EU s economic recovery remains uneven and requires more social investment

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1 E U R O C I T I E S A S S E S S M E N T O F T H E C O U N T RY S P E C I F I C R E C O M M E N D AT I O N S On 22 May, the European Commission published its Country Specific Recommendations (CSRs) for 2017/2018. The recommendations provide policy guidance tailored to each EU country on how to boost jobs and growth in line with the EU 2020 Strategy. As such, they are a key element of the European Semester cycle for EU economic policy coordination. EUROCITIES welcomes the stronger emphasis on local level as well as the increased focus on social priorities. However, despite some progress in balancing social and economic objectives in the CSRs, EUROCITIES believes that more can be done. Firstly, the social scoreboard for the European Pillar of Social Rights should be integrated into the European Semester. Secondly, member states should do more to translate CSRs into reforms. Thirdly, local authorities should be involved in shaping the national reform programmes. EU s economic recovery remains uneven and requires more social investment Overall, the EU economy shows signs of recovery. Notably, employment levels are on the rise in the EU thanks to labour market reforms in recent years. However, the recovery is still unevenly distributed across society and regions. The legacies of the crisis, including persisting inequalities, remain key challenges to be addressed through social policy reform. In its communication on CSRs, the Commission calls explicitly for stronger focus on reforms that facilitate investment in social infrastructure, education, early childhood education and care and lifelong learning. Moreover, for the first time in the European Semester, the Commission stressed the need for reforms that take into account distributional impacts. Making social priorities a key part of the reforms is urged throughout the Commission s assessment with a view to foster social justice, mitigate income inequalities and support convergence towards better outcomes. The overall objective of the recommendations for 2017/2018 is more jobs and faster growth, while taking account of social fairness. While reform priorities vary across the EU, further efforts to tackle inequality and make economic recovery more inclusive are required from all member states. In the Commission s press release, Marianne Thyssen, Commissioner for employment, social affairs, skills and labour mobility, said: "This year addressing inequality is firmly at the heart of our assessment. We have turned the page of the crisis: the next chapter is social. With the economy moving forward, we need to restore opportunities for those left behind and keep pace with changing skills needs by investing in high quality education and training. Productivity increases should be reflected by higher wages. Only this way can we deliver on our joint commitment to improve living standards for all." Stronger focus on local level EUROCITIES welcomes the stronger emphasis on local level in the 2017 European Semester cycle. Explicit references to local or municipal level were included in the analysis

2 accompanying the CSR reports for nearly half of member states 1. One country, Cyprus, received one recommendation that directly concerns local governments, namely to improve efficiency in the public sector and the functioning of public administration. Analysis accompanying the CSRs indicated positive actions on local level, such as the local government reform in Estonia and Croatia, and professionalising public procurement at local level in Cyprus. In other cases, the analysis indicated which reforms are needed on local level, such as to enhance the administrative capacity of municipalities in Bulgaria, to reform local public services in Italy and to improve transparency in public procurement at municipal level in Lithuania. In some other reports, analysis suggested extending the scope of public sector reforms to also cover the municipal level. This was the case for Latvia where the reform plan to professionalise the public sector is limited to central administration while significant efficiency gains may also be realised at municipal level. Estonia has adopted the Administrative Reform Act with a view to making it easier to create viable local municipalities that can finance their own activities, to plan development and growth, and to offer quality services. In Croatia, legislation to reallocate tasks between the central and local authorities is pending, as is the streamlining of the system of State agencies. In early 2017 the authorities announced the establishment of a task force to draw up legislation on subnational government financing. In Cyprus, some reforms have been undertaken to tackle corruption. Recent developments include reforms to professionalise public procurement at local level. In Germany, additional measures were taken in 2016 which should increase the scope for public investment. Extending consulting services on infrastructure investment planning to include municipalities should improve the planning and implementation of infrastructure investment at municipal level. The strong emphasis on local level in the CSR reports was unfortunately not echoed in the communication. EUROCITIES is disappointed that the Commission omitted local authorities from the list of partners with which member states need to consult in the elaboration of the national reform programmes. We call upon the Commission to urge member states during the upcoming negotiations to involve local authorities in shaping the national reform programmes to ensure they adequately respond to local needs and local conditions. A rebalancing of economic and social objectives in the European Semester? Overall, the social dimension within the recommendations has improved in the 2017 CSRs. EUROCITIES counted 32 recommendations on social issues including on investing in a range of services such as employment, housing, education and care services. While employment remains the social policy area most prevalent in CSRs (covered by 23 recommendations 2 ), an increased focus is placed on social protection (in 22 CSRs), including pension and healthcare reforms. A strong emphasis on education reforms continues in 2017 (15 CSRs) member states: AT, BG, DE, FI, EE, HU, HR, IT, CY, PT, RO, LV, LT. 2 Most CSRs touch upon more than one policy area. 2

