Download Cohesion policy

Cohesion and convergence in Europe
László Andor
Mercator Senior Fellow at Hertie School of Governance (Berlin)
Visiting Professor at ULB (Brussels)
Poznan, 18 May 2015
Social Europe
Cohesion & convergence in EU Treaties
Treaty on European Union (TEU):
Preamble:
RESOLVED to achieve the strengthening and the convergence of their economies and to
establish an economic and monetary union including … a single and stable currency…
Article 3 TEU (objectives of the union):
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 economic, social and territorial cohesion, and solidarity among Member
States.
Treaty on the functioning of the European Union (TFEU):
Article 121(3) - economic policy coordination:
In order to ensure closer coordination of economic policies and sustained convergence of the
economic performances of the Member States, the Council shall … monitor economic
developments in each of the Member States and in the Union as well as the consistency of
economic policies with the broad [economic policy] guidelines … and regularly carry out an overall
assessment.
+ the ‘convergence criteria’ agreed in the Maastricht Treaty as pre-conditions for Member
States to join the single currency (inflation, exchange rate stability, interest rate, 3% deficit rule,
60% debt/GDP rule)
+ Title XVIII on economic, social and territorial cohesion
Social Europe
Single Market (EU-28)
 Cohesion policy (budget
~0.4% EU GDP)
• supporting long-term
cohesion &
convergence
• mitigating coreperiphery dynamics
resulting from
competition within
Single Market
 Social legislation
preventing a race-tothe-bottom in working
conditions
Currency union (€A-18)
 Much stronger
constraints on monetary
and fiscal policies, yet:
 No lender of last
resort
 No shared fiscal
capacity to help deal
with cyclicality &
asymmetry
 “Internal devaluation” as
the only remaining
adjustment mechanism
 This set-up deepens
core-periphery
divergence
Social Europe
Convergence and divergence in GDP per
capita across the EU (1995–2013)
Reading note : EU-15 Centre (BE, LU, NL, DE, FI, FR, AT), EU-15 North (DK, SE, UK), EU-15 South and periphery (EL, IE, PT, ES, IT), EU-13
Centre and North (CZ, HU, PL, SI and SK), EU-13 South and periphery (BG, CY, EE, LV, LT, MT, HR, RO). Source: Eurostat, calculations DG EMPL.
Note: GDP in real terms (in euros) — some missing values were kept constant : BG, EE, HR, CY, MT (1995-99), LV (1995-98), EL, LT, SK (1995-97), PL, RO
(1995-96), HU, SI (1995).
Social Europe
Convergence and divergence in unemployment
rates across the EU (1990–2013)
Reading note : EU-15 Centre (BE, LU, NL, DE, FI, FR, AT), EU-15 North (DK, SE, UK), EU-15 South and periphery (EL, IE, PT, ES, IT), EU-13
Centre and North (CZ, HU, PL, SI and SK), EU-13 South and periphery (BG, CY, EE, LV, LT, MT, HR, RO). Source: Eurostat, calculations DG EMPL.
Note: GDP in real terms (in euros) — some missing values were kept constant : BG, CY, EE, HR, MT (1995-99), LV (1995-98), LT (1995-97), PL, RO (199596), HU, SI (1995), AT (1990-93), DE (1990), EL (1990-97).
Social Europe
Convergence and divergence in poverty rates
(AROPE) across the EU (1995–2013)
Reading note : EU-15 Centre (BE, LU, NL, DE, FI, FR, AT), EU-15 North (DK, SE, UK), EU-15 South and periphery (EL, IE, PT, ES, IT), EU-13
Centre and North (CZ, HU, PL, SI and SK), EU-13 South and periphery (BG, CY, EE, LV, LT, MT, HR, RO). Source: Eurostat, calculations DG EMPL.
Note: GDP in real terms (in euros) — some missing values were kept constant : HR (2004-09), RO (2004-06), BG (2004-05), CZ, DE, CY, LV, LT, HU, MT, NL,
PL, SI, SK, UK (2004).
