Opinion of the Economic and Social Committee on the 'Action for employment in Europe - a confidence pact` (97/C 56/09)

On 26 June 1996 Mr Santer wrote to the Committee, asking for its views on the Commission's communication entitled: 'Action for Employment in Europe - A Confidence Pact`.

At its Plenary Session on 10 July 1996, the Committee set up a Subcommittee, in accordance with its Rule 19(1), to prepare its work on the matter. The Subcommittee drew up a draft opinion on 14 October 1996 (Rapporteur: Mr Chevalier, Co-Rapporteurs: Mr Schmitz and Mr Walker).

At its 339th Plenary Session (meeting of 31 October 1996) the Committee adopted the Opinion set out below by 124 votes to four, with ten abstentions.

1. Summary

As is clear from its title, the Confidence Pact is a particularly important instrument for promoting employment. The Committee looks on it as a vector of the economic and social cohesion sought by the Treaties. The Committee recognizes that this lends particular importance to its opinion.

Given the Committee's title, role and membership, it has always regarded economic and social issues as inseparable and complementary.

In the course of the construction of an integrated Europe, the Committee has made a recognized and valued contribution to achieving economic progress. The Committee welcomes the achievements in this field.

Although there are still serious shortcomings in the social provisions, the Committee considers that the improvements already made - which it has always supported and frequently proposed - are very much a step in the right direction.

But the Committee must now sound the alarm. Given the extraordinary gravity of the situation, it is vital that the EU Member States take urgent innovative action to tackle joblessness. Otherwise the European venture, incomplete and fragile as it is, will be condemned to mark time or even to collapse.

1.1. The Committee thus welcomes the proposal by Commission President Santer of a confidence pact for employment in Europe. In its Opinion the Committee unreservedly endorses the objectives of the confidence pact. The Committee supports the concrete proposals for achieving these objectives and puts forward a number of additional recommendations. The summary set out below will not reiterate the points endorsed by the Committee. Attention will be drawn only to the points in the confidence pact which the Committee wishes to highlight or to expand upon.

1.2. The Committee would first underline the gravity of the crisis caused by chronic unemployment. Unemployment in Europe has reached crisis proportions. Unless effective action is taken to reduce the army of unemployed, Europe's social cohesion and social values will be under threat and the credibility of the EU and its Member States will be undermined. This could give rise to social divisions which threaten the very social fabric. Job creation is not just economic common sense, it is vital from a social point of view.

1.3. In view of this dramatic situation, the Committee calls upon all political, economic and social players at all levels - be they international, national, regional or, in particular, local - to play their part and take effective action.

1.4. With this aim in view, the Committee calls upon the Heads of State or Government, at their summit meeting in Dublin in December 1996, to follow up the Essen Summit (December 1994) and the Dublin Summit (September 1996) by formally adopting the Confidence Pact and drawing up a multi-year plan backed up by specific measures and a binding timetable.

1.5. Everyone recognizes the need to give a new impetus to the economy. It is consequently essential for consultations to take place between the public authorities and the social partners with a view to correcting budgetary policies in such a way as to achieve a credible and balanced consolidation of the social situation and an employment-promoting utilization of the room for manoeuvre available under monetary and incomes policy.

1.6. The Committee believes that the IGC should incorporate the coordination of employment policies in the Treaty on European Union and, to this end, it proposes the necessary additions and corrections to the existing texts.

1.7. The Committee underlines the need to give a fresh impulse to transport infrastructure schemes, the establishment of the information society and the various areas of industrial policy. In the light of its conviction that the market in services offers real hope for the creation of high-grade jobs, the Committee endorses the proposal that a communication on employment and services be drawn up for the European Council in Dublin.

1.8. The Committee recognizes the importance of the world market. It does, however, believe that the European Union has yet to define its role in international trade policy, put into practice the representative function conferred on the Commission under the terms of the Treaty and develop procedures for adopting a common stance in international negotiations.

1.9. If EU products are to be more competitive at world level, the single market will have to be strengthened by additional legislation. There has been a delay in finalizing the statute of the 'European company`. The Committee trusts that an agreement will be reached as soon as possible, pursuant to the Opinions it has issued, on the questions of the provision of information, consultations and worker-participation. The Committee also trusts that a decision will finally be taken on the introduction of a legal framework in respect of biotechnology investments; it would draw attention to the Opinions which it has issued on this subject.

1.10. The Committee highlights the importance of laying down a timetable for the adoption of the remaining measures required to give effect to the single market, and backs the Commission in its efforts to ensure that Member States transpose the single market directives and apply them in practice. These various measures must go hand-in-hand with the achievement of EMU on schedule.

