must be expanded. protectionist reactions should be prevented by a new momentum to conclude the WTo doha round. eu efforts to conclude free trade agreements should also be pursued.

g. The need to push forward with ambitious plans towards a safe and sustainable low-carbon economy should also reinforce efforts for a progressive climate agreement after the kyoto protocol.

a regular monitoring and assessment of the recovery plans and their international coordination is necessary, to be followed by the un and Bretton Woods institutions. recovery efforts should be based on medium to long term adjustments towards more sustainable consumption and production patterns, sounder financial schemes and a more balanced structure of global demand. more generally, what is at stake is to pave the way for a global new deal, reshaping the global order, which should combine a coordinated recovery, a regulation of financial markets, a global agreement to fight against climate change, a multilateral agreement to open markets, stronger development policies and a worldwide extension of the

ilo’s decent work agenda. global governance should be reformed to create the conditions for the negotiation and implementation of this global new deal.

3.2. A Global New Deal as a win-win game

The possible content of a global deal to be convincing need to be defined in terms of gains to be obtained and contributions to be given by three different kinds of partners: developed countries, developing countries and emerging countries.

To pave the way for sustainable growth with social cohesion and respect for the environment, this global deal requires:

- from developing countries, a growing integration in the global economy, accompanied by programmes aimed at building their national capacity in economic, technological and educational terms, ecological control, fight against poverty and enhancement of working conditions – which often have as a prerequisite a democratic governance and the respect for human rights;

- from developed countries, the opening of their markets to developing countries’ exports, the correlate redeployment to other activity areas, the strengthening of the cooperation and the financial aid to developing countries, and the change to sustainable consumption and production patterns.

- from the emerging countries, their deeper integration in the global economy coupled with

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their convergence with better standards in the environmental, social and intellectual property areas, to be supported by a stronger mobilization of national and international financial and technological means.

3.3. Reshaping global economic governance

a global new deal should be translated in multilateral rules, with a clear identification of the bodies in charge of defining and implementing them as well as of the mechanisms for dispute settlement.

To create the necessary political momentum, the negotiation of a global deal should be pursued in two different tracks, the informal track of the g-20 and the formal track of the un system, WTo and Bretton Woods institutions.

on the one hand the political commitment which is needed at the highest level can only be provided, so far, by an informal group composed by the main players of the global economy, a g-n. But, on the other hand, the full institutionalization and operationalization of a global new deal should involve all the un member states and all the relevant agencies of the multilateral system. This will lead to the more fundamental challenge of renewing the multilateral system.

The un member states should be animated by a fundamental principle of a renewed multilateralism. a new multilateralism should be based on shared leadership as well as on developing multilevel governance, improving the

synergies between the actions to be taken at international, regional, national and local levels. in this framework, regional integration can play a very relevant role by providing coherent possibilities of adapting the implementation of the multilateral rules.

For a renewed multilateralism, it is also crucial to strengthen the legitimacy and the effectiveness of several central bodies and agencies of the multilateral system. This also requires to address the central institutional problem which is re-weighting votes according to the actual relative power and resources of the involved countries and avoiding particular veto powers. This is particularly evident regarding the imF and the World Bank, where reforms such as an eu seat and more voting power for the emerging economies should no longer be delayed.

This revision can only be achieved by combining political pressure with a stronger political drive in the multilateral system. This political drive should be given by a triangle composed by the united nations bodies, by the international agencies (including WTo and BWs) and by the g-20. hence:

- The relationship between un bodies and these international agencies should be strengthened by the ceB, un chief executives Board;

- The relationship between the g-20 and the international agencies should be strengthened by their involvement in the g-20 process;

- and, finally, the relationship, between the un bodies and the g-20 should be strengthened by the concerted effort of g-20 members in the un bodies.

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on the longer term, the g-20 should improve its composition with an appropriate representation of the different constituencies. hence, it can evolve to become a un global sustainable development council able to ensure, at the highest political level, the coordination of the relevant policies, the follow-up of the key-commitments and the response to new challenges. at a more operational level, the current ecosoc should improve its role of coordination of the various policies and un agencies through proper accountability mechanisms and of follow-up of their implementation as well as strengthen its development cooperation Forum and its humanitarian aid Forum.