Social Europe
Convergence and divergence in income
inequality (S80/S20)
Source: Eurostat, DG EMPL calculations – Years refer to income reference
years
Social Europe
Convergence and divergence in gross household
disposable income per capita (GHDI)
Source: Eurostat, DG EMPL calculations – adjusted for inflation and at fixed exchange rates
for countries outside the euro area
Social Europe
Weakening of stabilisation of household
incomes in the crisis
Contributions to nominal growth of gross disposable income of households (EA 17)
Labour
incomes
Benefits
GHDI
Source: Eurostat and ECB.
Social Europe
Weakening of automatic stabilisation:
2011 and 2012
Public social expenditure and GDP: deviation from trend during
current and past recessions
Source : Eurostat, National Accounts, DG EMPL calculations
Note: 2012 data are estimated based on quarterly data from the first 3 quarters. In the current recession, N is year 2009. Estimates of the deviation from the
trend in social protection expenditures are based on a standard Hodrick-Prescott filter. Reading notes : in the year of the recession, in the current crisis, social
expenditure were around 5% above their trend in Europe, while the GDP was about 4% below its potential (output gap of -4%). Averages are unweighted
country averages (since countries do not always experience a recession the same year).
Social Europe
Development of household income in
Germany and Spain
After 2010
After 2010
Germany: Market income increases with
Spain: Weakened social benefits do not
recovery; benefits no longer needed
compensate for fall in market income
Social Europe
Social divergence in the
Economic and Monetary Union
 EMU with serious design flaws:
 --uniform fiscal (and centralised monetary) policy
without risk sharing or transnational fiscal transfers
 --social problems generate spill-over effects on other
members of euro area (e.g. falling demand)
 --deterioration of human capital, loss of competitiveness
and risk of destablisation and disintegration
 Need to restore socio-economic convergence in EMU,
e.g. Youth Guarantee and Youth Employment Initiative
Social Europe
Stronger social dimension of the EMU
Ability of economic governance mechanisms & policy
instruments to anticipate, take into account & address
problematic developments & challenges related to employment
& social policies in the EMU; helping all MS to realize their
growth & employment potential & improve social cohesion
 Better monitoring of employment & social dynamics in EMU:
scoreboard of five indicators introduced in European Semester
 Better coordination of employment & social policies to
collectively ensure timely action
 Better involvement of EU-level & national social partners in
EMU governance
Social Europe
Need for automatic stabilisers in EMU
• Countering „asymmetric shocks” and resulting imbalances
with rule-based, conditional and temporary fiscal transfers
• Supporting aggregate demand  economic activity 
employment  social cohesion in zones of economic
downturn (lacking autonomous fiscal/monetary policy)
• Options:
• --automatic income support (based on „output gap”)
• --reinsurance of national unemployment insurance funds
• transfers triggered by major crises
• --partial pooling of unemployment benefit systems
• (need for partial harmonisation)
Social Europe
Example of a basic EMU-UBS
Social Europe
Dynamic CEE growth since late 1990s:
compensation for major income loss in early 1990s
Source: IMF, "25 Years of Transition: Post-Communist Europe and the IMF", October 2014
Social Europe
EU13 employment still well below EU28 average
(employment rates across the EU, 1995–2013)
Reading note : EU-15 Centre (BE, LU, NL, DE, FI, FR, AT), EU-15 North (DK, SE, UK), EU-15 South and periphery (EL, IE, PT, ES, IT), EU-13
Centre and North (CZ, HU, PL, SI and SK), EU-13 South and periphery (BG, CY, EE, LV, LT, MT, HR, RO). Source: Eurostat, calculations DG EMPL.
Note: GDP in real terms (in euros) — some missing values were kept constant : HR (1995-01), BG, MT (1995-99), CY (1995-98), LT, LV, SK (1995-97), CZ,
EE, PL, RO (1995-96), HU, SI (1995), AT, FI, SE (1990-94).
