Progressive Policy Making For The European Union

Foundation for European
Progressive Studies
Fondation Europenne
dtudes Progressistes
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
Strategic issues for the EU10 countries

main positions and implications
for EU policy-making
Maria Joo
RODRIGUES
PROGRESSIVE POLICY MAKING FOR THE EUROPEAN UNION
PROGRESSIVE POLICY MAKING FOR the EUROPEan union

PROGRESSIVE POLICY MAKING FOR THE EUROPEan union
2
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.
Edited by Maria Joo Rodrigues
Contents
PREFACE
I. FINANCIAL CRISIS AND RECOVERY
A - Financial Crisis and a Progressive Recovery Plan
B - A Progressive Agenda for the European Union: the key-priorities
II. FOR A NEW GROWTH MODEL

C - On the Europe 2020 Strategy, from Lisbon
D - The Europe 2020 Strategy and the National Reform
Programmes
E - How can we foster job creation?
Publisher
FEPS - Foundation for European Progressive Studies
Dr. Ernst Stetter - Secretary General
Rue Montoyer, 40 - 1000 Brussels - Belgium
E-mail: info@feps-europe.eu
Edited by Maria Joo 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
1
5
7
47
63
65
109
161
III. THE EUROZONE CRISIS AND THE ECONOMIC AND

MONETARY UNION
179
F - The Euro-zone Crisis and the Reform of the EU Economic

Governance
G - Shaping the Economic Union - For a Progressive Reform of the
EU Economic Governance
H - EMU, Quo Vadis?
I - A Backstop for Divergences in the Euro-zone
181
IV. EUROPE AND THE WORLD
265
267
331
J - For a Global New Deal

K - For a Progressive EU External Action - Strategic Partnerships and
a New Global Agenda
L - What will be Europes position in the world? Is the decline
unavoidable?
201
233
253
359
Preface
Ernst Stetter
he European Union needs more progressive policymaking to overcome its current crisis and to develop its
potential as a progressive project.
Last years were particularly challenging for progressive policymaking 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 keyplayers 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.
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.
Is there an effective response to foster job creation?
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.
What kind of Global New Deal is necessary to turn this

crisis into an opportunity to reshape the global order ?
Among our contributors, we had the chance to benefit from

Maria Joo 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?
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 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
FINANCIAL CRISIS
AND RECOVERY
4
FINANCIAL
CRISIS
AND
A
PROGRESSIVE
EUROPEAN
RECOVERY
PLAN
Maria Joo Rodrigues
October 2009
6
Introduction
A special crisis and the

European paradox
hen 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
8
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.
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.
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.
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.
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 longterm development. We should build a financial system
10

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
11
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
e 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 EUs
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
12
13
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
14
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
15
active labour market policies necessary to cushion the

industrial restructurings which will be triggered by the crisis.
All this will require more coordination of macroeconomic 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
16
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
17
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
18
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
19
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
20
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 Europes 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.
21
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 overburden 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 longterm development. It is therefore crucial that the European
economic recovery programme meets this central purpose.
22
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
23
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 EUs 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
24
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 Europes
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.
25
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 crossborder 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 Europes
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.
26
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 coPROGRESSIVE POLICY MAKING FOR THE EUROPEAN UNION
27
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.
28
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
29
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
30
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.
31
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
32
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
33
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
34
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 reinterpreting 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 longterm goals in the public interest, such as the Lisbon strategy
and fighting climate change. Therefore full scale reform of
the financial markets is vital.
35
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.
financial markets. The IMF code of practice on sovereign

wealth funds provides a good basis for action.
The financial markets should be reformed on the basis of

the following pillars:
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
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 Larosire 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
36
II. Better
institutions
regulation
of
all
financial
37
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:
38
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
centres
havens
and
off-shore
financial

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;
39
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
40
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
41
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
42
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
43
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
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
ILOs decent work agenda. Global governance should be
reformed to create the conditions for the negotiation and
implementation of this Global New Deal.
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
44
45
A
Progressive
Agenda
for
the
European
Union
_____________________________________
The Key Priorities
Maria Joo Rodrigues