Global economic governance and the G-20

The emergence of the g-20 at leaders level can provide important mechanisms to improve the governance of the global economy:

- The Framework for strong, sustainable and balanced growth, defined by the g-20 in september 2009, has launched a process of mutual assessment of policy frameworks and their implications for the pattern and sustainability of global growth, while trying to identify potential risks to financial stability. The 20 members will agree on shared policy objectives for fiscal, monetary, trade and structural policies to collectively ensure more sustainable and balanced trajectories of growth;

- a charter of core values for sustainable economic activity adopted by the g20 in september 2009 comprises macro-economic policies for long term objectives, rejection of protectionism, regulation of

the markets for sustainable development, financial markets serving the needs of households, businesses and productive investment, sustainable consumption and production, internationally development goals, need of a new economic and financial architecture;

- a global Jobs pact was adopted by the ilo and underlined by the g-20 and un assembly;

- unprecedented ilo/imF oslo conference in september 2010 should pave way for decent work to be put at the heart of imF recovery strategies;

- a move toward a fairer representation of world realities in international financial institutions, including the imF and the World Bank, through quotas share reallocation in 2010 and by January 2011 respectively;

4. IMPLICATIONS FOR THE NEW ExTERNAL ACTION OF THE UNION

4.1. A new development agenda and the EU cooperation policy

The next generation of the eu cooperation programmes can play a very relevant role in spreading a new development agenda, but a central dilemma can be identified: should the strategy papers and the national programmes for partner countries cover all the priorities or just address some of them? and, in this case, how to choose the priorities?

a third approach can be suggested to overcome

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this dilemma, based on two different steps:

a. encouraging a preliminary step, by requiring a more comprehensive development strategy in this specific country, defining a strategic framework for development;

b. focusing support on some concrete priorities, complementing other sources in the framework of this more comprehensive strategy. The other sources can have very diverse origins: multilateral organisations, non-european countries, eu member states, other eu policies including the external projection of internal policies of the union such as research, education, environment, employment.

a more effective programming of cooperation should also be able to combine the core cooperation measures with this external dimension of the eu internal policies, such as the policies for research, education, employment, environment, immigration or culture.

nevertheless, this third approach requires improvements in the methodology for technical assistance in the programming phase regarding:

- the discussion of a more comprehensive strategy for development;

- the choices for focalisation;- the measures to enhance the knowledge

base and the technical expertise to support the policy making process.

moereover, regarding the implementation phase, new governance mechanisms should also be developed in order to:

- strengthen ownership of all the relevant stakeholders;

- build coalitions for change.- monitor and evaluate the impact of public

policies in economic and social change.

Further elaborations can lead to more policy coherence by formulating more comprehensive development strategies, beyond the traditional poverty reduction strategies or even the more recent decent work strategies. The following references built on the european experience can provide some useful inputs for this process of enriching the agenda:

a. the employment policy is, by definition, a central bridge between social and economic policies because it combines the factors influencing labour supply with those influencing labour demand, such as trade, industrial and macroeconomic policies;

b. the social protection policy provides also a central bridge because it should be envisaged as a productive factor and also because it should take its financial sustainability into account;

c. the implications of trade cannot be dissociated from capacity building policies such as infrastructures, innovation, industrial and education and health policies. The policies concerning the transition to a knowledge society should always play a central role, whatever the level of development.

d. The macroeconomic policy should aim at combining macroeconomic stabilisation with capacity building to increase growth potential.

These are some of the central ideas underlying the lisbon strategy, meaning the european agenda for growth

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and jobs in a framework of sustainable development.

That said, many conclusions of the european experience cannot be directly transposed due the wide range of national specificities. The specificities concerning the weight of the informal employment, the role of social entrepreneurship or the level of the thresholds regarding the basic social standards should be particularly underlined. This means that the general framework to be adopted should be flexible enough to take into account the national diversity.

4.2. A new development agenda and the EU trade policy

The eu should be engaged in developing a social dimension in trade policy. From this view point, it can be regrettable that basic labour standards were not included in gsp and in gsp plus, with implications for the doha round.

nevertheless, the european union can introduce them in its negotiations of bilateral agreements. The current perspective of negotiating agreements with macro-regions in process of regional integration can open important windows of opportunity, even if a special effort will be required to address new and specific problems regarding the social dimension of the regional integration. The main assumption to be taken is that regional integration can become an important leverage to promote trade with better social and environmental standards.

