Opinion of the Committee of the Regions on the 'Forthcoming Economic Policy Guidelines'
Date: 1998-11-19
Institutions: European Committee of the Regions
Subjects: European Union, economic policy, employment policy, regional policy

22.2.1999

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Official Journal of the European Communities

C 51/63

Opinion of the Committee of the Regions on the ‘Forthcoming Economic Policy Guidelines’

(1999/C 51/11)

THE COMMITTEE OF THE REGIONS,

having regard to the Communication from the Commission on Growth and Employment in
the Stability-oriented framework of EMU — Economic policy reflections in view of
the forthcoming 1998 Broad Guidelines (COM(98) 103 final) and the Commission’s
Recommendation for the Broad Guidelines of the Economic Policies of the Member States
and the Community (COM(98) 279 final);

having regard to the decision of the Commission on 27 February 1998, under the first
paragraph of Article 198 c of the Treaty establishing the European Community to consult it
on this matter;

having regard to its Bureau decision taken on 13 May 1998 to draw up an opinion on the
subject and to direct Commission 6 — Employment, Economic Policy, Single Market, Industry,
SMEs — to undertake the preparatory work;

having regard to the draft opinion (CdR 110/98 rev.) adopted by Commission 6 on 20 July
1998 (Rapporteur: Mrs Bresso),

adopted the following opinion at its 26th plenary session of 18 and 19 November 1998 (meeting
of 19 November).

1.

Introduction: summary of the Commission docu-
ment

rate back to the 1961 level (67 %) or closer to that of the
US and Japan (72 %), supplying the labour market with
an employment potential of 22 to 34 million people.

1.1.
The Commission document maintains that the
current economic upturn brought about by the fall in
interest rates, in turn the result of convergence and
austerity policies, could evolve into a lasting process of
investment-led growth. However, faced with an increase
in EU GDP of 2,6 % in 1997 and 3 % in 1998, only
minimal
increases in employment rates have been
recorded and unemployment remains the EU’s thorniest
issue.

The EU’s employment problem can only be solved in
the medium to long term and all will depend on whether
lasting investment-led growth actually materializes. This
objective is within reach, as there is untapped production
capacity to favour non-inflationary growth.

In this respect, EU economic policy must fulfil a number
of basic requirements:
it must maintain monetary
stability and market confidence, apply the convergence
measures to the full, contain wage increases and carry
through structural reforms.

1.2.
There are two sides to the EU’s employment
problem: on the one hand, in 1997 there were 18 million
people out of work (with an average unemployment rate
of 10,7 %); on the other hand, the ratio of employed
people to the working-age population is 60 % in the EU
as opposed to 74 % in the USA and Japan.

The second objective should be furthered by promoting
both salaried employment and self-employment and
business creation. In addition, new initiatives must be
found in the non-profit sector, and attempts made to
promote a more flexible attitude among young people
towards certain jobs that are generally perceived to be
unattractive.

The limited supply of female labour, especially in
southern European countries, is particularly problem-
atic; higher numbers of women on the labour market
would give a considerable boost to the EU’s activity
level.

More generally, policies are needed for training and
including retraining
upgrading human resources,
schemes; these should be accompanied by active labour
market policies and structural measures to compensate
for the insufficient rise in the number of jobs available.

Furthermore, the process of substituting capital for
labour that began two decades ago must be stemmed.
Technical and organizational advances will continue,
but with wage moderation, it should also be possible to
put a brake on the labour to capital substitution rate
and bolster growth.

The EU’s objectives are both to reduce the unemploy-
ment rate to normal levels, and to bring the employment

The establishment of a lasting process of invest-
1.3.
ment-led growth and a non-inflationary rise in employ-

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ment will require a stability-oriented monetary policy,
the continued consolidation of public finances in Mem-
ber States, nominal wage trends consistent with price
stability, and real wage developments compatible with
productivity gains.