October 2009
46
47
he 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
48
49
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 Obamas
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.
50
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
51
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 neoliberals, we need to have a single development strategy
to be driven by a set of clear priorities: a shift to a lowcarbon economy; a more creative and knowledge-intensive
economy; a more enabling welfare system, a stronger
anti-poverty policy and an active immigration policy; the
52
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 redirection 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.
53
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 Europes 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 longterm 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
54
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. Europes 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
55
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 worksharing combining reduced working time with publiclysubsidised 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.
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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
57
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
58
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.
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
59
in the forthcoming mid-term review of budget. The next

financial perspectives should be aligned with the strategic
priorities of this European progressive agenda
sustainable development and respect for multilateral rules

democratically defined.
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 citizenship and to
pursue the other strategic priorities
The emerging global order is requiring an urgent redefinition of Europes 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.
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.
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,
60
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FOR A NEW
GROWTH MODEL
62
63
ON
THE
EUROPE
2020
Strategy,
FROM
LISBON
II
Maria Joo Rodrigues

January 2010
64
65
n 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.
66
67
II
II
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.
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.
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 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
68
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 lowcarbon 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).
69
II
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.
II
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 peoples 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
70
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 wellbeing 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.
II
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
72
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 peoples 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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II
D.
economy
II
To make the financial system serve the real
a certain level of strategic convergence if it wants to survive

(see section 7).
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.
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.
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
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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
II
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.
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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 progrowth 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 macroeconomic 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.
II
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
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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.
potential
To
strengthen
the
European
research
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
80
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
reducing social inequalities
II
transitions
and
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 retraining 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 inwork 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.
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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
H.
Public finances to support 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 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, 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.
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
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):
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 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.
- A early withdrawal of the fiscal stimulus should
The following priorities should be introduced to improve
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the governance of this political process.

A. The strategy architecture
fundamental improvements:
requires some
- 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).
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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
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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 keyactions;
- 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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- support the adaptation of the EU2020 Strategy

to the specific target-groups;
- develop various types of partnership to
implement projects.
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.
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.
G. Improving the action and articulation of the

national Coordinators:
II
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:
- 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.
- 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.
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;
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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
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The Unions 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.
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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 fulltime 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.
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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;
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- 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:
It is also important to mention that the external action of

the Union shall be deployed by quite different instruments:
- 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.
- 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.
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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.
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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.
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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.
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.
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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:
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- 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
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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 Primeminister.
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.
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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
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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
Information society
(Relative) achievements
(Relative) failures
Schools connected with

Internet
Scale in content
industries
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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 businessuniversities
Clusters
Venture capital
One stop-shop for

start-ups
Galileo
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Lifelong learning
Single market
Extension of early-school
education
Modernisation of
universities
Extension of vocational
and technological
education
Extension of training for

adults
Telecommunications
Energy
Single sky
Portability of pensions
Financial services
Better regulation
Services directive
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Reducing red tape

Trade
Employment
Bilateral agreements
Doha Round
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.
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The europe
2020
Strategy
and the
national
reform
Programmes
_____________________________________
A progressive guide
Maria Joo Rodrigues
with the collaboration of Jan Kreutz

October 2010
108
109
II
A decisive period
to shape national
policies
II
he 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
110
111
- 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
II
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
112
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.
113
II
Promoting growth
and re-balancing the
budgets
EU DECISION
II
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-ofpayments support, as follows:

Member States should achieve a
consolidation of well beyond the benchmark of
0.5 % of gross domestic product (GDP) per year
114
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 threepronged 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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II
A PROGRESSIVE APPROACH
Ensuring fiscal consolidation and long term sustainability
of public finances
II
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
116
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
117
II
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.
II
Ensuring the quality

and the sustainability
of public finances
Reducing the macroeconomic imbalances
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.
EU DECISION
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.
HEADLINE TARGET
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.
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II
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.
119
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:
II
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.
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
120
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
121
II
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.
II
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 spillover 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.
122
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
II
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
123
II
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.
124
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.
125
II
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.
II
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
126
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 EUs 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
127
II
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.
II
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,
128
129
II
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.
II
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
Europes 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 industrys 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
130
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 feedin-tariffs should be set, and the EUs 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.
Europes energy grids should be interconnected so
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II
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.
II
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 Europes 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.
132
EU DECISION
Guideline 6:
Improving the business environment
modernising the industrial base
and
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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II
A new industrial policy
II
Europes 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 Europes
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
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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 Europes
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 Europes
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 Europes 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, Europes
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
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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 Europes 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
II
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
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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 upskilling and anticipation policies should help identify areas
for improvement.
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 macroeconomic policies. They should contribute to achieving an
average employment rate of at least 75 % overall and to
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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 Europes
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
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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
Europes 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.
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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 peoples entry into the labour market
through integrated action covering areas such as careers
advice and promotion of entrepreneurship.
Raising educational levels and quality
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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
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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. Womens participation

in all fields of education should be encouraged, and the
educational/vocational programmes within the care sector
should be improved.
Supporting young people
II
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 peoples choice
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 peoples 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.
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.
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Fiscal incentives, youth employment requirements

