DIRECTOR GENERAL OF BUSINESSEUROPE
SPEECH 08 June 2016 CHECK AGAINST DELIVERY !
EXTRAORDINARY MACROECONOMIC DIALOGUE AT POLITICAL LEVEL 14 JUNE 2016 10.30 – 11.30 JUSTUS LIPSIUS BUILDING (ROOM 50.4) RUE DE LA LOI 175, 1000 BRUXELLES
INTERVENTION BY MARKUS J. BEYRER DIRECTOR GENERAL OF BUSINESSEUROPE Ladies and Gentleman, Let me first thank you for the invitation to be here today, in this extraordinary macroeconomic dialogue that BUSINESSEUROPE greatly values. I understand that today you like to focus in particular on the benefits of structural reforms. During my intervention, I would also like to address the issue of reform implementation in Member States, to then discuss the role social partners as well as national competitiveness boards in building support for reforms.
1) Benefits of Structural Reforms While we see currently slightly higher growth rates with an expected 2.0% for the EU in 2016 according to our latest BUSINESSEUROPE Spring Outlook, potential growth is only at 1.3% compared to 2.1% in the US as the Commission’s latest predictions reveal. This clearly shows there is much more to be done on the structural side.
AV. DE CORTENBERGH 168
BUSINESSEUROPE a.i.s.b.l.
BE-1000 BRUSSELS BELGIUM VAT BE 863 418 279
TEL +32(0)2 237 65 11 FAX +32(0)2 231 14 45 E-MAIL: [email protected]
WWW.BUSINESSEUROPE.EU
EU Transparency register 3978240953-79
There is ample evidence that structural reforms are essential when it comes to increasing long-term growth. o OECD analysis1 suggests that “if countries were to move to best practice in product and labour market policy settings, aggregate output in the Euro-area could rise by more than 6% by 2025”. o As we illustrate in our previous edition of the Reform Barometer, this would almost halve the per-capita gap with the US by 2030. If we fail to deliver on growth, this would threaten the sustainability of our European social model and make it difficult to uphold our current welfare state system. In particular in view of the demographic challenges ahead, strong growth is essential. o Age-related public expenditure in the EU is expected to increase from 19.2% of GDP in 2015 to 26.2% in 2050 [Commission Ageing Report]. While also increasing in the US, age-related expenditure is expected to increase to only 18% of GDP [from 13.1% in 2015]. o However, in our latest Reform Barometer we found that if EU growth were to average only 0.5%, then by 2050 age-related public expenditure would account for over 30% of GDP. In contrast, if we manage to increase growth to 2%, such expenditure would account for just 17% of GDP in 2050. While it typically takes a number of years for the full benefits of structural reforms to come through, the initial benefits for those countries that have made a clear effort to reform are in past year already becoming evident. 1
OECD, Economic Challenges and Policy Recommendations for the Euro Area, Better Policies Series, 2014.
EXTRAORDINARY MACROECONOMIC DIALOGUE AT POLITICAL LEVEL 14 JUNE 2016 2
Labour market o In Spain, the extensive reforms on collective wage bargaining and employment protection regimes introduced in July 2012 supported job creation. After a peak at 26.3% in July 2013, unemployment fell to 20.1% in April 2016. o Ireland is one of the Euro-area countries where unit labour costs declined considerably [by almost 20% in 2015 compared to its peak in 2008] and where we now see large improvements in the current account balance [from -5.8% of GDP in 2008 to 4.4% in 2015]. Ireland made significant reform efforts to enhance labour market flexibility and improving training for the unemployed. Benefits can again be seen in unemployment rates that fell from peak 15.1% in early 2012 to 8.4% in April 2016. Product market o In Portugal, the removal of complex authorisation schemes had positive effects on the number of new companies entering the market (“birth rates”), especially in the accommodation and food and beverages sectors targeted by the project. o As the IMF illustrates “a major liberalization event, such as, for example, the deregulation of several network industries in Germany in 1998, leads to a statistically significant increase in the output level of about 1½ percent four years after the reform. The effect eventually levels off, after seven years, at about 2¼ percent.”