In this respect, EMU will have a positive impact on
growth, since by removing exchange-rate fluctuation
risks and stability conflicts it will also curb investment
risks. It will therefore play a vital part in sparking a
virtuous circle of growth and stability.

1.6.
Providing they are compatible with sound macro-
economic policies, structural policies play a primary
role in spurring economic growth, promoting competi-
tiveness and increasing employment levels. However,
up to now, progress on structural reforms designed to
increase the flexibility and adaptability of product,
service and, above all, labour markets has been insuf-
ficient in almost all Member States.

In the context of EMU and the objectives of a lasting
reduction in unemployment, the structural reforms
should eventually strengthen market efficiency and
social cohesion, providing Member States make the
necessary efforts.

1.4.
EMU monetary policy will be the responsibility
of the ECB and the ESCB. If long-term interest rates are
to remain low, the ECB must obtain and preserve
independence and credibility. The central objective of
monetary policy will be to maintain price stability, but
it will also back up economic policies for growth and
employment.

The primary goal of the structural policies should be to
complete the single market, finalizing the harmonization
of national standards and promoting the dissemination
of new technologies, innovation, the creation of hard-
ware and software networks and enterprise culture.

Budgetary policy will remain the responsibility of
national governments, but will be subject to the con-
straints of the Stability and Growth Pact, for EMU and
non-EMU countries alike. Budgetary policy objectives
will include the introduction of interest rate cuts to
encourage private investment and the reduction of public
debt, redirecting public spending towards investment
human
(in
resources and active employment policies) and con-
trolling public consumption (pensions, healthcare,
unemployment benefits, social expenditure) with a view
to reducing the tax burden and social security costs
borne by companies.

infrastructure,

production

activities,

Second, the service and product markets must be
reformed, to step up competitiveness (removing needless
burdens on firms and state aid to sectors in decline), to
simplify and accelerate legislative processes for SMEs
and to eliminate all obstacles to the integration of the
financial markets.

Finally,
the labour market requires further active
employment policies (reforming employment services,
investing in training), a lighter tax burden on employ-
ment, and welfare reform to boost motivation to find
jobs and reduce disincentives to work.

1.5.
In this context, it is essential to keep wage rises
under control, in order to ensure continued consolidation
and a high level of employment: increases in real wages
should therefore be linked to increases in productivity,
so as to boost investment and purchasing power.
Nominal wage increases, meanwhile, must be consistent
with price stability. Clearly, wage moderation must also
include the public sector.

2. General comments

2.1.
The general picture presented in the document is
undoubtedly positive for local and regional development
policies, although it avoids going into any detail on the
subject. In reality, on the global market, economic
competition is increasingly a contest between regions
and local networks of companies.

To be achieved, these objectives require a climate of
social dialogue, and collective bargaining must reflect
the productivity differentials associated with levels of
skill, sectors and regions. With regard to the completion
of the single market, special attention must be given to
the sometimes major differences in labour costs between
Member States, generally owing to varying insurance
and social security systems.

Decentralization, as laid down in the principle of
subsidiarity, is vital for policies aiming to reform the
product, service and labour markets. When it comes to
the national harmonization of EU directives in the area
of market regulation, local and regional authorities
are best equipped to prepare and implement ad hoc
programmes, as they have the best knowledge of the
characteristics, constraints and potential of their regions.

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Both the EU structural policies and the National Action
Plans (NAPs) for employment must therefore be nego-
tiated, adjusted and applied in accordance with local
and regional development and social cohesion, using
procedures that comply with the competition principle
and the objectives of consolidation.

2.4.
Giving local and regional authorities a central
role in structural market reform and social cohesion
policies does not imply that it should be their sole
preserve. On the contrary, local and regional authorities
have a critical part to play in motivating, coordinating
and working together with the other operators in the
region, be they public or private.

Meanwhile, the virtuous circle of stability/growth trig-
gered by consolidation, will give local and regional
authorities new opportunities to increase and improve
investment in development support schemes. In this
respect it is crucial that they be given the means to work
independently in their particular spheres of responsibility
and without too much red tape.

