SPEECH/06/555
Günter Verheugen
Vice-President of the European Commission responsible for Enterprise and Industry The European Union strategy for jobs and growth
Meeting with the Italian Parliament Roma, 2 October 2006
It is a pleasure for me to have the opportunity today to speak about what I regard as the most important effort underway to secure a stable and prosperous future for Europe: The European Union's Strategy for Growth and Jobs.
The challenges
Europe finds herself before great challenges both from globalisation and from the ageing of our populations. Increased competition from around the world and the projected decline in the labour force over coming decades bring about the need to bolster productivity and raise employment rates. Both are necessary for sustaining standards of living and social welfare over the medium to long term.
We indeed know that given the shrinking of the working age population, the contribution of Labour to economic growth will diminish in relative terms. The European Commission has estimated that population ageing would reduce potential growth in the EU-15 to one half of its current level over the next 25 years, that is from 2.25% to some 1.25%. Economic growth will therefore increasingly depend on higher productivity.
The new strategy for growth and jobs is working
Drawing on lessons learnt from the first five years since the launching of the Lisbon strategy, the European Council decided in March 2005 on a fundamental re-launch. Priorities were refocused on jobs and growth. In terms of governance, a new cycle for 2005-2008 is now in place which is strengthened by its strong emphasis on partnership and ownership.
Let me remind you about the key 3 objectives of our Growth and Jobs partnership, as endorsed by the European Council in 2005:
Ensuring that knowledge and innovation are the beating heart of European sustainable growth Ensuring that Europe is an attractive area in which to invest and work Shaping the policies allowing our businesses to create more and better jobs, thus making for social cohesion
Seeing this effort through and sustaining often difficult reforms is not something that could be accomplished well by individual Member States or by the European institutions alone. It cannot be accomplished just by politicians. Even business cannot do it alone. We all need to combine our efforts together with all stakeholders to push this Strategy forward, and I will set out briefly what has already been achieved and what needs to be done now and in the coming years to ensure success.
But before I present some concrete examples for the progress already made, I would like to stress that the governance of this process is one central condition for the overall success.
There are three core elements that I would like to highlight:
Our Strategy is based on an unprecedented and fundamental policy consensus for economic reform between all Member States and European institutions. This consensus is represented in the Integrated Guidelines for Growth and Jobs adopted by Council in 2005. The Strategy strengthens transparency and accountability by clarifying national and Community responsibilities. This is done through the Commission's Annual Progress Report, which evaluates National Reform Programmes and Community Lisbon Programme. It seeks to exploit synergies through a mechanism of policy coordination and mutual learning involving the Commission and the Member States.
Having set up this governance mechanism is actually quite an achievement in its own right, particularly when you consider that 25 Member States of the EU have been able to agree on a single set of guidelines governing their national reform programmes. These guidelines set the priorities, but leave room for individual Member States to design policies which adequately address the specific national circumstances.
The Strategy for Growth and Jobs has already come a long way since it was re-launched. The National Reform Programmes (NRPs) at the Member State level, and the Community Lisbon Programme at Community level, were adopted last year. They are complemented by the four priority areas for action which the Commission identified in its Annual Progress Report in January, and which were taken up by the Spring European Council. These four priority areas cover knowledge and innovation; business environment; employment; and energy.
Member States are now about to send to the Commission the update of their National Reform Programme, focusing on implementation and progress. The Commission’s Annual Progress Report (in December) will then provide a thorough analysis of the national reform programmes and Member States' annual implementation reports. In the Spring of 2007, the Council will discuss the Commission’s Report that may include concrete policy country-specific recommendations.
We can already see that this new governance help for an effective policy coordination, for mutual learning and also for informing the policy debates in the Member States.
The Commission sees its role as a facilitator. A constructive partner. But not a silent one. And you have, as national representatives, a crucial role: you are not only responsible for the design and the implementation of your own national reforms, but you can also do a lot in explaining our common European strategy for Growth and Jobs to the Italian citizens, and how national and European policies complete each other. This is why I am so happy to meet you and discuss with you today, as I did with other Parliaments in other Member States.