EXTRAORDINARY MACROECONOMIC DIALOGUE AT POLITICAL LEVEL 14 JUNE 2016 3
Inefficient taxes on labour are particularly detrimental when the economy is weak. o IMF analysis shows that a reduction of 1% in labour tax wedges increases the level of output by about 0.15% in the year of the shock and by about 0.6% after four years. o At the same time, employment increases by 0.2% in the first year and 0.7% after four years. o These effects are even larger if the economy is weak. It is therefore a key concern that the tax burden on labour in the EU is almost 45% higher than in both the US and Japan. [We fully support and would like to hear from the Eurogroup chair how he assesses the role that the benchmark agreed by the Eurogroup in September 2015 has led to action in the euro area Member States to effectively reduce the tax wedge on labour.]
2) Problem Reform Implementation Given the importance of structural reforms it is disappointing that reform implementation remains insufficient. The results of our Reform Barometer show that our Member federations continue to observe that while the Country-Specific Recommendations for reforms (CSRs) focus on the right issues, implementation is unacceptably poor with only a fifth of the CSRs satisfactorily implemented.
EXTRAORDINARY MACROECONOMIC DIALOGUE AT POLITICAL LEVEL 14 JUNE 2016 4
3) Role of Social Partners in implementing reforms We believe social partners can plan an important role in helping implementing structural reforms in Member States and thereby help increasing competitiveness and reducing unemployment. There are some recent examples in countries where social partners have acted responsibly, for example by committing to sustainable wage developments. Another area where social partners played a positive role relates to the sustainability of pensions systems, for example: o In Finland, the social partners negotiated in 2014 an overhaul of the pensions system. The agreed objective is to extend working careers by at least 1.5 years and to raise effective average retirement age to at least 62.4 years by 2025. This reform should help reduce the sustainability gap of public finances by 1.1 % of GDP and abolish pressure to increase the level of pension contributions. o In France, an important step has been made by the social partners with the national cross-industry agreement on supplementary pensions of 30th October 2015. This will encourage private sector employees to remain in employment for an additional year. [Encouraging employers to create jobs means to provide the employment / social policy and legislative frameworks that are needed, in particular in the Member States, to allow companies to have access to a sufficient and adequately skilled workforce. Essential in this respect is that companies have enough flexibility to adapt their workforce to changing economic circumstances, notably in terms of working time, wages and contracts.
EXTRAORDINARY MACROECONOMIC DIALOGUE AT POLITICAL LEVEL 14 JUNE 2016 5
This is in many cases negotiated with the trade unions and workers. Several countries are currently considering the best way to organise collective bargaining frameworks to leave appropriate space for company level bargaining. This is for example an important issue in France and Finland. For us at European level, it is clear there is no blueprint for a successful social dialogue. This can be done differently depending on national practices. In order to achieve more progress on reform implementation social partners at all appropriate levels need to engage in a reform partnership, with boosting employment and productivity as a main goal. In the short term, an important area of cooperation between the Council, the Commission and the social partners is the development of benchmarks on a limited number of key labour markets and social issues to achieve more convergence across Europe. This relates to the ongoing work in the Eurogroup, in the Council’s Employment Committee - EMCO, and in the context of the European pillar of social rights. BUSINESSEUROPE is committed to contribute actively to this work.]
4. Competitiveness Boards
Whilst talking about reforms and competitiveness, I would finally like to say a few words about Competitiveness Boards, an issue first raised as competitiveness authorities in the “5 Presidents” report, and subsequently changed to 'boards' in the Commission proposals.
Given the insufficient reform implementation at national level, we find it a particularly interesting idea to set up independent National Competitiveness Boards that look at all aspects of the business environment with relevance to productivity and competitiveness.
EXTRAORDINARY MACROECONOMIC DIALOGUE AT POLITICAL LEVEL 14 JUNE 2016 6
We believe such boards can play an important role in building support for structural reforms.
We think the Commission has responded sensibly with its proposal for competitiveness boards, ensuring both that they would have a broader focus on competitiveness than just wages, whilst at the same time, recognising the autonomy of social partners in wage setting. [Finally, in view of the ongoing negotiations in Council, I want to point out that we find it essential that the boards remain clearly connected to the objective of promoting “competitiveness” in Europe, which would therefore remain in the title.]
5. CONCLUSION Let me conclude by re-emphasise the importance of structural reforms and their proper implementation at EU and national level in order to prepare us for the challenges ahead of us. BUSINESSEUROPE is looking forward to continue working constructively with our national members and the European institutions on building a more competitive Europe. Thank you very much for your attention!
