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Old Wine In New Bottles: The Economic Priorities Of The European Commission In 2016

by Joachim Schuster on 4 December 2015

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Joachim Schuster

Joachim Schuster

A new annual cycle of EU economic policy coordination – aka the European Semester – has begun with the European Commission’s (EC) latest Annual Growth Survey (AGS). The AGS sets out the EC’s views on the EU’s social and economic priorities and provides the building blocks for the policy recommendations it will put forward in the spring.

In recent years, the European Semester has largely been used to promote austerity and supply-side economic policies aiming at creating favourable conditions for companies. The publication of the AGS was eagerly awaited by the S&D group in the European Parliament; the group has put acute pressure on the EC, demanding a clear policy change in the face of a fragile economic recovery with continuing high unemployment as well as rising inequality and poverty in Europe. Does the survey constitute a fundamental shift in the Commission’s economic policy orientation? What kind of structural reforms do we need to bring the EU back on track towards inclusive growth?

Progressive aspects are taken on board…

Well, there are some signs of hope in this year’s AGS. First, the Commission underlines the crucial role of the European Fund for Strategic Investments (EFSI) in addressing the investment gap in Europe and pledges to engage in a dialogue with Member States in order to identify and remove nationally specific obstacles to investment. Even more striking is the explicit reference to social investments and the EC’s assertion that those in education and training systems, healthcare, childcare, housing support and rehabilitation services form the basis for higher productivity in EU economies.

Worth noting is also the emphasis put on the Europe 2020 strategy. The EC acknowledges that more action is needed to fight poverty and social exclusion and encourages Member States to make sure that the Europe 2020 goals play a prominent role in the preparation of national reform programmes (NRPs). Finally, an important shift can also be discerned regarding the Commission’s approach to fiscal policy: it is willing to accept deviations from the budgetary goals of the Stability and Growth Pact in order to help Member States manage the exceptional inflow of refugees. Here the EC undoubtedly reacts to demands that have been made forcefully by progressive forces in the EP in recent years.

….but a neoliberal narrative prevails

Despite these positive rhetorical shifts the overall thrust of the report remains, however, squarely rooted in a neoliberal economic policy narrative. Most importantly, the EC fails to recognize the importance of domestic demand for sustainable recovery. The Alert Mechanism Report clearly shows that economic growth is fragile and mainly export-driven. The Eurozone has one of the highest current account surpluses worldwide. Nevertheless, the Commission continues to be preoccupied with budgetary consolidation and competitiveness. There are three aspects of the report that constitute major obstacles for inclusive growth:

First, the EC still focuses on attracting private investment. Here, it continues to promote supply-side economic policies and argue that a better regulatory framework and a reduction in public debt are vitally important to increase levels of private investment. In contrast to this, the S&D group argues that it is not an unfavourable regulatory framework or public debt that hampers investment but lack of domestic demand.

What’s more, this year’s AGS constitutes a further attempt at intervening in national wage-setting frameworks. As in recent years, the Commission argues that “real wages must continue to move in line with productivity”. This demand often comes with a call to allow for more flexibility in collective bargaining and does not take into consideration that a redistributive component is also part and parcel of some national wage-setting mechanisms. As such, the Commission not only inadmissibly intervenes in national collective bargaining systems but also de facto institutes a policy of wage moderation in Europe, lowering domestic demand that damages investment.

Finally, the EC fails once more to adequately address rising social inequalities. The Joint Employment Report rightly acknowledges that at-risk-of-poverty and inequality indicators remain at a worryingly high level. This not only accelerates the social divide in Europe; a high level of inequality is also detrimental for sustainable growth. Yet, the Commission remains silent on how to tackle the problem of these rising inequalities. On the contrary: its tax policy recommendations and the emphasis on shifting the tax burden from labour to consumption diminish the progressive impact of national tax systems and reduces their redistributive function. Such a policy benefits top earners and increases social inequalities.

Towards an alternative agenda of structural reforms

What we need is a progressive growth agenda that aims at increasing domestic demand. Regarding investment policy, a stronger emphasis on public investments is indispensible. Additionally, the Social Investment Package launched in 2013 must be revived, expanded and linked with more flexibility in the Stability and Growth Pact in order to encourage more social investments. Labour market policies need to target the precarious forms of employment that have increased all over Europe in the last decade. A European pact for minimum wages and an effective monitoring of the quality of employment in the Semester framework would be a step in the right direction. Finally, inequality needs to be tackled by a fairer set of tax policy recommendations and by effectively fighting tax fraud and avoidance. Important proposals have recently been made in the final report by the EP’s special TAXE committee: new rules to force multinational companies to report their profits and taxes paid on a country-by-country basis, a common consolidated tax base for corporate taxation (CCCTB) and a European blacklist of tax havens are necessary.

What’s more, social developments need to play a more prominent role in the Macroeconomic Imbalance Procedure in order to take into account the negative impact of high levels of inequality on economic growth. Most importantly, a socially balanced European Semester is fundamentally dependent on comprehensive democratisation by giving the EP, national parliaments and social partners a greater say in the process of economic policy coordination.

Further details of the fourth alternative/independent AGS can be found here supported by the S&D Group in the EP.

This column is sponsored by the S&D Group in the European Parliament
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About Joachim Schuster

Joachim Schuster is a German Member of the European Parliament (MEP). He is a member of the Group of the Progressive Alliance of Socialists and Democrats in the European Parliament.

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