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A fairer society
EU DECISION
HEADLINE TARGET
II
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
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systems and active inclusion policies should be enhanced to

create opportunities at different stages of peoples 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.
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.
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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 societys
cohesiveness and are a powerful means of promoting the social
and labour market integration of the most disadvantaged.
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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
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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
its 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 todays
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.
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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
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.
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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.
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.
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.
158
159
II
How
can
europe
foster
job
creation?
II
Maria Joo Rodrigues

October 2009
160
161
Political priorities to
foster job creation
II
he 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;
162
163
-
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.
II
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
macroeconomic policies
of
the
national
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 Europes
energy supplies will depend on large-scale investments
in our energy sources, distribution and infrastructure.
These new investment areas have important potential for
164
promoting jobs, growth and long-term prosperity.

c/ A European industrial and innovation policy
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, reskilling, 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.
165
II
Innovation, the
central engine for job
creation
II
-
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 users 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
166
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;
167
II
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.
II
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.
- 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.
Improving the management of the restructuring process

requires evolving:
168
169
II
Investment in Human
Capital, the Most
Strategic Investment
for Europe
II
- 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.
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.
170
- 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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II
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.
II
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
172
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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II
and foster job creation should be a key priority of the

upcoming EU2020 strategy. Structural reforms and supplyside 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:
II
- 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.
174
- The surveillance procedures should followup 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
175
II
economy sustainable and stronger.

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

job creation.
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.
II
-
Eurobonds for long term investments and job
creation
II
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
176
177
III
THE EUROZONE CRISIS

AND THE ECONOMIC
AND MONETARY UNION
How
178
179
THE
euro-Zone
CRISIS
AND THE
REFORM
OF THE EU
ECONOMIC
GOVERNANCE
Maria Joo Rodrigues
May 2010
180
181
he 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:
182
183
III
-
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 States
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.
III
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
184
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
185
III
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.
III
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.
186
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 EUs external
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III
representation, not only within the G-groupings

but also in the Bretton Woods institutions and the
bilateral summits with the Unions 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 todays 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.
III
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.
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.
III
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).
188
189
THE PRIORITY REFORMS FOR

THE 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
III
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
190
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
191
III
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
III
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
192
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
193
III
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, knowledgeintensive and inclusive economy.
- The revised Stability and Growth Pact (see
III
194
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 crosschecking 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
195
III
196
EXTERNAL REPRESENTATION
PROMOTING
SUSTAINABLE
GROWTH
REDISTRIBUTION
ECB
EURO-ZONE REPRESENTATION
IN BWS, G-8, G-20
COORDINATION OF TAX
SHIFT TO NEW SOURCES
BUDGET STRUCTURE
QUALITY OF PUBLIC FINANCES
REWARDS OF REDIRECTION OF
PUBLIC SPENDING TO
INVESTMENT
STRUCTURAL REFORMS EU20220
COMMUNITY BUDGET
STRUCTURE
EUROPEAN INVESTMENT
BANK
EUROBONDS
PROMOTING
SUSTAINABLE
GROWTH
ALLOCATION
BUDGET STRUCTURE
STATE AIDS
SOCIAL BENEFITS
TAX INCENTIVES
AUTOMATIC STABILIZERS
TIME AND STRUCTURE OF
WITHDRAWING FISCAL
STIMULUS
REDUCING THE
MACROECONOMIC IMBALANCES
FRONTLOADING STRUCTURAL
FUNDS
ECB
BALANCE OF
PAYMENTS
FACILITY
PROMOTING SUSTAINABLE
GROWTH
ECONOMIC STABILIZATION
STRUCTURAL FUNDS
FRONTLOADING
TAXATION LEVELS
PUBLIC SUPPORT TO FINANCIAL