EXTRAORDINARY MACROECONOMIC DIALOGUE AT POLITICAL LEVEL 14 JUNE 2016 7
EXTRAORDINARY MACROECONOMIC DIALOGUE AT POLITICAL LEVEL 14 JUNE 2016 10.30 – 11.30 JUSTUS LIPSIUS BUILDING (ROOM 50.4) RUE DE LA LOI 175, 1000 BRUXELLES
INTERVENTION BY MARKUS J. BEYRER DIRECTOR GENERAL OF BUSINESSEUROPE Ladies and Gentleman, Let me first thank you for the invitation to be here today, in this extraordinary macroeconomic dialogue that BUSINESSEUROPE greatly values. I understand that today you like to focus in particular on the benefits of structural reforms. During my intervention, I would also like to address the issue of reform implementation in Member States, to then discuss the role social partners as well as national competitiveness boards in building support for reforms.
1) Benefits of Structural Reforms While we see currently slightly higher growth rates with an expected 2.0% for the EU in 2016 according to our latest BUSINESSEUROPE Spring Outlook, potential growth is only at 1.3% compared to 2.1% in the US as the Commission’s latest predictions reveal. This clearly shows there is much more to be done on the structural side.
AV. DE CORTENBERGH 168
BUSINESSEUROPE a.i.s.b.l.
BE-1000 BRUSSELS BELGIUM VAT BE 863 418 279
TEL +32(0)2 237 65 11 FAX +32(0)2 231 14 45 E-MAIL: [email protected]
WWW.BUSINESSEUROPE.EU
EU Transparency register 3978240953-79
There is ample evidence that structural reforms are essential when it comes to increasing long-term growth. o OECD analysis1 suggests that “if countries were to move to best practice in product and labour market policy settings, aggregate output in the Euro-area could rise by more than 6% by 2025”. o As we illustrate in our previous edition of the Reform Barometer, this would almost halve the per-capita gap with the US by 2030. If we fail to deliver on growth, this would threaten the sustainability of our European social model and make it difficult to uphold our current welfare state system. In particular in view of the demographic challenges ahead, strong growth is essential. o Age-related public expenditure in the EU is expected to increase from 19.2% of GDP in 2015 to 26.2% in 2050 [Commission Ageing Report]. While also increasing in the US, age-related expenditure is expected to increase to only 18% of GDP [from 13.1% in 2015]. o However, in our latest Reform Barometer we found that if EU growth were to average only 0.5%, then by 2050 age-related public expenditure would account for over 30% of GDP. In contrast, if we manage to increase growth to 2%, such expenditure would account for just 17% of GDP in 2050. While it typically takes a number of years for the full benefits of structural reforms to come through, the initial benefits for those countries that have made a clear effort to reform are in past year already becoming evident. 1
OECD, Economic Challenges and Policy Recommendations for the Euro Area, Better Policies Series, 2014.
EXTRAORDINARY MACROECONOMIC DIALOGUE AT POLITICAL LEVEL 14 JUNE 2016 2
Labour market o In Spain, the extensive reforms on collective wage bargaining and employment protection regimes introduced in July 2012 supported job creation. After a peak at 26.3% in July 2013, unemployment fell to 20.1% in April 2016. o Ireland is one of the Euro-area countries where unit labour costs declined considerably [by almost 20% in 2015 compared to its peak in 2008] and where we now see large improvements in the current account balance [from -5.8% of GDP in 2008 to 4.4% in 2015]. Ireland made significant reform efforts to enhance labour market flexibility and improving training for the unemployed. Benefits can again be seen in unemployment rates that fell from peak 15.1% in early 2012 to 8.4% in April 2016. Product market o In Portugal, the removal of complex authorisation schemes had positive effects on the number of new companies entering the market (“birth rates”), especially in the accommodation and food and beverages sectors targeted by the project. o As the IMF illustrates “a major liberalization event, such as, for example, the deregulation of several network industries in Germany in 1998, leads to a statistically significant increase in the output level of about 1½ percent four years after the reform. The effect eventually levels off, after seven years, at about 2¼ percent.”
