22 September 2015

Chamber of Deputies of the Grand Duchy of Luxembourg

Meeting of the Chairpersons of the Committees on Social Affairs

19 October 2015

Background Notes

The financial and economic crisis has left behind a legacy of unemployment and poverty in the EU.
Among his 10 priorities, the President of the European Commission has set the objective of a “social
triple-A” and of preserving the European social model as a matter of common concern for all
member states. Shared social objectives and coordinated social policies have a crucial role in
defining European identity and the value added of the European project; a role which should also
promote growth and competitiveness on the basis of common social objectives. Setting the social
dimension at the centre of the agenda is a key requirement for the next steps of the integration
process and a fundamental element of democratic consensus, including in the context of the EU’s
Europe 2020 Strategy for employment and fight against poverty and social exclusion.

Strengthening the European social dimension is a priority of the Luxembourg Presidency. It is

essential to reset social issues at the core of the European project, as this dimension has been too
often set aside, neglected and even opposed to economic considerations. Moreover, the
Luxembourg Presidency supports the idea of a “social triple-A” initiated by the President of the
European Commission. The Commission has already taken important steps in this direction by
launching the Investment Plan for Europe in favour of growth and job creation, and by restarting the
Youth Employment Initiative.

A. “Moving forward for the social triple-A”: integrate the social dimension in all EU policies

Europe is facing major social problems. It experiences historically high levels of unemployment,
increasing inequalities, poverty and material deprivation, while divergences increase between
member states. Youth unemployment and child poverty reflect a largely inappropriate investment in
human capital. Numerous member states note that a real risk of a generational gap exists. This divide
may bring forward a lost generation with the invaluable losses in human capital and growth potential
that it may represent. These difficulties have a negative effect on certain countries more than others
and lead to social and economic polarisation in the EU. They have to be considered as constituting a
series of correlated social problems which, in the long term, undermine growth potential, political
stability and social cohesion in the EU as a whole. An efficient and immediate action is therefore
required. Europe has to answer to this social emergency with one voice by adopting cutting-edge

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initiatives, which ensure a long term vision and give to European citizens reasons to believe that
European integration is a source of opportunities.

As economic unbalances, social unbalances are a threat to the EU because social divergences
undermine the political credibility of the European project as well as sustainable growth and
competitive potential. In the EU, strong and sustainable growth, along with a dynamic investment
climate and high employment levels, are only possible in a context of a convergence process of
economies, including in terms of citizens’ social condition. The current governance system is not
flexible enough in order to fight as it should all potential future crises and shocks, and it is not
elaborated enough in order to foster competitiveness, structural convergence among its members
and sustainable growth, while ensuring social cohesion. The current economic, financial and fiscal
framework needs adjustments because it lacks procedures and mechanisms which could support the
EU social dimension and take fully into consideration the EU social objectives.

In a middle and long term perspective, more ambition is needed to reach a real Economic and
Monetary Union (EMU), while responsibility and democratic legitimacy of EMU has to be further
strengthened, including a social dimension in its governance framework. It is crucial to ensure that
this framework includes an appropriate and simplified approach of employment and social policies in
the EPSCO Council formation, in particular in the euro zone, without neglecting the specificities of
these policies at the European level in strict observance of the Treaty’s legal basis and definition and
of national competence. In order to improve the decision-making process and to increase its
efficiency and legitimacy, a sectoral Eurogroup on social and employment issues has to play a
coordination role in analysing performances and identifying good practices.

B. Strengthening the EU’s social dimension – European Commission proposals

In June 2015, the European Commission published proposals to reinforce the EU’s social policy:

 Better policy coordination: The EU’s economic governance has been reinforced since the
crisis and improvements are still being implemented, in particular, by better taking into
account employment and social objectives. According to the Commission, this new approach
is reflected in the recommendations that it addressed to the member states in May 2015.
Furthermore, the Commission underlines that a stronger convergence between member
states that share a common currency should be part of the EMU reform.

 Strengthening social partners’ participation at the national and EU level will be important in
order to prepare reforms that can reinforce economic recovery. The Commission considers
that it has relaunched social dialogue at the EU level and supports active participation of
social partners in the European semester at the national level. It intends to involve social
partners in a larger range of policies, such as those linked to the deepening of the EMU, the
launching of the Energy Union, trade policy or the implementation of the Digital.

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 Modernising the EU’s employment and social legislation: The EU’s legislative corpus has to
be regularly updated according to the evolution of economic and social challenges, in line
with the EU’s “Better Regulation” initiative. Moreover, the Commission indicates the social
and employment legislation dates back to the establishment of the Single Market and to the
recent enlargements.

 A better use of the EU’s financing instruments: Important financial means are available in
order to promote social cohesion, notably through European Structural and Investment
Funds (ESIF) such as the European Social Fund (ESF), which allow to directly fight
unemployment and poverty, to improve workers skills and to support job creation, in
particular for the youth through the Youth Employment Initiative.

