Abstract. Social and economic policy co-ordination in the European Union

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1 Abstract Social and economic policy co-ordination in the European Union

2 THE SOCIAL AND ECONOMIC COUNCIL IN THE NETHERLANDS The Social and Economic Council (Sociaal-Economische Raad, SER) advises government and parliament on the outlines of national and international social and economic policy and on matters of important legislation in the social and economic sphere. Employers, employees and independent experts are equally represented in the SER. Their recommendations voice the opinion of organised industry. In addition to its advisory function, the council is responsible for the execution of certain laws. A brochure on tasks, structure and procedures of the SER can be obtained, free of charge, from its Sales Department. Please also visit the SER s home page on the Internet: ( It offers a host of information, such as the composition of the Council ans its committees, press releases and the latest news. 2000, Sociaal-Economische Raad All rights reserved. Sections from the SER advisory reports may be used for the purpose of quotation, with due acknowledgement of the source of the publication. Social and Economic Council Bezuidenhoutseweg 60 P.O. Box LK The Hague Telephone Telefax Internet: Sales Department Telephone:

3 Social and economic policy co-ordination in the European Union Sociaal- Economische Raad

4 2000, Sociaal-Economische Raad All rights reserved. Sections from the SER advisory reports may be used for the purpose of quotation, with due acknowledgement of the source of the publication. This is an abstract of the SER-advisory report: Sociaal-economische beleidscoördinatie in de EU 2000, 64 pp., ISBN , order no. 00/01, ƒ 15,00 Translated by: Balance, Maastricht/Amsterdam Order no. 00/02E ISBN

5 Table of contents 1. Introduction 5 2. Challenges 6 3. Basic principles 8 4. The policy co-ordination framework 9 5. Involvement of the social partners Comments on the policy agenda set by the Portuguese Presidency 16 3

6 4

7 1. Introduction The Dutch cabinet has asked the Social and Economic Council (SER) to issue an advisory report on macro-economic policy co-ordination in the European Union. The request refers to such recent events as the start of the third phase of Economic and Monetary Union and the development of a European Employment Pact. These events represent new challenges for macro-economic policy co-ordination within the European Union. The Dutch cabinet is particularly interested in the SER's views on streamlining and improving synergies within the present policy co-ordination framework and on the role and involvement of employers' associations and trade unions at European and national level. The following advisory report begins by reviewing the challenges that the European Union will be facing in the social and economic field in the next few years. It will also look at a number of basic principles that must be taken into account when co-ordinating social and economic policy. The report goes on to discuss the policy co-ordination framework and the involvement of employers' associations and trade unions known collectively as the "social partners" in social and economic policy-making. The report concludes with a look at the policy agenda set by the Portuguese Presidency. 5

8 2. Challenges In the SER's view, the most important social and economic challenges that the European Union (EU) will be tackling in the years ahead are: a properly functioning Economic and Monetary Union (EMU); the Eastern enlargement of the EU 1 ; the need to adapt the EU's institutions and policies to changing circumstances, including enlargement. Properly functioning EMU The SER sees EMU very much as a duality comprising an Economic Union and a Monetary Union, whose purpose is to achieve a proper balance between the various objectives of the Community (Article 2 of the EC Treaty). The "E" in EMU is, however, not as closely defined as the "M". The SER believes that, besides the internal market, economic union means closer co-ordination between the various economic policies pursued by the Member States and proper channelling of policy competition. Economic union also guarantees adequate social and economic cohesion, and it also has a social dimension. Enlargement of the EU Developments in policy co-ordination must also be viewed against the background of the European Union's pending enlargement into Central and Eastern Europe. The European Council of Helsinki (December 1999) decided to open accession negotiations with twelve countries, among which are ten Central and East European countries currently making the transition from a centralised economy to a developed market economy. The accession of Central and East European countries will greatly increase the number of different social and economic structures and the variety of opinions about the integration process ahead. It is therefore extremely important, on the one hand, to safeguard the existing social and economic acquis against erosion by establishing clear accession criteria; on the other hand, wherever possible enough leeway must be created in the future for flexible forms of integration that do not place a heavy burden on new 1 The Eastern Enlargement of the European Union, abstract of the SER advisory report Uitbreiding van de EU met Midden- en Oost-Europese landen, The Hague, November

9 candidate countries. To some extent, this leeway can be found in the provisions on enhanced co-operation set out in Article 11 of the Treaty. Adapting the EU's institutions An Intergovernmental Conference (IGC) will this year discuss the Treaty amendments regarded as desirable in view of the EU's pending enlargement. The Commission published its recommendations for the IGC in late January 2, focusing in particular on: the role, functioning and composition of the EU's institutions: the present advisory report will discuss the proposals related to the Economic and Social Committee (ESC); the need to guarantee decisiveness, especially by introducing qualified majority voting as the rule and restricting the requirement of unanimity to a number of specific exceptions. A further proposal is to soften the criteria for enhanced co-operation after the forthcoming enlargement. 2 European Commission, Adapting the Institutions to Make a Success of Enlargement, COM(2000)34,