EXTRAORDINARY MACROECONOMIC DIALOGUE AT POLITICAL LEVEL 14 JUNE 2016 3
Inefficient taxes on labour are particularly detrimental when the economy is weak. o IMF analysis shows that a reduction of 1% in labour tax wedges increases the level of output by about 0.15% in the year of the shock and by about 0.6% after four years. o At the same time, employment increases by 0.2% in the first year and 0.7% after four years. o These effects are even larger if the economy is weak. It is therefore a key concern that the tax burden on labour in the EU is almost 45% higher than in both the US and Japan. [We fully support and would like to hear from the Eurogroup chair how he assesses the role that the benchmark agreed by the Eurogroup in September 2015 has led to action in the euro area Member States to effectively reduce the tax wedge on labour.]
2) Problem Reform Implementation Given the importance of structural reforms it is disappointing that reform implementation remains insufficient. The results of our Reform Barometer show that our Member federations continue to observe that while the Country-Specific Recommendations for reforms (CSRs) focus on the right issues, implementation is unacceptably poor with only a fifth of the CSRs satisfactorily implemented.
EXTRAORDINARY MACROECONOMIC DIALOGUE AT POLITICAL LEVEL 14 JUNE 2016 4
3) Role of Social Partners in implementing reforms We believe social partners can plan an important role in helping implementing structural reforms in Member States and thereby help increasing competitiveness and reducing unemployment. There are some recent examples in countries where social partners have acted responsibly, for example by committing to sustainable wage developments. Another area where social partners played a positive role relates to the sustainability of pensions systems, for example: o In Finland, the social partners negotiated in 2014 an overhaul of the pensions system. The agreed objective is to extend working careers by at least 1.5 years and to raise effective average retirement age to at least 62.4 years by 2025. This reform should help reduce the sustainability gap of public finances by 1.1 % of GDP and abolish pressure to increase the level of pension contributions. o In France, an important step has been made by the social partners with the national cross-industry agreement on supplementary pensions of 30th October 2015. This will encourage private sector employees to remain in employment for an additional year. [Encouraging employers to create jobs means to provide the employment / social policy and legislative frameworks that are needed, in particular in the Member States, to allow companies to have access to a sufficient and adequately skilled workforce. Essential in this respect is that companies have enough flexibility to adapt their workforce to changing economic circumstances, notably in terms of working time, wages and contracts.
EXTRAORDINARY MACROECONOMIC DIALOGUE AT POLITICAL LEVEL 14 JUNE 2016 5
This is in many cases negotiated with the trade unions and workers. Several countries are currently considering the best way to organise collective bargaining frameworks to leave appropriate space for company level bargaining. This is for example an important issue in France and Finland. For us at European level, it is clear there is no blueprint for a successful social dialogue. This can be done differently depending on national practices. In order to achieve more progress on reform implementation social partners at all appropriate levels need to engage in a reform partnership, with boosting employment and productivity as a main goal. In the short term, an important area of cooperation between the Council, the Commission and the social partners is the development of benchmarks on a limited number of key labour markets and social issues to achieve more convergence across Europe. This relates to the ongoing work in the Eurogroup, in the Council’s Employment Committee - EMCO, and in the context of the European pillar of social rights. BUSINESSEUROPE is committed to contribute actively to this work.]
4. Competitiveness Boards
Whilst talking about reforms and competitiveness, I would finally like to say a few words about Competitiveness Boards, an issue first raised as competitiveness authorities in the “5 Presidents” report, and subsequently changed to 'boards' in the Commission proposals.
Given the insufficient reform implementation at national level, we find it a particularly interesting idea to set up independent National Competitiveness Boards that look at all aspects of the business environment with relevance to productivity and competitiveness.
EXTRAORDINARY MACROECONOMIC DIALOGUE AT POLITICAL LEVEL 14 JUNE 2016 6
We believe such boards can play an important role in building support for structural reforms.
We think the Commission has responded sensibly with its proposal for competitiveness boards, ensuring both that they would have a broader focus on competitiveness than just wages, whilst at the same time, recognising the autonomy of social partners in wage setting. [Finally, in view of the ongoing negotiations in Council, I want to point out that we find it essential that the boards remain clearly connected to the objective of promoting “competitiveness” in Europe, which would therefore remain in the title.]
5. CONCLUSION Let me conclude by re-emphasise the importance of structural reforms and their proper implementation at EU and national level in order to prepare us for the challenges ahead of us. BUSINESSEUROPE is looking forward to continue working constructively with our national members and the European institutions on building a more competitive Europe. Thank you very much for your attention!
EXTRAORDINARY MACROECONOMIC DIALOGUE AT POLITICAL LEVEL 14 JUNE 2016 7