Let me turn to some concrete examples of progress that we have made in the last 2 years.
State-of-play: Progress at Community level
I would like firstly to illustrate the contribution that the Commission is making to enhancing Europe’s growth potential wherever action at Community level is required.
The best example is the effort made in the area of Better Regulation. I do not need to highlight the importance of the regulatory framework for the business environment, in particular for small and medium sized enterprises. A healthy regulatory environment produces the framework conditions conducive to growth. It stimulates investment, provides legal certainty, reduces red tape and increases confidence in the business environment. This in turn, has positive effects on other economic variables.
I would like to highlight three specific achievements.
Firstly, concerning impact assessment, a thorough ex-ante assessment has been implemented for more than a year now. Quality control of Commission impact assessments will be reinforced by establishing an independent control function. An independent review of the Commission’s impact assessment system is currently being carried out. Secondly, an ambitious screening exercise completed last year allowed us to withdraw more than a third of pending legislative proposals. At the moment, we are also examining all the pending proposals adopted in the last eleven months of the previous Commission and will proceed to further action if they are found to be inconsistent with the objectives of the new Lisbon agenda or the Better Regulation standards. Finally, cutting unnecessary administrative costs constitutes a pillar of the Commission's Better Regulation agenda, since these costs are being perceived as a crucial element determining the attractiveness of the business environment. The results of a pilot project I have launched on measuring administrative costs have strengthened my conviction that the Union as a whole can reduce these costs by as much as 25% in the next 5 years. This reduction could produce a GDP increase of 1.4%. Clearly, this will require contributions from all levels: The Member States, the regions and the Community level. It will only succeed if all these levels are fully committed to this initiative.
At the beginning of 2007 the Commission will provide an elaborate operational strategy for the measurement and reduction of administrative costs which could become the basis for a joint cost reduction target of Commission and Member States.
State-of-play: Progress at Member States level
Considerable effort is also being made at Member States level. I would like to use this opportunity to give you a brief tentative overview of the state of play in the three policy areas of the Growth and Jobs Strategy. This tentative assessment is based on the exchanges Commission services had during their country visits between May and July.
In the macroeconomic area indications are for an improvement in the business cycle which of course also helps the fiscal situation in Member States. With regard to the challenge of fiscal sustainability, we are currently seeing the positive impact of measures taken already. We can also say that reforms in the area of healthcare and pensions are an area of difficulty. At the same time, wage developments continue to be moderate.
In the area of microeconomic reforms, Member States are making considerable efforts. When we look at crucial policy areas such as R&D and innovation or Better Regulation, we see considerable progress. For example, 12 Member States have announced that they will launch simplification programmes and 11 Member States will introduce obligatory impact assessments. All Member States have targets for R&D spending. And I could extend this list with further examples of areas where we already know that progress is being made. Competition and the functioning of markets is where progress is slower. As regards employment policies, progress is visible with regard to the challenge of attracting and keeping more people in the labour market. Incentives to take up work have improved. Some progress is also reported in the area of human capital and life-long learning. Some concerns still remain as far as the challenge of adaptability goes. Flexibility has only increased at the margins and the problem of an increasingly fragmented labour market persists.
There no is no doubt that the Growth and Jobs Strategy is working well. Progress is under way and will soon be felt by businesses throughout Europe.
Italy
Let me say a few words about Italy and its challenges ahead.
In its assessment of last year, the Commission highlighted three areas for attention:
ensuring fiscal sustainability; boosting competition in network industries and services; increasing labour supply and raising employment rates, including tackling regional disparities.
I am pleased to see that all issues are currently at the core of the Italian debate.
Concerning the sustainability of public finances, the Commission has already welcome the commitment shown in the Documento di Programmazione Economica e Finanziaria (DPEF) of July 2006 to respect the 2007 deadline for the correction of the excessive deficit and to pursue fiscal consolidation after this date and until 2011. It is now important that the necessary measures are put in place and effectively implemented through the Budget Law and those that will follow. Commission’s services and my colleague Almunia are following closely this process in the context of the Stability and Growth Pact.