Social Europe
Structural shift from agriculture
… employment
Share of primary sector in total
… Gross Value Added
50
50
45
1995
2000
2005
2010
2013
45
40
40
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0
0
BG CZ EE LV
LT HU PL RO
SI
SK
DE SE
Source: Eurostat, National Accounts
Source: Eurostat, National Accounts
IT
FR
Social Europe
1995
BG CZ EE LV
2000
2005
LT HU PL RO
2010
SI
SK
2013
DE SE
IT
FR
…but manufacturing remains significant
… employment
Share of manufacturing in total…
… Gross Value Added
35
35
1995
2000
2010
2005
1995
2013
30
30
25
25
20
20
15
15
10
10
5
5
2000
2010
2005
2013
0
0
BG CZ EE LV
LT HU PL RO
SI
SK
DE SE
Source: Eurostat, National Accounts
IT
FR
Social Europe
CZ EE LV
LT HU PL RO
SI
SK
DE SE
IT
FR
Stronger labour productivity growth in
East before and during the crisis…
Real labour productivity per person employed (2005=100)
140
135
2005
2010
2013
130
125
120
115
110
105
100
95
Source: Eurostat, National Accounts
Social Europe
HR
CZ
PL
HU
SK
SI
EE
LV
LT
MT
CY
BG
RO
BE
DK
DE
IE
EL
ES
FR
IT
LU
NL
AT
PT
FI
SE
UK
EU28
EU27
EU15
EA18
90
...limits increase in cost of labour
Real unit labour cost, 2005=100
140
135
2005
2010
2013
130
125
120
115
110
105
100
95
Source: Eurostat, National Accounts
Social Europe
HR
CZ
PL
HU
SK
SI
EE
LV
LT
MT
CY
BG
RO
BE
DK
DE
IE
EL
ES
FR
IT
LU
NL
AT
PT
FI
SE
UK
EU28
EU27
EU15
EA18
90
Low share of GDP for wages
Adjusted wage share in manufacturing industry:
Compensation per employee as % of nominal gross value added per person employed
75
70
65
EU15
60
Poland
Slovakia
55
Hungary
50
Czech Republic
45
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
40
Source: AMECO data-base, National Accounts.
Social Europe
Still a major income gap between EU13 & EU15
Difference in GDPpc between EU28 average and two groups
of EU13 Member States (1995–2013), expressed as % of the
EU28 GDPpc, in real euros (not PPS)
EU-13 Centre and North
EU-13 South and periphery
Reading note : EU-13 Centre and North (CZ, HU, PL, SI and SK), EU-13 South and periphery (BG, CY, EE, LV, LT, MT, HR, RO).
Source: Eurostat, calculations DG EMPL. Note: calculations based on GDP in real terms, in euros. Note — some missing values in the beginning of the period
were kept constant for the calculation of averages: BG, EE, HR, CY, MT (1995-99), LV (1995-98), LT, SK (1995-97), PL, RO (1995-96), HU, SI (1995).
Social Europe
Large labour outflows from some CEE
countries (as % of labour force)
Recent (<10 years) mobile (economically active) EU citizens by nationality,
as % of labour force of country of origin (2013)
Source: Eurostat EU LFS
Social Europe
Faster population decline in some EU13 countries
(combined result of low fertility, low life expectancy & emigration)
Total population, 1995=100
Source: Calculation based on Eurostat
Social Europe
Gender gap in employment and pay levels
Gender pay gap (2012) as % of men's average hourly earnings (paid employees)
Source:
Eurostat,
SES
Gender employment gap (2013) (difference between empl. rates for men and
women in percentage points)
35
30
25
20
Source:
Eurostat,
LFS
15
10
5
LT
FI
LV
SE
BG
DK
PT
EE
FR
SI
HR
AT
DE
NL
BE
ES
CY
IE
UK
EU28
HU
LU
SK
PL
RO
CZ
EL
IT
MT
0
Social Europe
2nd decade of EU membership should be
about human capital investment!
The European Social Fund is EU’s key financial instrument for
investing in human capital:
 to improve employment opportunities
 to promote education and life-long learning
 to enhance social inclusion and combat poverty
 to improve efficiency of public administration
 An integral part of EU cohesion policy
• In 2014-20, the ESF has been given a minimum
share of 23.1% of the total cohesion policy
budget; in practice close to 25% (€ 85bn)
• Poland is greatest beneficiary...
Social Europe
• Thank you for your attention!
Social Europe