Fritz von Nordheim Deputy Head of Unit European Commission, DG EMPL C2:

1. Social Dimension ofEuropean Semester ReinforcedEPC Social Investment Project – Expert WorkshopEuropean Policy Centre, Brussels 23 February 2016 Fritz von Nordheim Deputy Head of Unit European Commission, DG EMPL C2: Modernisation of Social Protection Systems

2. Questions to EC presentation • What is the Commission’s view (in particular of DG Employment) on the future shape of the European Semester especially concerning the social sphere? • How to reinforce the social dimension (in particular the concept of social investment) in the European macro-economic governance framework? • What are the options currently developed by the European Commission and what are the obstacles to realising these options?

3. CONTENT • Notions of Social Investment in EC’s Social Investment Package • Investments in Junker's 10 points & rebalancing social/economic • SIP reflection in Economic Governance documents • Integrated Guidelines: Economic part • Integrated Guidelines: Employment part • Guidance to encourage structural reforms and investment • Macroeconomic Imbalance Procedure (MIP) framework • Steps towards completing the EMU • 2016 Annual Growth Survey (AGS) - reflection in CRs & CSRs • European Pillar of Social Rights

4. Notion of Social Investment in EC’s SIP Policy guidance on reforming social policies to realise Europe 2020 targets on employment & poverty: Investing in people from early age & all stages of life (capacitating while protecting to reap returns/savings) through integrated social services & benefits to achieve longer & less interrupted working careers by • More effective & efficient use of social budgets • Social policy innovation for evidence-based reforms • Reinforced partnerships with all actors

5. The Social investment model Common traits: • Emphasis on social promotion (enablementlogic) • Ex ante (early) prevention of risks and needs (ECEC) • Large role for capacitating social servicesduring the life cycle • Robustsafetynets and activation (inclusion) • Individualswithinhouseholds (dualearner/dualcarer model) • Support for reconcilingpaid work and family life • Education (schooling, training, LLL) asintegral part of welfare

6. EU economicgovernanceslow to SIP-ify • Sept. 2013 State of Union: No echo of SIP • Nov2013 AGS: Little to noecho of SIP • Dec2013: Golden Rulepossibilities in SGP refuted • May 2014 Golden Rulerefusalconfirmed by ECOFIN • June 2014 SIP concerns visible in CSRs • Nov 2014 Juncker Commissiontakesoffice • Nov 2014 AGS: Little to noecho of SIP

7. 'Investments' in Juncker's10 points Agenda 1. A New Boost for Jobs, Growth and Investment My first priority as Commission President will be to strengthen Europe’s competitiveness and to stimulate investment for the purpose of job creation…………………… The focus of additional investment should be in infrastructure…; education, research and innovation; and renewable energy and energy efficiency. A significant amount should be channelled towards projects that can help get the younger generation back to work in decent jobs, further complementing the efforts already started with the Youth Guarantee Scheme, ………… ..the use of national budgets for growth and investment..must– as reaffirmed by the European Council on 27 June 2014 – respect the Stability and Growth Pact, while making the best possible use of the flexibility that is built into the existing rules of the Pact, as reformed in 2005 and 2011. I intend to issue concrete guidance on this …

8. Rebalancing Social with Economic concerns Oct 2014 Inauguration speech: “I want Europe to be as dedicated to being triple-A on social issues, as much as it is to being triple A in the financial and economic sense.” Mandate for Thyssen: Making sure Europeans can fully participate in society and equipping them for modern working life is a key social concern and crucial for our productivity and ability to compete globally. Ensuring that employment and social considerations.. are appropriately taken into account in all Commission proposals and activities.