10 3. Basic principles As the economies of the European Union become more closely integrated, the Member States will increasingly feel the cross-border effects of one another's economic policies. Policy co-ordination is therefore a necessity. However, it is also necessary to create leeway for policy competition. In view of the collective nature of the EU's monetary policy, there will obviously have to be enough space to make flexible use of national policy instruments. This entails considering the advantages and disadvantages of policy co-ordination and competition on a case-by-case basis. The SER agrees with the cabinet that the decision to co-ordinate at European level should depend on whether such co-ordination is more likely to achieve the aims of economic growth, employment and social cohesion than pursuing separate national policies. The SER has noted that ever-closer economic and social integration has been accompanied by looser, officially nonmandatory forms of policy co-ordination. This trend has made itself visible in the Broad Economic Policy Guidelines, the Employment Guidelines and the policy intentions arising from the Cardiff Process. Policy co-ordination should respect the autonomy and responsibility of the various parties involved. Care should also be taken not to simply pile one co-ordination procedure on top of the other. As the number of procedures increases, there will also be a greater need to monitor cohesion and avoid overlaps. There is no good reason to add yet another new process to the existing ones. 8

11 4. The policy co-ordination framework The SER believes that the Member States should make a major effort in the next few years to streamline the co-ordination framework in the European Union and to improve its synergies. Where appropriate, the objectives set in this regard should be verifiable. The various co-ordination instruments should also operate according to the same cycle (objectives, implementation, evaluation). The Broad Economic Policy Guidelines are the overarching instrument within the co-ordination framework, with the Ecofin Council directing matters. Figure 1 provides an outline. Broad Economic Policy Guidelines Stability and Growth Pact (Budgetary policy) Luxembourg Process (Labour market) Cardiff Process (Structural reform) Cologne Process (Employment) The SER would refer in this connection to the cabinet's request, in which it comments that the Social Council mirroring Ecofin's contribution to setting the Employment Guidelines within the Social Council should contribute to relevant aspects of the draft Broad Economic Policy Guidelines to support the final decision-making processes in the Ecofin Council. The European Council would continue to bear political responsibility for cohesion between the co-ordination procedures. It is clear that a balanced policy mix can only be achieved if labour cost movements are well-founded. Logically enough, the Council focuses on precisely this aspect in its Broad Guidelines. However, the SER also considers it desirable to make a distinction between the labour cost movements for which governments are responsible and the wage cost movements resulting from negotiations between employers and employees. The issue of wage movements in the Member States should be discussed directly with the social partners with these points in mind. At European level, this can take place within the context of the macroeconomic dialogue. The SER welcomes the connection made between the development of the internal market and the Cardiff Process. This connection will help to produce synergies. From an institutional point of view, it would be a good idea to confirm this connection by having a single Council of Ministers bear 9

12 the main responsibility for the structural reforms and for boosting the competitiveness of trade and industry in Europe. At the moment, this responsibility is divided between various European Councils of Ministers (in particular Ecofin, the Internal Market Council and the Industrial Council). The SER wishes to express its support for the proposal to merge the latter two councils to form a single Competitiveness Council. The merger proposal is similar to the recommendations made by the Secretary-General of the Council to reduce the number of councils from 22 to 15, and to the conclusions reached by the Helsinki European Council 3. A further point is that the social partners have not been involved in Cardiff Process until now. Consultation and opinions could help remedy this situation. 3 See the report by the Secretary-General of the European Council, Mr Jürgen Trumpf: The operation of the Council with an enlarged Union in prospect, Brussels, 10 March 1999, and the conclusions of the Helsinki European Council. 10