3 However, CSRs on budget sustainability and reducing deficits remain predominant among all recommendations and concern nearly all member states. The Commission is still insisting on social spending cuts in many countries. This seems to contradict the CSRs that call for increasing investment, including social investment. Therefore, while some progress was made, a real shift from the rhetoric of austerity to social investment is still awaited. In the field of employment, many member states have implemented reforms to strengthen the performance of labour markets, but CSRs indicate that further efforts are necessary to tackle segmentation and promote inclusive labour markets. CSRs call for better targeting of active labour market policies as well as better integration between employment and social services. More needs to be done to improve the access to the labour market for the most disadvantaged, such as the long-term unemployed, women, migrants and the older. For the latter, a combination of pension reforms, labour market policies, lifelong learning and health policies are required to support a more active older population. Several CSRs call explicitly for discouraging early retirement and increasing the retirement age. Concerning social protection systems, CSRs call for reforms to ensure the adequacy and coverage of safety nets. Improving parental leave and child care services were a recurrent proposal in CSRs alongside ensuring minimum wage (in FR, BG, RO). Income inequality and poverty feature strongly in the CSRs that call for combining preventive and mitigating policies, including equal access to education and healthcare, affordable quality services and well-designed tax and benefit systems. Several recommendations called for reducing the tax-wedge for low-income earners (in DK, HU, LV, NL). In the field of education, most CSRs called for reducing inequalities in access to quality, mainstream education, in particular for disadvantaged groups such as Roma and pupils with a migrant background. Reforms in education are also needed for up- or re-skilling the population with basic skills and improving the labour market relevance of education, such as through promoting vocational education and training. A total of 13 countries received recommendations concerning education-related issues (AT, BE, BG, ES, FR, LT, CY, HR, AT, RO, SK, UK). Four countries received recommendations touching about housing-related issues (IE, UK, SE, NL). Key focus of these recommendations was placed on the need for reducing debt and mortgages for households, and further investing in housing. Ireland was recommended to enhance social housing while Sweden to boost investment in and efficiency of housing. Where is the Pillar of Social Rights in the European Semester? The 2017 cycle has seen the highest number of social policy-oriented CSRs. While social priorities have gained ground within the recommendations, they remain underrepresented. In the total of 78 CSRs, recommendations concerning social policy issues represent 40%. While this is a progress, more could be done to balance the economic and social objectives of the European Semester for the economic and social convergence are inter-dependent. To guide further social convergence, the Commission presented its proposal for a European Pillar of Social Rights a few weeks before publishing the 2017 CSRs. While the Commission anticipated a strong link of the Pillar with the European Semester process, this has not come to fruition in the 2017 cycle. It is disappointing that the CSRs have not addressed the principles enshrined in the Pillar, nor have they integrated the social scoreboard. 3

4 In its communication, the Commission committed that, in the future, the analysis and recommendations of the European Semester will reflect and promote the principles enshrined in the Pillar by assessing, monitoring and comparing the progress made towards implementing them. [ ] A social scoreboard will help to track progress. While this is promising, many questions remain as to how this will be done. For example, will all 12 indicators of the social scoreboard be monitored systematically on yearly basis? Furthermore, the question on everyone s minds is how is this to be done when the Pillar is applicable to Eurozone countries only while the European Semester is a governance mechanism for all EU member states? Much remains to be seen in the 2018 Semester cycle. Progress in implementation of CSRs remains limited While the Commission s endeavor for a stronger social dimension in the CSRs is promising, the member states drive to putting them in practice is far from guaranteed. In fact, during the period, only one in ten CSRs has been fully implemented, one in seven had substantial progress while a third of CSRs have seen limited or no progress 3. Reform progress has been greatest in the policy areas that concern fiscal policy and active labour market policies, and lowest in reforming healthcare and long-term care. Since the start of the European Semester in 2011, the pace of progress in implementing CSRs has been decreasing every year. At first, member states were eager to adopt reforms due to the greater sense of urgency during the crisis, but less so afterwards. Therefore, much remains to be done before the reforms proposed in CSRs are fully implemented and deliver results for citizens and our societies. To restore trust in the European Semester process, the Commission needs to obtain stronger commitments from member states to put in practice the reforms needed. The Social Pillar may be an opportunity in this respect. Goodbye Europe 2020 agenda, welcome to UN agenda for 2030? It is now clear that the EU2020 target on poverty reduction will not be met by In fact, the EU is further away from meeting this target than it was in 2008 given an increase of 1.7 million people at risk of poverty since then. What is surprising is that neither the communication on CSRs nor that on the Pillar makes much reference to the Europe 2020 strategy or its targets anymore. On the other hand, increasing reference is made to the UN 2030 Agenda for Sustainable Development and its Sustainable Development Goals (SDGs). For example, in one of its recent reflection papers 4, the Commission states that a key priority is to fully integrate the SDGs in European policy. This indicates that the Commission is slowly shifting gear towards a new agenda for 2030 while not yet publicly calling for the replacement of EU2020 strategy. EUROCITIES is in favour of integrating the SDGs in EU policies together with their strong urban focus and calls upon the Commission to work in partnership with city authorities to ensure the new agenda is fit for purpose. 3 European Commission (2017). Communication on 2017 European Semester: Country-specific recommendations 4 European Commission (2017). Reflection paper on harnessing globalization. 4