9. Rebalancing Social with Economic concerns Mandate for ECFIN commissioner Moscovici:…a re-balancing of the way conditional stability support is granted to Euro zone MS in difficulty.. Mandate for Vice-precidentsDombrovskis: In recent years, we have taken unprecedented measures to overcome the crisis and to keep our Union together. It is now time to consolidate, complement and simplify these measures and to make them more socially legitimate. The stability of our single currency and the solidity of public finances are as important as social fairness in implementing the necessary structural reforms. A hallmark of this Commission will be adherence to the social market economy, to fairness and to making sure that the most vulnerable in our society are not left behind. Preparing.. a re-balancing of the way conditional stability support is granted to Euro area countries in difficulty. .. Replacing.. the “troika” with a more democratically legitimate and more accountable structure, and the preparation of social impact assessments in addition to fiscal sustainability assessments.

10. Integrated Guidelines: Economic part Broad Guidelines for the economic policies of the Member States and of the Union Boosting Investment Enhancing Growth by Structural Reforms Removing key barriers to growth and jobs Improving the sustainability and growth-friendliness of Public Finances

11. 1. Boosting Investment ‘Increasing the level of productive investment in Europe is key to boost demand and improve competitiveness and long term growth potential in Europe. Efforts should focus on mobilising finance for investment, making finance reach the real economy and improving the investment environment. ….’ No mentioning of social investment

12. 2. Enhancing Growth by Structural Reforms Ambitious implementation of structural reforms by the Member States in both product and labour markets and social welfare systems is crucial to strengthen and sustain the economic recovery, correct harmful macro-economic imbalances and unleash the potential of the Union economies…….. Labour market and social system reforms need to be pursued to promote growth and employment, while ensuring access for all to high quality, affordable and sustainable social services and benefits. ……

13. 3. Removing barriers to growth and jobs ….. To move Europe's productivity frontier, it is necessary to increase innovation and human capital ……. Union legislation should focus on those issues that are best dealt with at European level, and designed taking into account their economic, environmental and social impact……..

14. 4. Improving the sustainability and growth-friendliness of Public Finances ………. In designing and implementing budgetary consolidation, strategies should prioritisegrowth-enhancing expenditure items within areas such as education, skills and employability, ….. Expenditure reforms that promote efficient resource allocation to support growth and employmentwhile preserving equity should be complemented by modernising revenue systems ……

15. Integrated Guidelines: Employment part Guidelines for the employment policies of the Member States Boosting demand for labour Enhancing labour supply and skills Enhancing the functioning of labour markets Ensuring fairness, combating poverty and promoting equal opportunities

16. 5. Boosting demand for labour …….. Member States should also actively promote the social economy and foster social innovation……..

17. 6. Enhancing labour supply and skills …….. MS should make the necessary investmentsin education and vocational training systems while improving their effectiveness and efficiency to raise the skill level of the workforce, allowing it to better anticipate and meet the rapidly changing needs of dynamic labour markets ….. …. step up efforts to improve access to quality adult learning for all and implement active ageing strategies to enable longer working lives… ……make a full use of European Social Fund and other Union funds support in order to improve employment, social inclusion, education and public administration.

18. 7. Enhancing the functioning of labour markets …….. Quality employment should be ensured in terms of socio-economic security, education and training opportunities, working conditions (including health and safety) and work-life balance. …. MS should strengthen active labour market policies by increasing their targeting, outreach, coverage and interplay with passive measures…….. MS should also ensure that their social protection systems effectively activate and enable those who can participate in the labour market, protect those (temporarily) excluded from the labour markets and/or unable to participate in it, and prepare individuals for potential risks, by investing in human capital……

19. 8. Ensuring fairness, combating poverty and promoting equal opportunities MS should modernise their social protection systems to provide effective, efficient, and adequate protectionthroughout all stages of an individual’s life, ensuring fairness and addressing inequalities. ……. For that purpose a variety of instruments should be used in a complementary manner, including labour activation enabling services and income support, targeted at individual needs. Social protection systems should be designed in a way that facilitate take up of all persons entitled, support investment in human capital, and help prevent, reduce and protect against poverty. ……..