1.11. Simplification of legislation is, however, equally necessary. In particular, the Committee recognizes the need for a programme of measures to lighten the burden of administrative and regulatory constraints which cost Europe far too much and are especially placing SMEs - and above all micro-businesses - at a disadvantage. In this context, the Committee welcomes the SLIM initiative and would wish to see it extended to other areas as soon as possible.

1.12. The Committee attaches great importance to the timely achievement of European monetary union in order to stimulate confidence and employment.

1.13. The Committee believes that there is a need for a root-and-branch revamping of the Structural Funds; it stresses that these Funds must be used to create lasting, additional jobs. The provision of new financial resources for this purpose would increase public expenditure and thus taxation. The Committee therefore takes the view that appropriations should be re-allocated between the Objectives. From 1997 it will be possible to re-focus the Funds in such a way that they will have a greater impact on employment prospects; the Committee firmly believes that this opportunity should be taken.

1.14. The Committee calls upon the local and regional authorities to recognize the importance of territorial pacts between socio-economic organizations and public administrations for promoting local development initiatives.

1.15. In its Opinion the Committee repeatedly highlights the vital role played by SMEs. There is a need to set out a more precise definition of SMEs in order to embrace micro-businesses but, in addition to this, a number of other steps are called for: a tightening of the wording of Article 118a of the Treaty; the establishment of a European Bank for Small and Medium-sized Enterprises (EBSME) separate from the EIB; and a reduction in the burden of financial charges and the excess of red-tape which bear more heavily on SMEs than on large enterprises.

1.16. The Committee accepts the need to pursue an incomes policy conducive to competitiveness and employment. It would, however, point out that this should not be equated with a low-wage economy.

1.17. It should also be remembered that labour costs are not the sole determinant of competitiveness: in some cases, labour costs can be offset by quality, design and 'non-price competitiveness`.

1.18. The Committee fully recognizes the interaction between interest rates, wages, investment, employment and productivity. It calls upon the Member States and the various players in these fields to endeavour to achieve the necessary balance in the light of their traditions and the situation obtaining in their respective countries, and bearing in mind the different geographical situations. The Committee would, however, strongly emphasize that the measures taken to boost employment must have the health, safety or social protection entitlements.

1.19. The Committee approves in principle the policy of redirecting sums spent on unemployment benefit to active employment measures but feels that there is a need for considerable research into how this can be achieved in the most effective manner possible. In particular, steps must be taken to ensure that new jobs are not created at the expense of existing ones.

1.20. The Committee recognizes that the social partners have made progress in their endeavour to reach agreements on the organization of work, flexibility and shorter working hours. This must be built on. The progress made in this field constitutes an important contribution to the preparation of the Green Paper planned by the Commission on these subjects. The Committee also welcomes the proposal to issue another Green Paper on the social and societal aspects of the information society.

1.21. Finally, the Committee points to the special importance which it attaches to measures to bring improvements in the following areas: initial training, vocational training, ongoing adjustment to cope with technological and structural developments, links between schools and businesses, mutual recognition of qualifications and the transfer of personal savings and pension rights.

1.22. The Committee thus hopes that it has made its contribution towards the work of all those who are endeavouring to upgrade solutions which appear to be no longer applicable or outdated and to bring in new and constructive ideas. Thanks to these endeavours it is expected that a reinvigorated economy will give renewed confidence to those who are afraid of losing jobs, to jobless persons despairing of finding employment and to young persons, in particular, who fear that they face an uncertain future.

2. Introduction

2.1. The Committee welcomes the proposal of Commission President Jacques Santer for a 'confidence pact` on 'action for employment in Europe`. This proposal fulfils the recommendation in the Committee Opinion on the 1996 annual economic report () that the Commission define in greater detail an 'alliance for employment and stability` and, with this aim in view, 'develop the European confidence pact for employment initiated by Commission President Santer`.

2.2. It is the view of the Committee that the level of permanent unemployment in Europe has reached crisis proportions and that, unless effective action is taken to reduce the army of unemployed, Europe's social cohesion and social values will be under threat; if jobs cannot be found for people living in the EU Member States, there is a danger that a social rift will open up, endangering the very fabric of society.

2.3. The Committee warmly welcomes this proposal by the Commission President for positive steps to eradicate the scourge of unemployment in Europe.