The eu approach should create an effective environment for this negotiation by combining incentives and sanctions. To improve this combination, it is particularly

important to strengthen the coordination between trade, cooperation and the other components of the external action of the union, including the external projection of the internal policies of the eu.The role to be played by companies investing abroad in promoting better labour and environmental standards can also be emphasized as a basic component of corporate social responsibility.

4.3. A new development agenda and the need of a more consistent and coherent external action of the EU

The development and the diffusion of a new development agenda depends crucially of a stronger initiative by the multilateral institutions and the european union has a special responsibility about this. Therefore, a more effective action of the eu in this direction is required, notably:

a. in the board of the World Bank and imF;b. in the un system, more specifically in

the ecosoc and in the un commission for social development;

c. in the interface between ilo and WTo;

The debate on a new development agenda is also a debate on basic rules for globalisation, to make it work for all. in fact, these rules are crucial to support the implementation of new development agendas. These rules are emerging in different policy fields such as finance, environment, intellectual property and labour. nevertheless, they still lack clarification, enforcement and coordination.

For instance, for the coordination of labour rules with

WTo rules, the following possibilities can be identified:

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WhaTWillBeeurope’spositionin theWorld?__________________________________

Is the decline unavoidable?

maria João rodriguesJanuary 2012

a. to define how could WTo take into account the ilo role;

b. to create a committee on Trade and decent Work in WTo;

c. to define the role of specific indicators to introduce in the negotiation process;

d. to go further by deciding that the ratification of the ilo core labour standards should be a pre-requisite for membership of WTo.

in conclusion, the implementation of a new development agenda is challenging the consistency and the coherence of the external action of the european union.

The consistency, because if the union is trying to improve the consistency of its internal policies for economic, social and environmental, the degree of consistency between policies prompted by the eu external action in partner countries should also be improved.

The coherence, because the action of the eu to reform the multilateral system and to improve the basic rules for globalisation requires a much stronger coordination between the eu and its member states in the multilateral arenas.

This will be central challenges for the implementation of the lisbon Treaty in the years to come.

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Before the financial and economic crisis, the eu was engaging in a strategy for a new growth model more knowledge-intensive, low carbon

and inclusive, which should also build new competitive advantages to sail in the new global economy and create more and better jobs (lisbon strategy and, more recently europe 2020 strategy). The implementation of this strategy was hindered by the lack of the appropriate political and financial means, but these difficulties were worsened by the financial crisis of 2008-9 and, more recently, by the crisis of the euro-zone which is turning into a more fundamental crisis of the european integration. in the current conditions, the general outlook is for low growth or recession, with increasing divergences between member states and more generalized problems of unemployment, hitting particularly the young generation and the elderly workers. To restore the perspective of growth, europe needs now not only to shift to this new growth model and to strengthen its demographic dynamism, but also to undertake a major reform of its own architecture: to complete the economic and monetary union, combining fiscal discipline with coordination for growth and jobs creation as well as stronger european instruments to manage the public debt and to support investment. This seems now a pre-condition for the

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eu to cope with the longer term trends which are already reshaping the international economic order.

This can also make the difference between a european “absolute decline” or just a ”relative” one reflecting the re-balancing of the world which is underway. These current trends reshaping the international economic order are bringing about a more polycentric world where the economic centre of gravity will clearly move towards asia and where different kinds of capitalism will interplay in front of a common challenge which is to ensure a more sustainable growth model in economic, social, environmental and financial terms.

yet, important margins of variation in the horizon 2030 are still open with regard to several critical issues which are very relevant for europe’s future:

- The degree of rebalancing of the economic production power towards to asia will depend on the capacity of china to avoid a hard landing, of the usa to renew leading features and of the eu to retain more of its multifaceted qualities as a globalisation shaper, even if it might move from its current first to a third place;

- The same applies to trade re-balancing where europe has been faring better than usa and Japan regarding the relative shares in the total global exports;

- the re-organisation of the global production chains is still open regarding who will lead out-wards stocks of foreign direct investment and furthermore

who will lead the strategic segments of these global chains;

- this is directly connected with the relative distribution of advanced competitive factors, notably knowledge, comprising innovation, applied and fundamental research as well as top-level education and training, where the re-balancing towards asia is already quite clear, but where the West can still keep important assets regarding the most creative segments;

- these re-alignments of competitive power will also depend on the evolution of the exchange rates and, more fundamentally, on the international currency system: will this remain dollar driven or will this be replaced by more plural currency system with different currency areas, notably in asia and europe, and what will the relative strength of the euro?