20. Guidance to encourage structural reforms and investment (Jan 2015) • Encourage effective implementation of structural reforms: • Promote investment, specifically in the context of the new European Fund for Strategic Investments (EFSI) • Take better account of economic cycle in individual MS also to develop a more growth-friendly fiscal stance in euro area. NO new legislation only guidance on flexibility in existing NO Golden rule of per se exception of certain expenditure Depends on concrete contingent assessment by Commission Notion of social investments NOT mentioned

21. Guidance to encourage structural reforms and investment (Jan 2015) Clarification concerning structural Reforms For MS in preventive arm of the Pact, the Commission will take account of the impact of reforms (the so-called "structural reform clause"), provided that they (i) are major, (ii) have verifiable long-term positive budgetary effects, including by raising potential sustainable growth, and (iii) are implemented. Reform measures adopted by the government and/or the Parliament may also qualify "ex ante" if Member States have presented a dedicated structural reform plan with well-specified measures and credible timelines for their adoption and implementation. The Commission will assess the reforms before recommending to the Council to allow possible temporary deviations ... Such deviations should not exceed 0.5% of GDP. …The MTO should be reached within four years of the clause being activated. When opening an Excessive Deficit Procedure, the Commission may recommend a longer deadline for the correction of the excessive deficit provided that a dedicated structural reform plan as described above also exists.

22. Guidance to encourage structural reforms and investment (Jan 2015) Clarification concerning the ‘Investment Clause’ MS in the preventive arm can deviate temporarily from their medium-term budget objective or from the agreed fiscal adjustment path towards it, in order to accommodate investment, under the following conditions: • Their GDP growth is negative or GDP remains well below its potential (resulting in an output gap greater than minus 1.5% of GDP); • The deviation does not lead to non-respect of the 3% deficit reference value and an appropriate safety margin is preserved; • Investment levels are effectively increased as a result; • Eligible investments are national expenditures on projects co-funded by the EU under the Structural and Cohesion policy (including projects co-funded under the Youth Employment Initiative), …. • The deviation is compensated within the timeframe of the MS’s Stability or Convergence Programme(medium-term fiscal plans).

23. Guidance to encourage structural reforms and investment (Jan 2015) Clarification concerning the ‘Economic Cycles’ MS will be required to make a larger fiscal effort during better times and a smaller fiscal effort during difficult economic times. In cases of a severe economic downturn in the euro area or the EU as a whole, the pace of fiscal consolidation can be adapted for all Member States, if this does not endanger fiscal sustainability in the medium-term. The clause has so far never been applied, although it reflects the logic used at the time of the 2008 financial crisis when the adjustment paths were re-designed for several Member States

24. MIP framework The Macroeconomic Imbalance Procedure (MIP) is a surveillanceprocedure established by the EU in response to the economic crisis and applied to improve macroeconomic governance. It endeavors to avoid unsustainable booms in good times that will bring busts with highly costly consequences in terms of economic activity, financial stability and employment both in the domestic economy as well as in partner countries.

25. Alert Mechanism Report The yearly MIP cycle starts with a comprehensive economic analysis, the Alert Mechanism Report, which covers all EU MS to distinguish those economies that warrant detailed scrutiny before concluding if there is an imbalance or an excessive imbalance. The analysis is based on the reading of a scoreboard of fourteen headline indicators in combination with auxiliary indicators, economic circumstances and all relevant factors available specific to the situation in the country. This ensures that there is no automaticity involved (i.e. a "flash" for an indicator does not lead to an automatic conclusion that an in-depth review is warranted).