2.4. The Committee therefore endorses the objectives of the confidence pact, namely to:

- do more than adopt ineffective, piecemeal measures;

- restore confidence by a comprehensive strategy;

- involve all players at all levels in pursuit of a common objective;

- make better use of the multiplier effect at European level;

- secure concrete commitments from all concerned.

2.5. The Committee deplores the ineffectiveness of many previous measures. It emphasizes the need for new and constructive ideas and concrete implementation of the vital, much-heralded measures set out in Mr Delors' White Paper and the Essen decisions. There must be a commitment to accept radical policy changes.

2.6. The Committee supports the call for all concerned to make the necessary commitment because without concerted action there can be no major improvement.

The Committee urges all the players concerned fully to shoulder their responsibilities. Despite the special role incumbent on government bodies, it is unacceptable that many players wait for others to become involved before taking action themselves.

2.7. As the Commission President points out, responsibility for finding solutions rests at different levels. This being the case, the observations set out below are listed under the heading of the player on whom prime responsibility rests. The Committee endorses the central importance of those acting at national level. Scope for European-level action crucially depends on the necessary employment measures being taken in the Member States. In line with the conclusions set out at the Dublin Summit, which built on those of the Essen Summit, the Member States are urged to make a formal commitment at the summit meeting of Heads of State or Government in Dublin in December 1996 - backed up by concrete measures and a timetable for action - to give absolute priority to bringing down unemployment and promoting employment.

3. Measures falling mainly within the remit of the Member States

3.1. Macroeconomic policy

3.1.1. In the paper 'Action for Employment in Europe - A Confidence Pact`, the Commission places great emphasis on the need to engender a propitious macroeconomic climate. The Committee can endorse the Commission's view that 'growth is essential for job creation. But not just any kind of growth. Sustainable growth based on monetary stability and sound financial policies is what is needed. It must be driven by demand and productive investment. And it must be job-intensive. Public deficits must be reduced in order to bring down interest rates, and wages policy must be restrained and non-wage labour costs lowered`.

3.1.2. The Committee agrees with the Commission that this means that the public authorities and the social partners responsible for concluding agreements at the appropriate levels must be equally involved and that their respective commitments in such a coordinated and comprehensive macroeconomic strategy should be defined in the Confidence Pact. To reach a conclusion at the Dublin European Council in December, Governments will have to show a much greater commitment to the pact process.

3.2. Budgets, taxes and social charges

3.2.1. The Member States have retained responsibility for decision-making on taxation. The Committee does, however, feel justified in making the observations set out below so that tax policy can play a key role in promoting investment and employment.

3.2.2. The Committee backs the fiscal guidelines proposed by the Commission in its confidence pact. The proposals are as follows:

- spending cuts are preferable to tax increases;

- despite reducing public spending, the share allocated to spending on investments in human resources, research and development, innovation, infrastructure and competitiveness must be increased;

- without jeopardizing forms of welfare assistance that are an indispensable means of combating social exclusion, Member States should consider positive measures rather than passive expenditure to compensate for joblessness;

- reducing the burden of taxes on employment.

3.2.3. The Committee notes that the fiscal policy pursued by the majority of the EU Member States is out of step with these principles; it trusts that they will correct their policies. A credible, socially-balanced consolidation policy is essential if we are realistically to expect central banks and the social partners to use the room for manoeuvre available to them to pursue a monetary and incomes policy which promotes employment.

3.2.4. Most Member States' fiscal deficits are too high. This not only makes the required drop in interest rates difficult, but also puts long-term constraints on their scope for fiscal measures to promote employment. The Committee shares the Commission's view on the need for further fiscal consolidation. This retrenchment must also reflect cyclical requirements. Against this backdrop, the Committee notes that the financial policy convergence criteria laid down in the EC Treaty are flexible enough to accommodate cyclical conditions.

3.2.5. Fiscal policy is also very important for promoting employment. The tax burden must not be allowed to hold back investments (companies, governments) or act as an obstacle to taking-up employment (employees, the self-employed). The tax system must be structured in a way which is more conducive to employment needs. It is clear from examples throughout the world that low-taxation stimulates growth and employment. The Committee does, however, draw attention to the need for social balance. Tax reductions must not be made at the expense of essential public services or social protection.

3.3. Implementation of the decisions taken at the Essen summit

3.3.1. The Committee endorsed from the outset the decisions taken at the Essen European Council in December 1994. These identified the following key requirements for an EU employment policy:

- improving employment opportunities for the labour force;

- increasing the job-intensiveness of growth;

- reducing non-wage labour costs in order to promote job-creation;

- a more efficient labour-market policy;

- improving measures to help groups particularly hard hit by unemployment.