INSTITUTIONS
EUROPEAN MECHANISM FOR

FINANCIAL STABILIZATION
EUROPEAN
SUPERVISION
BODIES
FINANCIAL
REGULATION
FINANCIAL STABILIZATION
BALANCE OF
PAYMENTS
FACILITY
TAXATION LEVELS
STABILITY AND GROWTH PACT

(PUBLIC DEFICIT AND DEBT)
FISCAL SPACE FOR INVESTMENT
FINANCIAL REGULATION OF
THE COMMUNITY BUDGET
FISCAL CONSOLIDATION
ECB +
NATIONAL
CENTRAL
BANKS
MONETARY
POLICY
TAX POLICY
TABLE 1
DEVELOPING EUROPEAN ECONOMIC GOVERNANCE
Instruments by Macroeconomic Function and by Policies
Activated with the financial and economic crisis of 2008
-2010/ STILL MISSING
BUDGET POLICY NATIONAL
LEVEL
III
BUDGETARY POLICY
COMMUNATARY
LEVEL
EXCHANGE
RATE
POLICY
The development of EU economic governance must

certainly take political centre stage.
POLICIES FUNCTIONS
WAGE STRUCTURE
WAGE/PRODUCTIVITY
WAGE FLEXIBILITY
WAGE POLICY
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
III
197
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new global currency, New Haven and London, Yale Press
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(1998), EMU: Prospects and Challenges for the Euro,
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198
199
III
Shaping
the
Economic
Union
___________________________________
For a Progressive Reform of

the EU Economic Governance
III
Maria Joo Rodrigues

November 2011
200
201
he 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.
III
Crisis in the euro-zone or of the euro-zone?
There are two different ways to look to the current eurozone crisis: a crisis in the euro-zone or a crisis of the eurozone.
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
202
203
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.
III
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 extraprofits from the euro-zone flaws. First, when exploiting some
countriesfears to default by offering them loans at higher
price; second, when finally the euro zone could create its
defence mechanism, by exploiting some countriess 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
204
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.
205
III
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
III
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
206
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:
207
III
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 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)?
-
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
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
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 eurozone. There are two major strands in these reforms:
b/ The single market agenda should open new market

opportunities, while actively promoting tax convergence
and the upward convergence in social and environmental
standards
-
The coordination of national policies, not
only budgetary and macro-economic policies, but
also economic and social policies in general
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
III
-
208
Stronger European instruments: not only
209
III
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
III
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
210
for new investments and strengthening Europes 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
surveillance:
regarding
macro-economic
-
reducing the imbalances of the deficit or
of the surplus countries? Both
-
reducing the current account and
competitiveness deficits or the unemployment
rates? Both
211
III
-
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
III
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)

212
- 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
213
III
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
Mechanism
III
transition
to
the
European
Stability
-
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
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:
7. More coordination and convergence of national

economic policies
-
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
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:
-
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
-
their
Stability
and
Convergence
Programmes, indicating their medium term objectives
for fiscal consolidation and for macroeconomic rebalancing and their priorities to achieve them
214
-
their National Reform Programmes,
indicating their national targets to meet the EU2020
215
III
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:
III
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
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)
c/ public debt rates (MTOs considering different

investment needs)
-
crisis management regime for banks at
the national and European levels
d/reasonable interest rates for private and public

investments
The efforts to be deployed by Member States towards

these convergences should be followed up at European
216
217
III
level with peer pressure, recommendations, sanctions and

incentives to be provided by:
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.
-
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.
III
8.
policy
-
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
Central dilemmas for the European economic
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
218
Depending on which choices are made, the euro-zone

can expect two different scenarios:
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
219
III
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.
III
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.
220
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
221
III
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.
III
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
222
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 eurozone 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.
223
III
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.
III
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
224
at Federal level and the overall budgetary and macroeconomic 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 macroeconomic imbalances.
225
III
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;
III
-
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;
226
-
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 eurobonds to finance long term investment needs and to
improve debt management;
-
A European stability mechanism, able to
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III
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 GOVERNANCECOMPREHENSIVE OVERVIEW
Fine-tuning its policy instruments to strengthen the
sustainability of the euro-zone
PRIORITIES FOR THE
EUROZONE SUSTAINABILITY
PROMOTING
A NEW KIND A
OF GROWTH
ENSURING
FISCAL
RESPONSIBILITY
ENSURING
FINANCIAL
STABILITY
INCREASING
INTERNAL
CONVERGENCE
EU2020 STRATEGY
Community Programmes
National Reform
Programmes
Beyond GDP
measuring
growth
3 Strategic
priorities
10 guidelines
7 flagships
Structural
reforms for
more effective
and efficient
public finances
Increasing the
attractiveness
for new investments
Generalising
the implementation of
the EU2020
Strategy
SINGLE MARKET
New market
opportunities
New sources
of taxation
Tax coordination
Financial
markets
integration
and reform
Tax and social