13 5. Involvement of the social partners To ensure that the "E" in EMU is geared towards sustainable economic growth, employment and social cohesion, effective policy co-ordination is required. As the trade unions and employers' associations have their own specific areas of responsibility, the task of co-ordination should not be restricted to governments alone. There is every reason to involve the social partners in preparing policy both at national and European level. Indeed, domestic socio-economic policy is increasingly bound up with social and economic policy co-ordination at European level. It is therefore obvious that consultations between the government and the social partners should concentrate as well on relevant developments in Europe, giving the latter a better opportunity to consider the draft European guidelines and how existing guidelines can be implemented most effectively. Consultation and opinions In considering the most effective division of responsibility, a distinction must be made between consultation and opinions. If the parties involved so desire, consultations can lead to an agreement, but that is not the main purpose of consultation. Indeed, even without such agreements, consultation serves a very useful end. The value of the macro-economic dialogue lies in its giving the parties involved the opportunity to pool information and ideas freely. The Ecofin Council's report rightly points out that this helps clear up any misunderstandings and encourages the parties to take decisions based on the most accurate information available. The various parties including the European Central Bank (ECB) and the Council of Ministers are able to participate actively in this dialogue precisely because each participant acknowledges the others' responsibilities and because there is no pressure to reach commonly held conclusions. When it comes to issuing opinions, however, there must be a different division of roles: experts and/or interest group representatives advise the government about the policy it should pursue and, in doing so, adopt a particular viewpoint. A different cast of characters is required in this case: appropriately, the party making the referral customarily does not participate in drafting the opinion. 11

14 Opinions and consultation can be mutually reinforcing. A supplementary advisory forum on macro-economic policy can make consultation more valuable because of the in-depth analysis performed. Criteria for an effective consultative model One important question is to what extent and under what conditions an effective consultative model can be developed at European level, with consultation taking place not only between employers' associations and trade unions but also between these two parties and the European institutions (including the Council of Ministers). The question of effectiveness is mainly one of the interplay with the national affiliates and with the local bargaining partners in the Member States, and whether coordination at European level will add any value. On the one hand, it is important that the Member States put forward their views at European level; on the other, the point is to have consultation and the co-ordination at European level impact the policy pursued within the Member States. There are a number of factors that stand in the way of an effective consultative model at European level that can supplement the existing national industrial relations systems. These include: the fact that the Member States differ with regard to their (objective) starting positions and (subjective) preferences; the wide variety of different national industrial relations systems; the significant differences in opinion with respect to policies to be pursued; in relation to the above, the limited mandate conferred on the European employers' associations and trade unions by their national affiliates; issues related to the representativeness of European-level employers' associations and trade unions in the various advisory and negotiation procedures 4. The consultative function At present there are three forums in which consultation takes place: the macro-economic dialogue, the European social dialogue or parts thereof, and the Standing Committee on Employment. An effective and efficient 4 European Social Dialogue, abstract of the SER advisory report, Europese Sociale Dialoog, publication no. 98/18, The Hague, November

15 consultative structure depends on having a clear-cut, appropriate division of tasks between these forums. The macro-economic dialogue is a forum in which the social partners, the Council of Ministers, the Commission and the ECB consult. These parties share information about macro-economic affairs that affect the balanced policy mix described earlier, within the context of the Broad Economic Policy Guidelines. The European social dialogue is described in Articles 138 and 139 of the Treaty. It takes place between employers' associations and trade unions in various assemblies, both inter-professional (with UNICE/UEAPME, ETUC and CEEP participating) and sector-specific in nature, and consists of consultation and negotiation regarding the EU's social policy. If the social partners so wish, the dialogue can lead to agreements at Community level which can then be implemented under certain conditions by means of a decision taken by the Council (the social partners thus acting in a colegislative capacity). This makes the social dialogue an important instrument with which the social partners can mould industrial relations at European level. The Standing Committee on Employment (SCE) is another forum for social dialogue. It is the SCE's task to foster dialogue between the Council, the Commission and the social partners so as to enable the latter to contribute to a co-ordinated employment strategy and to facilitate policy coordination between the Member States in this area. This role was not sufficiently explored in the past, and that is partly the reason why this Committee was recently reformed. Its function and composition show considerable overlap with the new macro-economic dialogue, and the SER thus believes that the SCE should be disbanded. The advisory function The macro-economic dialogue could become more profound if the consultative function were to be supplemented by an advisory function. The Economic and Social Committee (ESC) is the most obvious institution to take on this role. There are other advisory bodies that participate in the European social dialogue as well, but these issue opinions on specific 13

16 social policy subjects. There is furthermore no independent secretariat: this task is fulfilled by the Commission. The ESC has an independent secretariat and its own budget. Unfortunately, it has only a tentative connection with the representative European employers' associations and trade unions. If the ESC is to take on the advisory role described above, it will need to strengthen its ties with these bodies. That will require reform. At present, the ESC's representatives are nominated by the Member States and appointed by the Council of Ministers. The representative European employers' associations and trade unions would also have to be entitled to nominate candidates, at least for some of the seats, but that would require a Treaty amendment. Alternatively, to avoid amendment, it might be possible to apply Article 259 of the Treaty more liberally. This article states that the Council may ask the representative European organisations for an opinion. The Council of Ministers could undertake to consult the representative European organisations at all times in future and to create some leeway to include the candidates they propose in the nominations for the national delegations. A second problem is the system of substitution in the ESC. There is as yet no fully-fledged system of substitution; members may appoint no more than one person to substitute for them and then only in the study groups. On the one hand, this system restricts the extent to which trade union and employers officials can actively participate; on the other, it limits the participation of specialists from those organisations, with all the negative implications this has for the quality of the ECS s opinions. Since substitutions are governed by rules of order which the ESC itself is responsible for adopting according to Treaty Article 260, it is up to the ESC to resolve this question. The third problem is that the ESC's opinions often have relatively little impact on Community decision-making. To exercise genuine influence, the ESC will have to make a greater investment in preparing qualitatively sound opinions concerning the main points of policy. If so, it would not be asking too much to expect the Council of Ministers and the Commission to give these opinions the consideration they merit. 14