In 1995, in the course of the implementation of the abovementioned policy for stimulating employment, the Member States for the first time drew up and submitted to the Commission multi-annual employment policy programmes, in accordance with the reporting requirements laid down at the same time as the policy objectives.

3.3.2. The interim report submitted to the European Council in Florence did, however, make it clear that the Member States are, to a large extent, maintaining their traditional approach to employment policy and little headway is being made with the initiation or implementation of new measures. The Committee takes the view that the desired coordination of employment policy at EU level should not be limited to annual reports on multi-year programmes. The Member States must be reminded that the commitments made at EU level are binding and help to enable European employment policy to have a more pronounced and lasting effect.

3.4. An offensive to raise qualifications

3.4.1. The five goals set out in the White Paper on Education and Training must play a key role in the establishment of the learning society (). The education system, which lies virtually exclusively within the remit of the Member States, is in crisis. The education provided is frequently inappropriate and inadequate. The Committee calls for stronger links between schools (and colleges or universities) and the world of work experience and for education systems to concentrate more on training for the jobs of the future, in areas such as the media, telecommunications, the environment, health-care and tourism.

3.4.2. The Commission rightly draws attention to the shortcomings in ongoing training. It is necessary to combine work with training, in schemes such as apprenticeships and sandwich courses, for everyone working in firms, without any form of discrimination, in particular the limiting of such training solely to academically-qualified employees. With a view to facilitating mobility, steps must be taken to enable comparisons to be made between vocational training systems and to introduce comparable vocational training certificates valid throughout the EU labour market.

3.4.3. Education and vocational training are examples of areas which lend themselves to national action involving the social partners under a confidence pact. Employers know what education their workforce needs and the workforce is interested in education and vocational training in order to keep their jobs, achieve promotion or find a new job. A workforce with the requisite skills is of common interest for the social partners. Mobility both within the enterprise and on an inter-enterprise level will be increased. The Committee therefore urges the social partners to conclude confidence pacts for education and vocational training with a view to boosting employment.

3.5. Intergovernmental conference

3.5.1. The Committee believes that the EU Treaty must:

- contain a clear reference to the coordination of employment policies;

- insert 'the coordination of policies to promote employment` in the list of 'activities of the Community` (Article 3);

- include a binding co-ordination procedure, including a multilateral monitoring scheme. This includes national multi-annual programmes based on guidelines laid down across the Community by the economics and finance ministers and the ministers for labour and social affairs, at the Commission's proposal and with the involvement of the Economic and Social Committee.

3.5.2. In connection with the review of the Maastricht Treaty, the Committee calls for the sections covering macro-economic policy (Article 103), industrial policy (Article 130), economic and social cohesion (Article 130a), the common agricultural policy, and technological R& D (Article 130f) to be more geared towards employment objectives).

3.5.3. Article 118a of the Treaty should be reworded with a view to giving especially favourable treatment to micro-businesses. Article 118a specifically provides that health and safety at work directives 'shall avoid imposing administrative, financial and legal constraints in a way which would hold back the creation of small and medium-sized undertakings.` The Committee would argue that insufficient notice has been taken of this important clause, in particular in respect of micro-businesses. Action taken in this field must not, however, lead to distortions in competition.

4. Measures to be taken at EU level

Whilst paying due regard to the requirements of the subsidiarity principle, there is a need to ensure that all the powers granted to the EU are used as fully and as effectively as possible. The issue of joblessness and employment cannot be confined to labour-market aspects, particularly since the Union's remit here is limited. The EU has the power to take action in fields ranging from the single market, R & D and structural policy to economic, financial and monetary data.

4.1. Single market

4.1.1. In the paper 'Action for employment in Europe - a confidence pact` () the Commission proposes to move on four fronts:

1) to complete the internal market and implement it more effectively;

2) to enhance the overall competitive environment in Europe;

3) to help small and medium-sized enterprises;

4) to open up wider access to the world market.

The Committee explicitly endorses these proposals.

4.1.2. The development of a European infrastructure is of major importance to the goal of completing the single market (trans-European networks). Since Jacques Delors' White Paper was published, a mass of statements have been made, but little has been seen in the way of concrete measures. The Committee is well aware of the administrative and legal difficulties to be overcome, but cannot comprehend why financial problems are not being fully addressed. The Committee backs the Santer proposal to kick-start priority transport infrastructure schemes by transfers from the European budget.