convergence
MACRO-ECONOMIC
SURVEILLANCE AND
CORRECTION
Create
conditions to
implement
EU2020
Coordinate
spill-over
effects
Facilitate
budget re-balancing
Strengthening
National
attractiveness
for new investments
Correcting
the macroeconomic imbalances with
a balanced
approach
EU BUDGET
Community Programmes
Structural Funds
EIB
Providing
additional
financial
support to the
EU2020
Reducing
national budgetary effort
Providing a
guarantee to
project bonds
EU support to
catching-up
STABILITY AND
GROWTH PACT
Ensure fiscal
space for
EU2020
investments
Stronger fiscal
discipline
Reward the
quality of public finance
New sources
of public
revenue
Credibility of
the Mediumterm objectives
Ensure fiscal
space for
catching up
investments
EU POLICY INSTRUMENTS
III
228
III
229
Last resort
solidarity against
sovereign default
Mutualisation of
debt issuance
EUROPEAN STABILITY
MECHANISM
Enable key
national public
investments
EUROPEAN SUPERVISION SYSTEM
Make financial
system support Eu2020
objectives
Reducing
speculative
pressure on
public debt
Stess tests,
Regulations,
reserves, bonus to ensure
responsible
financial
investment
General
conditions to
promote
growth
Ensuring
stable conditions for low
interest rates
Inflation
control
FINANCIAL SYSTEM
REFORMS
EUROPEAN CENTRAL
BANK
Reduce speculative pressures over the

euro-zone
Ensure reasonable spreads

among Member states
Last resort
to ensure
access to
Table 2: ASSESSING THE EURO-PLUS PACT

POSITIVE
III
NEGATIVE
EMU DEVELOPMENT
Stronger Economic Union

Permanent financial stability
mechanism
Stronger coordination of fiscal and
economic policies
Concern with internal convergence
No coordination for growth

No stronger coordination of social
policies
Only focus on fiscal convergence
The 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 priority
Reforming the financial system neither
SPECIFIC PRIORITIES
COMPETITIVENESS
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 PRIORITIES
EMPLOYMENT
Lifelong learning and not only

flexicurity
No reference to upward convergence of

social standards
SPECIFIC PRIORITIES
SUSTAINABILITY
OF PUBLIC FINANCES
Convergence on retirement age is

more nuanced
Financial transaction tax is referred
Legal framework rather than
constitutional debt break
Debt sustainability is not considering

fiscal space to invest
There is no real commitment regarding
new tax sources to rebalance the budgets
SPECIFIC PRIORITIES
FINANCIAL REFORM
More precise bank stress tests
No clear European framework to deal

with bank restructuring
No clear commitments to pursue the
financial reform
230
GOVERNANCE
More references to community

method
More references to the role of social
partners
European Council and not Ecofin
taking the lead
Many ambiguities regarding the

community method
Many ambiguities regarding the role of
social partners
Imbalance between Council formations.
No reference to the European Parliament
FINANCIAL STABILITY
MECHANISM
More resources
New instruments( buying in the
primary market)
Possibility to reduce interest rate
No possibility to buy bonds in the

secondary markets
Interest rate still too high
Imbalanced conditionality
Role of the IMF
No joint guarantee
Issuance 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 , implicitly 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 Plan
Reduces interest rates and extends
maturities
Marshall Plan not clear at all