5 Annex Detailed analysis of CSRs by country and by policy area This annex presents a detailed analysis of the social dimension of the 2017 CSRs. The analysis is structured by country and by policy area covered within the work of the EUROCITIES social affairs forum. Six countries received recommendations that touch upon more than three policy areas in the field of social affairs (Bulgaria, Hungary, Lithuania, Latvia, the Netherlands, Romania and Slovakia). Conversely, two countries (Denmark and Malta) received no recommendations for reforms in the field of employment or social policies. The individual reports for each country are accessible on the Commission s website. Education Employment Social protection Housing Urban ageing Roma AT CSR 2: Improve the educational achievements of disadvantaged young people, in particular those from a migrant background CSR 2: Improve labour market outcomes of women, also through the provision of full-time care services CSR 1: Ensure the sustainability of the healthcare system CSR1: Ensure the sustainability of the pension system BE CSR 2: Ensure that the most disadvantaged groups, including people with migrant background, have equal access to quality education, vocational training. CSR 2: Ensure the most disadvantaged groups have equal access to the labour market BG CSR 3: Increase the provision of quality mainstream education, in particular for Roma CSR 3: Improve the targeting of active labour market policies CSR 3: In consultation with social partners, establish a transparent mechanism for setting the minimum wage. Improve the coverage and adequacy of the minimum income. CSR 3: Increase the provision of quality mainstream education, in particular for Roma Increase health insurance coverage, address shortages of healthcare professionals CY CSR 5: Complete the reform of the education system to improve its labour market relevance and performance, including teachers' CSR 5: increasing the capacity of public employment services, improving the quality of active labour market policies delivery CSR 5: Adopt legislation for a hospital reform and universal health care coverage. 5

6 Education Employment Social protection Housing Urban ageing Roma evaluation. CZ DK CSR 2: fostering employment of underrepresented groups N/A N/A N/A N/A N/A N/A EE CSR 2: strengthening the cooperation between academia and businesses CSR 1: Ensure better adequacy of the social safety net. Reduce the gender pay gap by improving wage transparency and reviewing the parental leave system. DE CSR 1: Accelerate public investment in education CSR 2: Reduce disincentives to work for second earners and facilitate transitions to standard employment CSR 2: Reduce the high tax wedge for low-wage earners. Create conditions to promote higher real wage growth. ES CSR 2: Increase labour market relevance of tertiary education. Address regional disparities in educational outcomes, notably by strengthening teachers training and individual students support. CSR 2: Reinforce the coordination between regional employment services, social services and employers, to better respond to jobseekers and employers needs. Take measures to promote hiring on open-ended contracts CSR 2: Address regional disparities and fragmentation in income guarantee schemes and improve family support, including access to quality childcare. FI CSR 2: Take targeted active labour market policy measures to address employment and social challenges, provide incentives to accept work and promote entrepreneurship. CSR 1: Ensure timely adoption and implementation of the administrative reform to improve cost-effectiveness of social services and of healthcare services 6

7 Education Employment Social protection Housing Urban ageing Roma FR CSR 3: revising the system of vocational education and training CSR 2: consolidate the measures reducing the cost of labour in order to scale up their effects on employment CSR 3: Improve the access to the labour market for jobseekers, notably the less qualified workers and people with a migrant background CSR 3: Ensure that minimum wage developments are consistent with job creation HR CSR 3: Improve adult education (older workers, the low-skilled, the long-term unemployed.) Accelerate the reform of the education system. CSR 2: Improve coordination and transparency of social benefits CSR 2: Discourage early retirement, accelerate the transition to the higher statutory retirement age, and align pension provisions for specific categories HU CSR 3: improve education outcomes CSR 3: Better target the public works scheme to those furthest away from the labour market and provide effective support to jobseekers in order to facilitate transitions to the labour market, including by reinforcing active labour market policies CSR 2: Complete the reduction of the tax wedge for low-income earners CSR 3: Improve the adequacy and coverage of social assistance and the duration of unemployment benefits. CSR 3: increase the participation of disadvantaged groups, in particular Roma, in inclusive mainstream education IE CSR 2: Deliver activation policies to increase employment prospects of low-skilled people and to address low work intensity of households. CSR 2: Enhance social infrastructure, including quality childcare. CSR 2: Enhance social housing IT CSR 2: Complete reforms of public employment. CSR 4: Strengthen the collective CSR 4: Rationalise social spending and improve its composition. 7