17 The SER supports an approach that is diametrically opposed to the European Commission's proposal to broaden the composition of the ESC (so that it can more fully represent the civil society). This can only lead to weaker ties with the national and European-level trade unions and employers' associations. The ESC's structure will become muddled, and the input of the social partners will be ill-defined. That is not a proper platform from which to put forward sound, authoritative and well-balanced opinions on important social and economic issues. The SER is therefore explicitly against this Commission proposal. It does, however, look very favourably on the idea of focusing the obligation to request advice from the ESC on important legislative and policy intentions. 15

18 6. Comments on the policy agenda set by the Portuguese Presidency The SER endorses the Portuguese Presidency's desire to increase the EU's rate of growth to an average of 3 percent per annum, necessary to reduce the high unemployment rate in the EU. It must, however, be said that this will be a difficult task, given that any such growth must also be environmentally sustainable. The SER agrees that emphasis should be placed on both macro-economic stability and on making the EU a more dynamic area based on innovation. The Presidency has rightly pointed out that structural reform (to enhance the dynamic nature of the economy and encourage entrepreneurship) and social cohesion (for example to combat social exclusion) are both required. Regrettably, precisely how this is to be accomplished is not yet clear. Taxation is at the very core of national sovereignty. Decision-making at European level on issues of taxation is therefore subject to the requirement of unanimity. On the one hand, this requirement will prevent forms of superfluous or even undesirable tax harmonisation, but on the other it raises a considerable barrier to achieving the level of tax co-ordination that may well become necessary for the proper functioning of the internal market and EMU. The SER observes that opinions differ on how best to resolve tax co-ordination issues and assumes that this problem will have a place on the political agenda in the period ahead. In the main, the added value of the European structural and cohesion policy should be that it helps to improve the fundamental factors that attract new economic activity to less developed Member States. The Council sees no reason to increase the aid made available to the existing 15 Member States for this purpose, but it does wish to see more aid going to the Central and East European countries that will be acceding to the EU in the next few years. In the field of social policy, the various Member States are facing the challenge of adapting their national systems of social protection to changing circumstances and also of ensuring the financial sustainability of these systems in the long term. This issue is primarily one to be dealt with 16

19 by the Member States themselves. The fact that this problem is a shared one means that it would be useful to exchange and encourage good practices in this area as in others. The SER endorses the four main objectives identified by the Commission with respect to modernising social security: developing social protection as an incentive to work and as a means of ensuring a stable income; developing secure pensions and a sustainable pension system; preventing discrimination; and providing high-quality health care. It will have to be determined whether the national systems of social security and pensions can be made more sustainable in the future by introducing benchmarking at European level. 17

20 Translated publications Abstracts of recent opinions in English, French and German 99/16E The Eastern enlargement of the European Union 1999, 20 pp., ISBN /04E Higher Education and Research Plan , 20 pp., ISBN /18E European Social Dialogue 1998, 19 pp., ISBN X 98/09E ICT and the consumer 1998, 21 pp., ISBN /08E Socio-economic policy , 27 pp., ISBN /03E Dutch medium-term socio-economic policy ( ) 1994, 23 pp., ISBN X 93/16E Socio-economic relations with Central and Eastern Europe 1993, 30 pp., ISBN /04E Environment, trade and sustainable developments: Some international issues 1993, 40 pp., ISBN X 93/01E A regulatory tax on CO 2 -emissions and energy use 1993, 25 pp., ISBN /04E Agenda 2000: financing and enlarging the European Union 1998, 18 pp., ISBN /09E Reform of the Common Agricultural Policy 1996, 24 pp., ISBN /09D Reform der Gemeinsamen Agrarpolitiek 1996, 25 pp., ISBN /09F Reforme de la politique agricole commune 1996, 25 pp., ISBN X 96/05E Towards an innovative economy 1996, 33 pp., ISBN /09E The extension and further development of the European Union 1995, 35 pp., ISBN /01E The European Social Policy of the future 1995, 19 pp., ISBN

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