- they will also depend on the evolution of standards, be it social, environmental or intellectual property rights: it is still open whether we will have upward convergence, downward convergence, a plurality of standards or a new compromises between different standards;

- nevertheless the sustainability of these standards, notably social, will also depend on the sustainability of public finances, which will undergo major adaptations particularly in the most indebted countries;

-finally, many of these issues will depend on the way the international financial system will operate

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to mobilize savings resources and to turn them into investment and consumption. The relative re-distribution of these resources between the current developed, emergent or developing economies will have a major influence in everything else. To what extent will emergent economies be available to lend to developed countries, for instance? Furthermore, it is also important to assess to what extent the ongoing reforms of the financial system will be enough to prevent the kind of general financial crisis taking place in 2008-9;

- this negotiation over the redistribution of financial resources which is already on the table might be connected with another re-negotiation over the re-distribution of power in the structures of global economic governance, such as imF, WB and particular un bodies;

-the current global macroeconomic imbalances between surplus and deficit countries can increase or decrease according to the trends in competitiveness and of internal demand in the major economies;

-the pressure from economically and socially distressed regions, particularly from africa, might more or less acute;

-the impact of regional integration might be more or less relevant in latin america, asia and africa;

last but not least, a lot will also depend on internal decisions of europe about itself, which will have long term impact on the future of European integration, but which are still not clear at the moment of concluding this report:

how will the economic and monetary union be completed? Will the emu only deal with fiscal discipline or also with coordination for growth and job creation? Will the emu count on stronger european instruments to mutualise debt management and to finance investments? how will internal convergence be fostered regarding not only public deficit and debts, but also competitiveness, social and environmental standards? What will be the role, the size, the spending and the revenue structure of the eu budget? how deep will be the coordination of national economic, social and environmental policies? What will the major structural reforms undertaken with success? To what extent will the eu renew its growth potential with regard to productivity, active population, skills level, framework conditions? Will all this be translated into more or less internal divergences in the eu? and how will the eu use its trade or development policies, its external strategic partnerships and its position in the international governance bodies in order to influence its international environment? Finally, to what extent will these changes in the eu policy-making be undertaken with a stronger democratic approach and involvement of european citizens?

against this background, after considering the key challenges and risks and identifying relevant opportunities, this report section will formulate some key strategic choices for the eu economic development and its relationship with the new international environment on a longer tem perspective. a final box will also identify key question for decision in the shorter horizon of 2014-19.

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THE RISkS/ CHALLENGES

THE COMPETITIVE CHALLENGE

The re-balancing of the world towards asia will increase the competitive pressures on the european economies and societies, while providing them with relatively cheaper goods. The level of this pressure will also depend on the pace of building up welfare systems and more regulated labour markets in the asian and other international partner countries. Furthermore, the presence of the asian and other countries’ economic power will also increase via foreign direct investment and take-over of european owned companies being supported by their banks and sovereign funds. This presence can become influential regarding some strategic assets and sectors in europe, such transport, logistics, energy, icTs. ultimately, this can pave the way for a major re-organization of the global production chains and their leadership, with more and more chains being led by non-Western companies.

THE SUSTAINABILITY CHALLENGE

The european growth model will be confronted with several challenges of sustainability: the patterns of consumption, production and distribution will have unbearable consequences in terms of environment and climate change and will be under pressure for profound change; the welfare systems will also be under pressure to be reformed on the expenditure and revenue side in order to keep their universal coverage; the financial systems will

be under pressure to provide credit to the real economy and to reward savings with a more stable horizon; last but not least, the financing of public budgets will be constrained by public debt limits, which can only be offset by difficult spending choices, new sources of taxation and higher economic growth.