8 Education Employment Social protection Housing Urban ageing Roma bargaining framework to better take into account local conditions. Facilitate the take-up of work for second earners LT LU LV MT CSR 2: improve educational outcomes by rewarding quality in teaching and in higher education CSR 2: up-skill the labour force by speeding up the curricula reform in vocational education CSR 2: Address skills shortages through effective active labour market policy measures and adult learning. CSR 2: increase the employment rate of older people CSR 2: Improve the adequacy of the social safety net Improve the performance of the healthcare system by strengthening outpatient care, disease prevention and affordability CSR 1: Reduce taxation for low-income earners. Improve the adequacy of the social safety net CSR 2: Increase costeffectiveness and access to healthcare, including by reducing out of pocket payments and long waiting times. CSR 1: take into account the allowances linked to the implementation of the systemic pension reform to achieve its medium term budgetary objective in CSR 2: Ensure the longterm sustainability of the pension system, limit early retirement CSR 1: take into account the allowances linked to the implementation of the systemic pension reform to achieve its medium term budgetary objective in 2018 N/A N/A N/A N/A N/A N/A NL CSR 2: Tackle barriers to hiring staff on permanent contracts. Address the high increase in the self-employed without employees, CSR 2: promoting access of the self-employed to affordable social protection CSR 1: Take measures to reduce the remaining distortions in the housing market and the debt bias CSR 2: make the second pillar of the pension system more transparent, inter- 8

9 Education Employment Social protection Housing Urban ageing Roma by reducing tax distortions favouring self-employment, without compromising entrepreneurship. Create conditions to promote higher real wage growth for households, in particular by decreasing mortgage interest tax deductibility. generationally fairer PL CSR 2: increase labour market participation, in particular for women, low-qualified and older people, including by fostering adequate skills and removing obstacles to more permanent types of employment CSR 2: adequacy of the pension system by taking measures to increase the effective retirement age and by starting to reform the preferential pension arrangements. PT CSR 2: Promote hiring on openended contracts. Ensure the effective activation of the longterm unemployed. Ensure that minimum wage developments do not harm employment of the lowskilled CSR 1: Ensure adequate budgeting, in particular in the health sector with a focus on the reduction of arrears in hospitals CSR 1: ensure the sustainability of the pension system RO CSR 2: Improve access to quality mainstream education, in particular for Roma and children in rural areas CSR 2: Strengthen targeted activation policies and integrated public services, focusing on those furthest away from the labour market CSR 2: Establish a transparent mechanism for minimum wage-setting, in consultation with social partners CSR 2: Adopt legislation equalising the pension age for men and women CSR 2: Improve access to quality mainstream education for Roma SE CSR 1: Address risks related to household debt, in particular by gradually limiting the tax deductibility of mortgage interest payments or by increasing recurrent property taxes, while constraining lending at excessive debt-to-income 9

10 Education Employment Social protection Housing Urban ageing Roma levels. Foster investment in housing and improve the efficiency of the housing market, including by introducing more flexibility in setting rental prices and revising the design of the capital gains tax SI CSR 2: Intensify efforts to increase the employability of low-skilled and older workers, particularly through targeted lifelong learning and activation measures CSR 1: Adopt and implement the proposed reform of the healthcare system and adopt the planned reform of longterm care SK CSR 2: Improve the quality of education and increase the participation of Roma in inclusive mainstream education CSR 2: Improve activation measures for disadvantaged groups by implementing the action plan for the long-term unemployed and providing individualised services and targeted training. CSR 1: Improve the cost effectiveness of the healthcare system, including by implementing the value for money project. CSR 2: Enhance employment opportunities for women by extending affordable, quality childcare CSR 2: increase the participation of Roma in inclusive mainstream education UK CSR 3: Address skills mismatches and provide for skills progression, including by continuing to strengthen the quality of apprenticeships and providing for other funded Further Education progression routes CSR 2: Take further steps to boost housing supply, including through reforms to planning rules and their implementation 10