C. Further socialisation of the European Semester

The European Semester proved to be the driving force of policy coordination in the institutional
architecture of the EU’s governance framework. Social and employment issues belong in the
procedures relating to the Semester, including the Macroeconomic Imbalance Procedure (MIP) and
the Stability and Growth Pact (SGP), through the integrated guidelines. The starting point is article 3
of the Treaty on the European Union (TEU): “[The EU] shall combat social exclusion and
discrimination, and shall promote social justice and protection, equality between women and men,
solidarity between generations and protection of the rights of the child. It shall promote economic,
social and territorial cohesion, and solidarity among Member States.”

The strengthening of the EU’s social dimension has to be interpreted as a promotion of the common
social objectives in line with article 3 of the TEU. Moreover, article 9 of the TFEU provides that in
“defining and implementing its policies and actions, the Union shall take into account requirements
linked to the promotion of a high level of employment, the guarantee of adequate social protection,
the fight against social exclusion, and a high level of education, training and protection of human
health.” Thus, the horizontal social clause has to be included in the governance framework of
European economic, financial and fiscal policies and, for instance, in the preparation of
macroeconomic adjustment programmes. Major structural reforms and budget policies have to be
coordinated in order to minimise their negative social effects. Further, the evaluation of social and
unemployment consequences of structural reforms in the framework of the Semester would
represent a concrete way of insuring a real and efficient social dimension to the governance
framework.

In its conclusion of 27 and 28 June 2013, the European Council states that the social dimension of the
EMU has to be strengthened, in particular using social and employment indicators in the framework
of the European Semester, while ensuring at the same time a better coordination of social and
employment policies in full respect of national prerogatives. This has been underlined and insisted
upon in the European Council conclusions of 24 and 25 October 2013, which state that the

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coordination of economic, employment and social policies should be further improved in line with
the current procedures, while fully respecting national competences.

The current governance framework has to be adapted to the specificities of social and employment
policies, and it has to take into account explicit and applicable clauses of the Treaty. The social
dimension of the Semester has to be further improved under the guidance of the EPSCO Council
formation through a more structured use of existing instruments, including the social and
employment scoreboard, monitoring of common trends and regular discussions on policy options
applicable to identified progress and challenges towards the EU’s social objectives. This framework
shall also be fully exploited for preventing and correcting social imbalances, as well as in order to
foster reforms and supervise progress in the euro zone regarding agreed common social norms.

D. Five Presidents’ report on “Completing Europe’s EMU”

On 22 June 2015, the five Presidents – the President of the European Commission, Jean-Claude
Juncker; the President of the Euro Area Summit, Donald Tusk; the President of the Eurogroup,
Jeroen Dijsselbloem; the President of the European Central Bank, Mario Draghi and the President of
the European Parliament, Martin Schulz – have revealed in their report on “Completing the
Economic and Monetary Union” propositions to deepen the EMU from 1 July 2015 to 2025 at the
latest.

The Five Presidents’ report is the result of intense exchanges with member states and civil society. It
is based on the report "Towards a Genuine Economic and Monetary Union" (the so-called "Four
Presidents' Report") and on the Commission's "Blueprint for a Deep and Genuine EMU" of 2012,
which remain essential references for completing EMU.

The report reflects the personal deliberations and discussions of the five Presidents. It focuses on the
euro area, as countries that share a currency face specific common challenges, interests and
responsibilities. The process towards a deeper EMU is nonetheless open to all EU members. The
objective is to tackle the weaknesses of the euro zone.

 The Five Presidents’ report suggests concrete measures to be implemented in three stages:

- Stage 1 or "Deepening by Doing" (1 July 2015 - 30 June 2017): using existing instruments and
the current Treaties to boost competitiveness and structural convergence, achieving responsible
fiscal policies at national and euro area level, completing the Financial Union and enhancing
democratic accountability.

- Stage 2, or "completing EMU”: more far-reaching actions will be launched to make the
convergence process more binding, through for example a set of commonly agreed benchmarks for
convergence which would be of legal nature, as well as a euro area treasury.

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- Final Stage (at the latest by 2025): once all the steps are fully in place, a deep and genuine
EMU would provide a stable and prosperous place for all citizens of the EU member states that share
the single currency, attractive for other EU member states to join if they are ready to do so.

To prepare the transition from stage 1 to stage 2, the Commission, in cooperation with the
Presidents of the other EU institutions, will present, in spring 2017, a White Paper which will
measure the progress accomplished during stage 1 and will describe the next necessary steps. This
White Paper will consider legislative, economic and political prerequisites to adopt in order to
complete EMU during stage 2, and will be based on the analysis formulated by a consultative expert
group.

 The Five Presidents’ report addresses EMU’s social dimension:

One of the most important lessons to be learned from the crisis is that a “triple-A EMU” has to
conciliate competitive economies capable of innovating and to succeed in an always more globalised
world, with a high level of social cohesion. The President of the European Commission has declared
during his nomination speech, that the EU has to adopt a “social triple-A” which is as important as
the economic and financial triple-A. This means in particular that labour markets and social
protection systems have to work correctly and be viable in all member states of the euro zone. The
improvement of labour markets and social performances, as well as the strengthening of social
cohesion, should be at the heart of the process of “upward convergence” presented in the Five
Presidents’ Report.