4.1.3. The Committee supports the Commission's proposals relating to the establishment of a European information society. It feels that this is one of the central elements of European industrial policy, aimed not at interfering with market forces, but rather at enhancing the business environment for European companies. The Committee however calls for other industrial aspects to be covered, above and beyond the information society, and proposes that the key elements of the industrial action programme be included in the confidence pact.

4.1.4. Bearing in mind how Europe is lagging behind in the field of R& D, the Committee endorses the Commission's initiative to focus the promotion of research in Europe on main target areas and to gear it more to practical applications. The Committee backs the drawing-up of strategies, for example in the central areas of combined transport, the car of the future, multimedia educational software, environmental technology and water.

4.1.5. The confidence pact states that 'the process of building the internal market is still incomplete or uneven .... SMEs have more difficulty exploiting its full potential than major businesses. Liberalization, we would say, is not an end in itself but a means towards increased cooperation and prosperity in Europe, improved confidence of consumers and the quality of services for users`. With these aims in view the Commission drew attention, in its Opinion on the IGC, to the importance of universal services and the general economic interest.

4.1.6. The Committee agrees with the Commission's view that the market in services is our best hope for high-grade job creation and accepts its finding that there are too many restrictions on the development of high added-value services. The Committee welcomes the Commission's proposal to draw up a comprehensive communication on employment and services for the Dublin European Council, with specific proposals and a timetable for the elimination of existing restrictions.

4.1.7. The Committee welcomes the Commission initiative to develop guidelines for closer co-operation in tax policies in Europe with a view to both enhancing job-creation conditions and ending the trend towards ever more burdensome taxes on wages.

4.1.8. The example of the US single market shows that growth and employment is dependent less on world trade than on what is happening in the domestic economy. We should strive to ensure that, by virtue of economies of scale, the European single market can do the same for the European economy as the American single market does for the American economy.

4.2. Opening-up wider access to the world market

4.2.1. The Committee endorses the following specific proposals:

- strengthening the WTO;

- giving priority to the implementation and enforcement of the results of the Uruguay round;

- attempting to incorporate Russia and China into the WTO and the international economic system generally;

- combating intellectual piracy;

- adjusting the common commercial policy to fit in with the changing patterns of international trade.

The Committee would urge that the social dimension always be taken into account when such adjustments are made.

4.2.2. The Commission rightly stresses the importance of the world market. Its proposals in this area meet with the Committee's approval. However, the European Union has to define its role in international trade policy, put into practice the representative function conferred on the Commission under the terms of the Treaty and develop procedures for adopting a common stance in international negotiations.

4.3. Additional legislation

4.3.1. The Committee would reiterate the request it made in its Opinion on the Report from the Commission to the Council and the European Parliament on the single market in 1995 (). In its Opinion the Committee called upon the Commission, when the latter draws up its report in the second half of 1996 on the impact of the single market, 'to lay down a timetable for adoption of the remaining required measures, based on the key aim of achieving EMU in 1999, and including a methodology for imposing Community convergence on national administrative practices, even if some long-term projects might require extra deadlines`.

4.3.2. The Committee backs the Commission in its efforts to ensure Member States transpose the single market Directives and apply them in practice, including in the fields of public procurement and the service sector. With a view to achieving a more effective result, preference should be given to issuing a Regulation on the matter, rather than a Directive. The Committee would, however, strongly emphasize that none of the measures taken to boost employment should curtail health, safety or social entitlements.

4.3.3. Enterprises of all sizes continue to suffer as a result of the failure to introduce overall provisions.

4.3.4. The Committee therefore calls for steps to be taken to fill the remaining gaps. There has been a delay in finalizing the statute of the 'European company`. The Committee trusts that agreement will be reached as soon as possible, on the basis of opinions it has issued with respect to provision of information, consultation and worker-participation The Committee also trusts that a decision will finally be taken on the introduction of a legal framework in respect of biotechnology investments; it would draw attention to the Opinions which it has issued on this subject.

4.4. Simplifying legislation

4.4.1. The establishment of quality standards and rules governing the structure and operation of the market are essential steps along the way towards simplifying legislation. If increased demands for flexibility are to be acceptable to the workforce, new, more flexible forms of employment must provide scope for individual development, career development and social protection. The Committee does, however, believe that a major contribution to job-creation would be made by reducing excessive regulation costs and taxation. This should certainly be done for the micro-businesses sector and low-paid workers, and if possible for other categories as well. The problems in question are particularly marked at national level.