Here, I would like to take the occasion to remind ourselves that healthy public finances accompanied by structural reforms are the necessary conditions to create a virtuous circle of fiscal discipline and sustained growth and deliver better standards of living to the current and the future generations. Achieving an effective integration of policies and consistency of measures is a centrepiece of our renewed Lisbon Strategy.
On the labour market, Italy saw a decade of sustained employment growth and declining unemployment. These are important successes. Yet, the percentage of people at work remains below EU average and the gap is higher for young, women and elderly people. Reforming the labour market in order to reducing segmentation, combining flexibility and security, and reducing undeclared work is now a key challenge for the future of Italy. In a context of rapid technological progress, changes must be accompanied by measures to ensure the adaptability of workers and the possibility of life-long learning.
The third area highlighted by the Commission as requiring further attention concerned the issue of opening up network industry and boosting competition in all sectors.
In this respect, I am very pleased of the significant progress made. The measures recently introduced to remove barriers to competition in professional services, retail distribution and other services are important steps in the direction of providing better services at lower prices for our citizens and enterprises.
This process will continue and further steps will be undertaken. In particular, I would like to recall the importance of moving towards a full opening of the energy markets (as indicated by the Spring Council in March 2006).
I am very pleased that this issue is also being tackled. I can only welcome the draft law on Energy currently being discussed at the Parliament and the commitment expressed by the Government to implement (fully and correctly) the existing Directives on the subject. It is important that we rapidly pass to the implementation stage.
I would finally like to touch upon other two areas for structural reforms.
We know that Italy does not score well with respect to many indicators of technology and innovation, including for example, the level of R&D expenditure in businesses, the number of patents, the number of graduates in Science and Technology. We also know that the industrial fabric is skewed towards medium and low-technology products.
Urgent action is needed. The National Reform Programme indicated a set of measures aimed at 1) improving the efficiency of public R&D and leveraging private R&D, 2) strengthening the links between Universities and businesses and among businesses; 3) developing public private partnerships; 4) improving the attractiveness of research career. I am confident that the correct and timely implementation of these measures will deliver substantial benefits in the near and long future.
Finally, I would like to recall the considerable progress that Italy has made over the recent years to improve its business environment. Over 1998-2002, the number of procedures to start-up a business have reduced from 21 to 12 and the time necessary from 22 to 6 weeks. Over the same period, the costs for company registration halved.
All this is very encouraging, even if it leaves still room for improvement.
Indeed, the National Reform Programme listed a set of interesting measures and the Commission recognised this effort in its assessment. It is important that the agenda is taken forward: that obsolete legislation is repealed, that the layers of bureaucracy are further reduced, that administration costs imposed on businesses are monitored and minimised.
I would like to take this occasion also to stress once again the importance that the Commission attaches to improving the quality of regulation. In particular, I would like to draw the attention on the importance that a fully-fledged assessment of the impacts of regulation and a open and transparent consultation of stakeholders have in delivering regulations that are effective in achieving their objectives at a minimum costs for citizens and enterprises. I have discussed briefly the progress made at Community level. I believe it is now crucial that such practices becomes a standard in the decision-making process in all Member States.
Conclusions
At the end of my speech, I would like to give some hints of the potential pay offs we can reap when implementing Lisbon’s reforms. A study conducted by DG Enterprise shows that reaching the Lisbon objective for R&D investment will bring about an increase in GDP of 3.6% higher in the long run and reaching all Lisbon objectives combined would increase GDP in the long run by between 12 and 23%. These indications should give us courage and confidence in further pursuing the Growth and Jobs Strategy.
More importantly, we are currently seeing a rather more favourable business cycle. This is partly due to the reforms already made and ongoing. And this is helpful when further implementing often difficult and politically sometimes costly structural reforms. This is why I think that it is now the right moment to do more and push ahead with our reform agenda.
I thank you for your attention.