26. Employmentadded to MIP Scoreboard The MIP alert mechanism consists of an economic reading of a scoreboard with 14 indicators covering the major areas of macroeconomic imbalances and adjustment issues: 3 year backward moving average of the current account balance as percent of GDP, net international investment position as percent of GDP, 5 years percentage change of export market shares measured in values, 3 years percentage change in nominal unit labour cost, 3 years percentage change of the real effective exchange rates private sector debt (consolidated) in % of GDP private sector credit flow in % of GDP year-on-year changes in house prices relative to a Eurostat consumption deflator general government sector debt in % of GDP 3-year backward moving average of unemployment rate, year-on-year changes in total financial sector liabilities, 3 years change in p.p. of the activity rate, 3 year change in p.p. of the long-term unemployment rate, 3 year change in p.p. of the youth unemployment rate

27. Interpretation of new MIP indicators The inclusion of these employment indicators as headline indicators would allow for a better understanding of the social consequences of imbalances, including during the correction of imbalances, and it would help fine-tune the policy recommendations that fall under the scope of the MIP. The inclusion of these variables into the scoreboard shall not have legal implications nor change the focus of the MIP, which remains aimed at preventing the emergence of harmful macroeconomic imbalance and ensuring their correction. To this purpose, no additional employment and social indicators should a priori be added to the scoreboard in the future. Flashes of the new indicators would not be read as implying, by themselves, an aggravation of macro-financial risks, and consequently will not trigger further steps in the MIP.

28. Steps towards completing the EMU (Oct 15) 2. A REVAMPED EUROPEAN SEMESTER 2015 changes: time for debate, fewer more key macro-economic & social priority focussed CSRs For 2016: • better integrating the euro area and national dimensions • stronger focus on employment and social performance • promoting upward (social) convergence by benchmarking pursuing best practices • support to reforms through EU funds & technical assistance

29. 2016 Annual Growth Survey 1 (Nov 15) 2. Re-launching investment: Investing in human capital It is essential that MS promote social investment more broadly, including in healthcare, childcare, housing support and rehabilitation services to strengthen people's current and future capacities to engage in the labour market and adapt. A lot can be done with the support of EU programmes, such as the European Structural and Investment Funds. Social investment offers economic and social returns over time, notably in terms of employment prospects, labour incomes and productivity, prevention of poverty and strengthening of social cohesion.

30. 2016 Annual Growth Survey 2 Social infrastructure should be provided in a more flexible way, personalised and better integrated to promote the active inclusion of people with the weakest link to the labour market….. ' MS should have a comprehensive approach to improving the work-life balance, including through care facilities, leave and flexible working time arrangements, as well as tax and benefit systems free of disincentives for second earners to work or to work more.'…. ' Adequate and well-designed income support, such as unemployment benefits and minimum income schemes, allow those out of work to invest in job search and training, increasing their chances to find adequate employment that matches their skills.' ' A healthier population will also improve labour market participation and labour productivity.'

31. Social investment in Country Reports? For examination when published end February

32. Social investment in 2016 CSRs? For examination when published Mid-May

33. European Pillar of Social Rights Announced in 9 Sept. 2015 State of Union Ensure economic growth and the deepening of EMU goes hand in hand with social fairness Overall aim: foster upward social convergence towards labour market and social protection institutions with increased resilience to economic shocks, and thereby achieve the Social Triple A Equip people to adaptto changes in world of work and maintain their labour and social rights Initiative foremost conceived for the euro area To be launched for public consultation in March

34. What is meant by social rights? Rights linked to the employment contract, working conditions or access to welfare, such as: Right to minimum pay; Minimum rights to representation; Minimum rights during probation periods; Minimum protection against unfair dismissal; Minimum measures to ensure awareness of rights and access to justice; Right to equal treatment regardless of the type of employment contract. Minimum health and safety rights; Minimum working time protection rights; Access to provisions relating to maternity/paternity; Access to provisions relating to childcare and benefits; Access to life-long learning and (re-) training; Access to provisions relating to unemployment; Access to provisions relating to active inclusion; Access to provisions relating to pensions; Access to basic social services, including health care.

35. Thank You!

36. Modernisation of Social Protection II • Social Protection may be biased across generations • Necessity of balanced orientation towards future as well as present and past workforce • Social Protection may be inefficient • Necessity of raising efficiency • Social Protection may be inequitable • Necessity of raising equity • Social Protection may be insufficiently coordinated with other key policies • Necessity of ensuring compatibility & synergies

37. Modernisation of Social Protection

38. Modernisation of Social Protection