4.4.2. It should be remembered that non-wage labour costs are not limited to payroll taxes; they also include the cost of employment regulation. Thus, in making a decision on whether to hire, an employer will take into account all the costs of his decision, those ensuing from recruitment and any subsequent firing.

4.4.3. The Committee thus takes the view that the effectiveness of all new EU measures should be verified; there is also a need to review the effectiveness of existing provisions.

4.4.4. In this context, the Committee welcomes the SLIM initiative and would wish to see it extended to other areas as soon as possible. The EU should give a lead to its Member States by reviewing all aspects of its regulation, and particularly employment regulation. The guiding principle of this review should be that a regulation will be scrapped unless there is a very strong case for its retention.

4.4.5. The Committee regrets that the proliferation of CAP rules places serious constraints on decisions, because of the excessive amount of information required, and often discourages farmers from taking advantage of the opportunities offered by the EU.

4.4.6. The Committee welcomes the recognition that regulations are particularly disadvantageous to SMEs and endorses the principle of an action programme to assist them but it considers that this should be focused chiefly on the micro-businesses, which are the primary sources of job-creation and the sector most seriously affected by excessive regulation.

4.4.7. The Committee considers that the current definition of SMEs is too wide-ranging; at the top-end, it includes quite substantial companies and at the lower end it extends to sole proprietors. The problems of these two categories, and the type of assistance they require, are too diverse to be encompassed in a single grouping. As a result, measures to assist them are not accurately targeted.

4.4.8. The Committee feels that it would be a positive measure to sub-divide the SME category and to define the term 'micro-businesses`, in accordance with the Commission recommendation of 3 April 1996. In all of the developed nations SMEs and, more particularly, the micro-businesses have been shown to be the most important source of job creation. Any strategy for improving employment prospects in the EU must focus on these micro-businesses. It is necessary to create an enterprise economy in which established entrepreneurs can expand and potential entrepreneurs are encouraged to enter the market with a reasonable chance of achieving business success.

4.5. The single currency

4.5.1. The Committee has expressed the view on a number of occasions that in political terms, a credible environment crucially depends on economic and monetary union being in place on schedule. The Committee stresses that this is less a question of paying lip-service to the aim of economic and monetary union than of the players involved shouldering their responsibilities and taking concrete action. The achievement of economic and monetary union will only help create a stable economic environment if it provides an open framework for adhesion by countries which are unable to take part from the start but who subsequently seek admission.

4.5.2. The Committee stresses that postponing monetary union would do nothing to promote an active policy on jobs. Indeed, the Committee fears that any postponement would lead to unrest on the currency markets which could, in countries with the strongest currencies, put jobs dependent on exports under threat and, in other countries, cause interest rates to rise. This would be a recipe for a new recession.

4.6. The Structural Funds

4.6.1. The Committee shares the Commission's view that the EU's structural funds should be 'determinedly used to promote employment`. It would, however, stress the need to ensure that the funds are used to create lasting jobs and that new jobs are not created at the expense of existing jobs.

This standpoint was already adopted by the Committee in its Opinion of October 1995 on local development initiatives in which it drew attention to the need 'to channel a larger proportion of the CSFs towards the employment objectives of the White Paper (local development, small businesses, new employment sources)`. (Opinion of 25 October on local development initiatives and regional policy - point 9.7.1).

4.6.2. To this end, the Committee believes that the Structural Funds need to be restructured.

4.6.3. Objectives 1, 2, 5b and 6 are specifically regional in character and involve measures restricted to certain eligible regions or parts of regions. The regions eligible for assistance are not all areas of high unemployment; some of them have very low levels of unemployment; conversely, some regions which are not eligible for assistance under these objectives have relatively high unemployment levels. Objectives 3, 4 and 5a, on the other hand, cover the whole of the EU.

4.6.3.1. According to the Commission's fifth periodic report on the social and economic situation and development of the regions in the EU, the average level of unemployment in Objective 1 regions has actually increased from 15,4 % in 1986 to 16,7 % in 1993. In the same period, the average level of unemployment in Objective 2 regions declined from 14,7 % to 12,1 % and in Objective 5b regions from 8,3 % to 7,3 %. It therefore appears that Objective 2 has had the most favourable impact on unemployment.

4.6.4. Objective 3 is specifically aimed, inter alia, at combating long-term unemployment and facilitating the integration into working life of young people. The ESC concludes that the best way of deploying the Structural Funds in the service of employment would be to increase, and also to use more effectively the amount allocated to the Objectives specifically geared to boosting employment.