THE SOCIAL CHALLENGE

a more jobless growth model will create new social inequalities not only regarding low-paid jobs and long term unemployed, but also the emergence of new poor, particularly among the youngest, who will be confronted with a new imbalanced situation: on the one hand they can count on a certain protection in terms of access to universal public services of health, education and to internet and media services, as well as housing and some later savings, depending on their parents; on the other hand they are condemned to low-paid, under-skilled and precarious jobs, making it impossible to plan their lives and create households. The pressure from the indignados is likely to increase with economic, social and political implications, because they do not feel represented by the traditional political parties spectrum and they have the time and the resources to come up with new ways of civic intervention. They will magnify the other more traditional forms of protest connected with deeper social inequalities.

THE DEMOGRAPHIC CHALLENGE

These new social trends will also weaken the european demographic dynamism. on the one hand, the birth rate will decrease even more quickly due to the lack of reliable

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conditions for european citizens, women and men, to have the number of children they would like to have. on the other hand, the shortage of jobs will discourage immigrants to come to europe as and will hinder their proper social integration. The ageing of european societies will bring about completely new social landscapes, with more active ageing on the one hand and on the other hand, overburden younger people, when they need to reconcile working life, personal life, child care and elderly care. Furthermore, xenophobic tensions will increase, while emigration can also re-start in several european countries, while other ones are confronted with labour shortages.

THE REGIONAL INTEGRATION CHALLENGE

european might be perceived as still a rich continent but with a unsuccessful regional integration, a weak leadership and low stamina, overall in decay. The incapacity of the european union to improve its internal coordination regarding economic governance, energy, agriculture or immigration policies as well as the external economic and social policies can deepen its internal problems and weaken its international status and influence.

THE OPPORTUNITIESBeyond the current euro-zone crisis, and when compared

with usa and Japan, the european economy taken as a whole keeps stronger economic fundamentals it can build on: a balanced current account, a low inflation, sufficient internal savings, relatively lower levels of public deficit and debt.

europe remains the most creative and effective laboratory for a new growth model driven by innovation with concern for sustainable development, in its economic, environmental and social dimension. despite several important internal problems, it provides the best combination of advanced and sustainable competitiveness, environmental balance, social cohesion, quality of life and well-being in general. in particular, europe remains in the leading position for the next industrial revolution towards low-carbon economies.

due to the international convergence towards a “common humanity” values and the concern with sustainable development, europe keeps a relevant influence at international level as a possible role model. This might decrease the international competitive pressure based on lowering social and environmental standards. The regulation of the international competitive pressure can also be enforced by a more effective eu action in the multilateral and bilateral agreements.

This international convergence of standards can open new market opportunities to be used by europe in the framework of mutual interdependence and of an

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international division of labour where all countries can progress in the added value spiral. europe will focus massive investments in this new international frontier of green and smart growth, creating new jobs fitting the skills of young and creative people and attracting immigrant work.

This new wave of investment and job creation will reduce inequalities in the european societies, increase the birth rate and improve the long term sustainability of the welfare systems. hence, the constraints on public debt management will also be reduced.

These opportunities for investment in a new growth model can also be supported by new global markets, if europe:

- renews its approach in development policies in order to foster internal markets and better standards in its partner countries;

- and accepts a bolder deal in trade re-negotiation, in order to update the international division of labour regarding agriculture, manufacturing and services

THE LONG TERM STRATEGIC CHOICES

Choice A: “Fragmentation and retrenchment”

europe is not able to improve the euro-zone governance, reform the financial system, reduce the public and private debt burden and re-launch investment. europe will be confined not only to low growth, but also to low renewal of its competitive advantages and of its growth model.

as europe is not able to climb the added value spiral, it is forced to adapt to the competitive pressures coming from asia by reducing social conditions, aligning energy patterns, using external financial resources to address its most acute internal problems and accepting to sell some strategic assets.

This also leads to a higher structural unemployment due to skills mismatches, more difficulties to receive immigration and lower demographic dynamism which will worsen the problems of debt sustainability.

europe takes a more defensive and fragmented position in the fora of global economic governance. it is easier for global key-players to explore european internal differences.

Choice B: “Stronger economic Union and globalisation shaper”

europe re-organizes the euro-zone governance,

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completes the reform of the financial system, consolidate debts and re-launches investments for a new growth model.

europe builds on the international convergence towards “common humanity values” and more concern with sustainable development to promote better social and environmental standards. This is improved by a more effective european external action in the multilateral and bilateral fora.