Ambiguities 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
maturities
Flexibilization of the EFSF, allowing
preventive measures, loans without
adjustment programmes and intervention in the secondary markets
Recognizes 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
General deal on economic governance
Makes a connection between more

solidarity, responsibility and coordination (in budgetary, fiscal and economic
policies)
Falls short on new financial means to

support investment and growth (Eurobonds, FTT)
The general bias in the reform of the
economic governance remains
Stability and Growth Pact with no room
for investment
Macroeconomic surveillance imbalanced
Euro Plus Pact without concern for
growth , employment and the social
dimension
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III
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
-Revised SGP with

stronger prevention and
correction procedures of
MS deficit and debt
-New macro-economic
surveillance
-Coordination of
budgetary and macroeconomic policies to
maximize sustainable
growth
-The limits of MS public

deficit and debt are defined
at Federal level
-The macro-economic
imbalances are not
under surveillance and
correction
III
-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
-More funded by own

resources
-Financing Community
Programmes and
structural funds to reduce
regional divergences
-Structural funds can

also be used for macroeconomic stabilization
supporting specific
regions and groups
-Much bigger size

-Funded by federal taxes
-Financing Federal
programmes
-Supporting specific regions
to reduce structural
divergences and macroeconomic 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 Governments
European Council
EU Council of Ministers
European Commission
Idem plus Eurozone

Government at
PMs and Finance
Ministers level with
permanent Presidents
Federal Government with

permanent President and
Ministers
Legislative
power
MS parliaments and
governments
EU Council of Ministers
and European Parliament
-Eurogroup Council
of Ministers;
-Later on also European
Parliament - special
committee for the
eurozone
-MS parliaments and
governments
Federal Congress with Senate

and House of Representatives
EMU,
Quo
Vadis?
III
Maria Joo Rodrigues

February 2013
232
233
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
234
235
III
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.
III
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
236
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 countriesfears to default by offering them
loans at higher price; second, when finally the euro zone
could create its defence mechanism, by exploiting some
countriess 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):
237
III

deficits;

a commitment to balanced budgets;

a new focus on public debt and not only
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;
III
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):

238
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
239
III
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
countries;
debt
levels
in
some

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;
III

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.
240
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 Europes 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 eurozone 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
241
III
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.
III
-
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
242
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.
EMU
Redesigning the instruments for a sustainable
The current new instruments were forged in extreme

situations, where the choice was between a collective abyss
and a patch-worked solidarity.
243
III
III
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.
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.
Against the previous background, this approach can be

logically developed according to the following steps and
building on the existing instruments:
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.
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 macroeconomic 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.
244
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 eurobonds 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
245
III
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.
III
This is something economic theory can predict with a

high level of certainty. This trend will first affect the euroarea 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 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 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 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
-
A definition of targets for social progress in the
frame of the European growth strategy
-
The development of procedures of social
dialogue able to cope with the specific issues of the euro-zone
246
247
III

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
III
-
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
248
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
249
III
-
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
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.
-
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.
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.
Political framework
III
-
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
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:
-
The eurozone governance should also involve the
Ministers of Labour and Social affairs
-
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.
-
Social dialogue also needs to play a specific role in
this governance
6. The
Political
Processing:
Sequences and Treaty changes
Configurations,
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
250
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:
251
III
-
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
-
III
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
252
A
Backstop
for
Divergences
in
the
Euro-zone
Maria Joo Rodrigues
May 2013
253
III
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
254
255
III
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:
III
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
256
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.
257
III
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)
III
-
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.
-
Improving the coordination of the major
structural reforms
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.
-
Improving the coordination of main
priorities of economic social policies (using the
integrated guidelines)
3. Can Monetary Integration Work without Fiscal

Integration ?
-
Improving the framework conditions
for internal migrations wit better social integration
(portability of rights, etc)
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:
-
Developing forward-looking investments,
notably social investments in training, active labour
market policies, child care
-
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.
-
Defining the room of manoeuvre for these
investments in the investment rules of the SGP
258
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:
259
III
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.
III
The roles of this central government budget are usually

the following:
-
a macro-economic stabilisation and anticyclical 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
260
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
261
III
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:
III
-
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.
III
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.
262
263
IV
EUROPE AND
THE WORLD
How
264
265
FOR
a
Global
New
Deal
For
Maria Joo Rodrigues
with the collaboration of Thierry Soret, James Howard,

Jan Kreutz and with the contributions of the Geneva group
November 2009
266
267
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
268
269
IV
3. Fostering the transition to a low-carbon

economy
6. Implementing the decent work agenda and

managing international migrations
3.1. Large-scale investments for green growth and jobs
6.1. Implementing the decent work agenda
3.2. Effective and fair mechanisms to share the costs
6.2 Managing international migrations
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
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
4.2. For trade opening to benefit all, appropriate

domestic regulations are needed
9. Reshaping global governance
4.3. For developing countries good domestic policies

but also development aid
Bibliography
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
IV
IV
5. Strengthening the development policies
270
271
Introduction
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,
IV
272
273
IV
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
IV
274
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.
275
IV
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 peoples needs, ensuring
more and better jobs and decent work, regulated markets
and better public services, providing multiculturalism and
living together in openness.
environment and labour.