4.6.5. The Committee does not believe that any new money should be made available for this purpose, as that would increase the level of public expenditure and the burden of taxation. The Committee therefore considers that funds should be reallocated between the Objectives. Any re-allocation cannot, however, compromise contractually binding agreements between the EU and individual Member States. It must also never affect regions which, while having lower unemployment levels than the Community average, are less economically developed than the EU average in terms of GDP per capita. Portugal is an example of this.

The key employment objective must always remain in step with the more general Community goal of economic and social cohesion.

4.6.6. The Commission points out that a mid-term review of Objectives 1, 3, 4 and 5b is scheduled for early 1997. If this occurs, a possibility will thus be provided to refocus the funds in such a way that they will have a greater impact on employment prospects in the EU and the Committee firmly believes that this opportunity should be taken.

4.6.7. Another measure which would also make the Structural Funds better suited to combating the problem of unemployment would be to alter the criteria of eligibility for assistance under Objectives 1, 5b and, perhaps, 2 so as to enable those regions which are suffering from high levels of unemployment and have low per capita GDP to be more eligible. Such regions may be defined as 'any region where the rate of unemployment is higher than the EU average or where the participation rate is less than the EU average by given margins`.

This may be an effective way of channelling funds in view of the fact that three quarters of the available resources have yet to be committed.

4.6.8. The Committee fully supports the Commission in its endeavours and calls upon regional and local authorities to bear in mind the importance of territorial pacts between socio-economic organizations and public administrations for promoting local development initiatives.

4.6.8.1. The goal of the broad partnership which underlies the territorial pacts is to harness the readiness to help which exists at local level and all the local resources to an integrated strategy, thereby making it possible to achieve better coordination of measures to boost employment.

4.6.9. Despite the information campaigns carried out by the Commission, local initiatives to boost employment have been slow to develop. It is to be hoped that the appeal made by the European Council in Florence that pilot regions and areas be selected for the establishment of territorial pacts will not fall on deaf ears.

4.6.9.1. The Committee takes the view that regions and local authorities should be able to submit their plans in this field directly in order to avoid having to go through bureaucratic and political machinery which would cause delays.

4.6.9.2. An important role could be played by the Economic and Social Committee and its counterparts at national level in publicising experiences and methodologies and in the follow-up to (a) preparatory work on the pacts, (b) the final definition of the content of the pacts, and (c) the results of the pacts.

4.7. SMEs

4.7.1. The Committee agrees with the Commission's proposals for:

- innovative measures for SMEs;

- anticipation of industrial change; and

- development of local initiatives.

4.7.2. One specific area in which constructive help could be given to SMEs is in closing the 'equity gap` which exists in many countries across the EU. Most small companies, particularly those in start-up situations and, more particularly, those in innovative, high-tech industries, find it more difficult to obtain 'seed` capital than do their counterparts in the United States and other countries with advanced financial markets.

4.7.3. It is fair to state that - whatever the reasons and disregarding the policies for funding SMEs pursued by the Member States, the Community financial instruments which target SMEs (EIG, EIF, budget support instruments) are not having the desired effect. It must be asked, in particular, whether the EIB is the best mechanism for delivering the desired outcome.

4.7.4. The Committee proposes the creation of an ESMEIB (European Small and Medium-sized Enterprises Investment Bank) as a separate organization dealing solely with SMEs.

4.7.5. The Committee would once again stress the need, in this context, to give priority to the requirements of micro-businesses and the other categories of smaller businesses classified as SMEs.

5. Measures falling within the remit of the various categories of economic and social activity

5.1. Incomes

5.1.1. As for incomes policy, wage-rise restraint is needed, geared to productivity developments in the individual regions of the European Union. This could help stabilize demand, while at the same time expanding scope for an employment-oriented investment policy. Less-developed areas might well catch up somewhat on the wage front as they tap their greater potential for productivity gains.

5.1.2. The Committee shares the Commission's view that wage restraints since the early 1990s have helped curb inflation and restore profitability.

5.1.3. The Committee accepts the need to pursue an incomes policy conducive to competitiveness and employment. It would, however, point out that this should not be equated with a low-wage economy. Wage increases which are matched or exceeded by increases in productivity are not inflationary, nor do they have an adverse effect on competitiveness. What is important is not the level of wages but the level of unit labour costs; for many years, Japanese manufacturers had, at one and the same time, both the highest wage rates and the lowest unit labour costs among major countries. To the extent that the productivity of European industrial companies is lower than that of companies in the USA and Japan, there is a need for increases in wages to be lower than increases in productivity but, once this gap has been closed, increases in productivity and pay can be much more closely matched.