By taking the lead of a new growth model, europe builds new competitive advantages, develops new global production chains, opens new markets and creates new jobs better fitting young people skills. less social inequalities will encourage birth rate and immigrants integration, raising the demographic dynamism and strengthening the long term sustainability of the welfare systems.

europe takes a more pro-active and coordinated position in the fora of global economic governance, maximizing its internal influence.

Choice C: “A middle road for a re-organised and more assertive Europe”

europe maintains part of its economic influence and power due to an important internal re-organization. The reform of the euro-zone governance will control the crisis but will keep important divergences across member states regarding the rates of investment, growth and job creation.

nevertheless, some member states will have the margin of manoeuvre to invest in new competitive advantages and a new growth model. They will build on the european single

market to take the lead in global competitiveness and they will influence the eu external policies to support their global role.

other member states will provide them with markets, outsourcing choices and educated manpower and will be supported by a european regional policy to reduce major distresses, to organize european internal migration and to adapt them to the requirements of european production chains.

eu external positions will be more aligned with the particular interests and visions underpinning this strategy.

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questions for decision in 2014-19:

- What is the precise content of a new deal combining responsibility, coordination and solidarity which will be necessary to overcome the euro-zone crisis? how should it be translated into the current reforms of the economic governance and the new architecture of the economic and monetary union?

- What are the key reforms and the key investments which should be undertaken in europe in order to give it a leading position in a new growth model: low carbon economy, innovative companies, single market particularly for services, sustainable welfare systems. how to provide condition for all regions in europe to implement the europe 2020 strategy?

- should europe revise its position in trade policy in order to facilitate a multilateral deal in the WTo?

- should europe revise its neighbourhood and development policies in order to better support capacity building, internal demand and standards improvement ?

- should europe renew its strategic partnerships with china, india, latin america and africa in order to take advantage of their expanding internal demand and the other way round ?

- how can europe encourage an international strategic convergence for a new growth model in the multilateral system, the mini-lateral fora and in its bilateral relationship?

- To what extent should europe depend on its external partners to overcome its internal euro-zone crisis?

Editor:

Maria João RODRIGUES was minister of employment in portugal and has been a policy maker working with the european institutions since 2000. The main outcomes she has been working for are:

• The eu strategy for growth and jobs, the lisbon strategy followed by the eu2020 strategy.

• The eu agenda for globalization and the strategic partnerships with the usa, china, russia, india and Brazil for a new growth model.

• The development of several policy areas: employment, education, innovation, research, regional and industrial policies.

• special eu initiatives: the new erasmus for mobility, new skills for new Jobs

• The responses to the euro-zone crisis.• The final negotiation of the lisbon Treaty.

in academic terms, she is professor of european economic policies in the european studies institute - université libre de Bruxelles and in the lisbon university institute. she was also the chair of the european commission advisory Board for socio-economic sciences.

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the european union needs more progressive policy-making to overcome its current crisis and to develop its potential as a progressive project.

Building on many debates which took place across europe and abroad involving thou-sands of actors over the last years, this book provides a consistent sequence of analysis and responses to cope with some key european problems:

• Is the European growth model still sustainable and, if not, what should the main strategic priorities to reshape it be?

• Is there an effective response to foster job creation?

• What are the long term implications of the financial crisis which started in 2007?

• What kind of Global New Deal is necessary to turn this crisis into an opportunity to reshape the global order ?

• What are the implications of the current crisis of the Eurozone? How should the Eco-nomic and Monetary Union be reformed in order to overcome and prevent this kind of crisis ?

• Is Europe condemned to an irreversible decline or can it have a re-start and a new role in the international game?

Maria João RODRIGUES was Minister of Employment in Portugal and has been a policy maker working with the European Institutions since 2000.She collaborates with FEPS for 5 years.

Publisher:

• FEPS - Foundation for European Progressive Studies

Edited by Maria João RODRIGUES

Brussels, 20 october 2013

ISBN 978-2-930769-00-4

This book is edited with the financial support of the European Parliament

Foundation For EuropEan progrEs-sivE studiEs

Fondation EuropéEnnEd’étudEs progrEssistEs