governance is just unacceptable and crucial reforms of
global governance can no longer be delayed.
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
IV
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,
276
IV
277
1.
+ 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 (macroeconomic 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
IV
- Negative developments + Positive developments
278
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 downturn 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
279
IV
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
1.1 A budgetary stimulus for growth, jobs and structural

change
IV
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
280
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
281
IV
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
IV
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
282
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:
283
IV
-
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.
IV
284
-
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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IV
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 firsttime 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;
IV
-
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.
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+ 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
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 interbanking lending, the credit level remains very insufficient
to overcome the recession. It is important to recognize that
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IV
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;
IV
-
Special credit facilities should be created
for SMEs to be provided, if necessary, by regional
288
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
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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IV
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;
+ 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
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.
-
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;
-
IV
290
IV
291
+The G-20 agreed to develop internationally agreed rules by the end

of 2010 to strengthen the quality of bank activity and mitigate procyclicality
+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
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:
IV
-
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
292
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
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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IV
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
3. Fostering the transition to a lowcarbon 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:
IV
294
295
IV
-
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
standards
globally
coordinated
energy
-
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
IV
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
296
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-andtrade 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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IV
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
IV
298
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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IV
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 minilateralism 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
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.
IV
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
300
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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IV
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 supplyside 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
IV
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
302
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 todays 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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IV
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.
IV
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
304
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
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
IV
306
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 );
-
the developed countries to the transition towards
a more balanced demographic regimes in the
developing countries;
-
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
- Difficulties to implement the MDGs and to comply with the
commitments regarding ODA, including Aid for Trade and debt relief
6. Implementing the decent work agenda

and managing international migrations
IV
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
308
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 proemployment 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
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.
IV
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
310
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,
311
IV
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.
IV
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.
312
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 interregional 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 socialdemocratic values. This is what we have witnessed from 60
years of peaceful development in Europe. Apart from the
313
IV
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 longlasting 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 todays world?
IV
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 Councils 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.
314
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
315
IV
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
IV
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;
316
-
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;
317
IV
-
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, macroeconomic and financial stability, human health,
global and regional commons;
IV
-
To promote an agenda for sustainable
development in all countries;
318
-
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
319
IV
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 ?
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.
IV
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
320
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
321
IV
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.
IV
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
322
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 followup 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
323
IV
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 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 ?

governance is just unacceptable and major reforms of global
governance can no longer be delayed.
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Strategic Partnerships and

a New Global Economic Agenda
IV
IV
Maria Joo Rodrigues
December 2010
330
331
1.
INTRODUCTION
he 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
332
333
IV
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;
IV
-
a new approach is being developed in
trade policy in connection to the Europe2020 agenda,
334
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:
335
IV
-
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 catchingup
-
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.
IV
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:
336
- 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 keyleverage 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
337
IV
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:
IV
-
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
338
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;
339
IV
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.
IV
340
2.3. Preparing
development
a strategic dialogue for sustainable
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.
IV
DEVELOPMENT STRATEGY
- Do you have a political agenda defining a long term
development strategy?
341
- 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
IV
- 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 ?
342
- 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?
IV
GLOBAL GOVERNANCE
What are the implications of this development strategy
for the international coordination of economic, social and
343
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.
IV
5.
Innovation is:

not only in processes but also in products
and services

not only technological but also in
344
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
345
IV
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
IV
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
346
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.
347
IV
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.
IV