5.1.4. It should also be remembered that unit labour costs are not the sole determinant of competitiveness. In some cases, high unit labour costs can be offset by quality, design and other qualitative elements of 'non-price competitiveness`. European companies have to work hard to catch up in this field.

5.1.5. The Committee fully recognizes the interaction between interest rates, wages, investment, employment and productivity. It calls upon the Member States and the various players in these fields to endeavour to achieve the necessary balance in the light of their traditions and the situation applying in their respective countries, and bearing in mind, inter alia, the different geographical situations.

5.2. Social protection

5.2.1. The Committee would stress the need for a socially-balanced policy of consolidation. The State must not give preference to investment at the expense of consumer spending. The crucial need is for a socially just balance between taxation and consumer spending.

5.2.2. The Committee approves in principle the policy of redirecting sums spent on unemployment benefit to active employment measures but feels that there is a need for considerable research into how this can be achieved in the most effective manner possible.

5.3. Organization of labour and flexibility

5.3.1. On the question of the future of work, the Commission states that a 'new concept of the content and role of work in our societies must be devised`.

5.3.2. The Committee recognizes that the social partners have made progress in their endeavour to reach agreements on the organization of work, flexibility and shorter working hours. This must be built on. The progress made in this field constitutes an important contribution to the preparation of the Green Paper planned by the Commission on these subjects. The Committee also welcomes the proposal to issue another Green Paper on the social and societal aspects of the information society.

5.4. Employment of young people

5.4.1. The Committee approves the study of the following projects as a matter of urgency:

- joint initiative on integration of young people;

- set of criteria for access to skills;

- system of European articles of apprenticeship.

5.4.2. The Committee approves of the concept of using education and training as keys to the doors of employment but would point out that this must be coordinated with job-creation. Training will not, of itself, create jobs; it will simply create a workforce better fitted to take such jobs as may be available. Training without job creation will merely lead to a pool of highly-skilled unemployed persons.

5.4.3. The Committee attaches especial importance to the following proposed actions by the Commission to integrate young people:

- developing links between schools and businesses;

- developing a Erasmus apprenticeship scheme and beginning discussions with governments and the social partners to devise a system of European articles of apprenticeship.

5.4.3.1. The Committee also expresses its support for (a) a system of European articles of apprenticeship, (b) developing the Erasmus programme for young people who undergo vocational training under some form of scheme organized in conjunction with firms, and (c) introducing a 'modern European apprenticeship`.

5.5. Cross-border mobility

5.5.1. The Committee also considers that the EU needs to create greater opportunities for employment by the removal of barriers to employment and self-employment and the improvement of freedom of movement within the Union.

5.5.2. This will require cross-frontier employment services, the opening-up of public-sector employment in each country within the Union to the citizens of other Member States, the mutual recognition of qualifications and greater portability of personal savings and pension rights.

Brussels, 31 October 1996.

The President of the Economic and Social Committee

Tom JENKINS

() OJ No C 204, 15. 7. 1996.

() OJ No C 295, 7. 10. 1996, p. 5, point 4.5.

() CSE(96) 1 final, 5. 6. 1996.

() OJ No C 212, 22. 7. 1996, point 4.5.

APPENDIX to the Opinion of the Economic and Social Committee

The following amendments, which were supported by at least a quarter of the votes cast, were rejected during the debate:

Point 3.2.5

Delete the fourth sentence ('It is clear from examples throughout the world that low-taxation stimulates growth and employment`).

Reason

Examples to the contrary also exist. The general level of taxation does not determine growth and employment.

Result of the vote

For: 34, against: 67, abstentions: 8.

Point 3.5.3

Add a new sentence worded as follows:

'This must not, however, bring about a situation in which lower standards as regards health and safety are applied to employees of such enterprises than are applied to employees of larger enterprises.`

Result of the vote

For: 35, against: 57, abstentions: 20.

Point 4.6.2

Delete.

Insert the following:

'To this end, the Committee believes that the impact of the Structural Funds needs to be evaluated in terms of their effects in creating lasting jobs.`

Reason

The present wording reaches a conclusion which may be in conflict with the evidence when it is available.

Result of the vote

For: 39, against: 63, abstentions: 15.

Point 4.6.5

Delete.

Reason

This paragraph anticipates a conclusion which is not yet proven. The Structural Funds must be re-examined in the context of the total EU budget.

Result of the vote

For: 38, against: 73, abstentions: 11.