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
348
ILOs 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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IV
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.
IV
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
350
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.
351
IV
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;
IV
- 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
352
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
353
IV
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:
IV
-
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:
354
-
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
355
IV
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.
IV
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
356
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:
357
IV
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.
What
Will
Be
EUROPES
POSITION
IN THE
World?
__________________________________
Is the decline unavoidable?
IV
IV
Maria Joo Rodrigues
January 2012
358
359
efore 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
360
361
IV
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 Europes 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;
IV
- the re-organisation of the global production

chains is still open regarding who will lead out-wards
stocks of foreign direct investment and furthermore
362
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
363
IV
to mobilize savings resources and to turn them

into investment and consumption. The relative redistribution 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;
IV
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.
IV
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:
364
365
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
IV
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
366
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
367
IV
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.
IV
THE OPPORTUNITIES
Beyond 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
368
369
IV
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 renegotiation, 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.
IV
Choice B: Stronger economic Union and globalisation

shaper
Europe
370
re-organizes
the
euro-zone
governance,
371
IV
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.
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.
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
IV
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.
IV
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
372
373
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?
IV
-
To what extent should Europe depend on its external
partners to overcome its internal euro-zone crisis?
374
Editor:
Maria Joo 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 - Universit Libre de
Bruxelles and in the Lisbon University Institute. She was also
the chair of the European Commission Advisory Board for
socio-economic sciences.
Fax +32 (0)2 280 03 83

info@feps-europe.eu
PROGRESSIVE POLICY MAKING FOR the EUROPEan union
Phone +32 (0)2 234 69 00
Foundation for European Progressive Studies

Fondation Europenne
dtudes Progressistes
he 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 thousands 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 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?
Maria Joo 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 Joo RODRIGUES
Brussels, 20 October 2013
ISBN 978-2-930769-00-4
This book is edited with the financial support of the European Parliament

Progressive Policy Making For The European Union

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Foundation for European

Strategic issues for the EU10 countries

PROGRESSIVE POLICY MAKING FOR THE EUROPEAN UNION

PROGRESSIVE POLICY MAKING FOR the EUROPEan union

PROGRESSIVE POLICY MAKING FOR THE EUROPEAN UNION

Edited by Maria Joo Rodrigues

PROGRESSIVE POLICY MAKING FOR THE EUROPEAN UNION

II. FOR A NEW GROWTH MODEL

III. THE EUROZONE CRISIS AND THE ECONOMIC AND

F - The Euro-zone Crisis and the Reform of the EU Economic

IV. EUROPE AND THE WORLD

J - For a Global New Deal

PROGRESSIVE POLICY MAKING FOR THE EUROPEAN UNION

There are many criticisms regarding the deficit of progressive

Is there an effective response to foster job creation?

The Foundation of European Progressive Studies created in

What kind of Global New Deal is necessary to turn this

Among our contributors, we had the chance to benefit from

What is the relationship Europe should develop with its

What are the implications of the current crisis of the

PROGRESSIVE POLICY MAKING FOR THE EUROPEAN UNION

PROGRESSIVE POLICY MAKING FOR THE EUROPEAN UNION

PROGRESSIVE POLICY MAKING FOR THE EUROPEAN UNION

A special crisis and the

hen the risk of a financial tsunami seemed to

PROGRESSIVE POLICY MAKING FOR THE EUROPEAN UNION

Single Market and Economic and Monetary Union. In the EU

supporting the real economy and the transition to a smart

How can we explain this paradox of the European

This is also a global crisis, which started in the USA and

Therefore, if we want to define and assess the European

financial markets, postponing the transition to a low carbon

e should therefore establish, as a matter of

PROGRESSIVE POLICY MAKING FOR THE EUROPEAN UNION

development and social justice, we need to go further with

This paper builds on previous versions which were

1. A coordinated response to the recession

unemployment by counteracting the slowdown and

active labour market policies necessary to cushion the

priorities. The precise policy mix should be decided by each

macroeconomic policies according to these priorities is still

- it is more about investments and less about

excessive deficit procedure. To achieve sustainable public

of state aids is still at a very early stage.

d. Implementation of the Structural Funds, the

Finally, the recovery is also strongly dependent on

Even in recession, Europe can create jobs in many

For the recovery to bring transformational economic

sector and to coordinate existing instruments: technology

The fight against climate change demands a fundamental

sector investment of approximately one trillion euro from

PROGRESSIVE POLICY MAKING FOR THE EUROPEAN UNION

energy supplies will depend on large-scale investments

ordinated system to anticipate skills needs but also to develop

f. To renew social, employment and education

deposits a general measure already agreed at EU level

context created by the transition to a knowledge intensive

PROGRESSIVE POLICY MAKING FOR THE EUROPEAN UNION

being ready to shoulder an important part of the burden of

payments and the devaluation of their currencies; the drying

be coupled with an appropriate revision of conditionality in

The purpose of regulation should not just be to prevent

financial markets. The IMF code of practice on sovereign