To provide effective support

2.2.
for local and
regional development, policies must be focused and
must reap consensus. In other words, they must be based
on an in-depth knowledge of local situations and defined
with the consensus of the social partners.

Each of the three institutional levels common to most
Member States (regions, provinces and communes) has
a specific role to play. Closer cooperation, based on the
subsidiarity principle, is vital.

2.3.
Structural policies for product, service and labour
market reform must include a strand that is drawn up
and implemented locally.

level, structural
At EU, national and also regional
market-reform measures centre largely on legislation
and are aimed at reducing unnecessary burdens on firms
and enhancing their adaptability and flexibility with
regard to single market and global market forces.

At local and regional level, however, and in view of the
fact that global competition is increasingly marked
by competition between regions, local and regional
authorities have a good deal of scope for taking action
to bolster market efficiency and social cohesion, owing
to their more precise knowledge of local conditions.

First and foremost, as the document states, action must
target the non-profit and cooperative sector, but it must
also focus on the four pillars of active labour market
policy (increasing the ‘employability’ of labour, promot-
ing entrepreneurship, encouraging the adaptability of
firms and workers, and strengthening equal opportunity
policies) and measures to make the product and service
markets more flexible and adaptable, while complying
with the competition principle.

The municipalities’ and regions’ role in boosting employ-
ment is not confined to merely correcting so-called
market failures. Their own areas of activity are also
important to the labour market, not least as regards
child- and health care, etc.

Local and regional authorities must not replace the
other operators, but rather create the conditions that
will enable private firms to become more efficient and
competitive. They should act indirectly as driving force,
coordinator and facilitator, while their partners should
include private firms, public bodies, training institutes,
operators from the non-profit sector and cooperatives.

In this respect, the territorial pacts can be taken
2.5.
as a working model and methodology for local and
regional development policies in most Member States.

The pacts seek to exploit local knowledge and entre-
preneurial resources by setting up integrated local
projects, which aim to promote social cohesion and
partnership between the public and private sectors.

Although they are still in the experimental phase, the
wealth of results from the pilot pacts conducted in Italy
and other Member States would seem to indicate that,
in addition to their specific mandates, the pacts generally
aim to promote economic flexibility and adaptability,
greater local market efficiency and increased competi-
tiveness.

The scope of the pacts is therefore potentially much
wider than the document suggests (environment and
consumer services) and is bound to encompass policies
to support SMEs in the manufacturing and producer
service sectors.

3. Specific comments

3.1. Market policies falling within the responsibility
of local and regional authorities centre mainly on three
areas: bureaucratic procedures, the profile of service
markets, and the coordination of local development
projects.

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Red tape poses considerable problems for SMEs, whether
up and running or just beginning; speeding up pro-
cedures, setting up a one stop shop and establishing
advisory services are all measures that fall within the
local and regional authority remit and can reduce the
costs and operating hurdles facing firms.

There is no doubt that one of the greatest difficulties for
SMEs in almost all Member States is the profile of
service markets. The directors of small businesses rarely
have the necessary time, skills and resources to obtain
information on the local availability of services that
could be extremely useful to them in terms of innovating
and sharpening their competitive edge. Local and
regional authorities could and should step in here,
particularly where there are no appropriate national
agencies or ad hoc bodies, as there are for instance in
France and Germany.

With regard to training in particular, local and regional
authorities alone are in a position to implement decentra-
lized training policies that are closely geared to local
and regional requirements. Working from the essential
basic all-round training, local and regional authorities,
cooperating with firms and training colleges, can devise
highly specific training and retraining courses, to match
the immediate needs of the production system rather
than the latest fad.

Finally, and again cooperating with the other players
active in the field, local and regional authorities could
prepare a series of cultural measures designed to increase
the poor mobility of young people on the European
labour market. Partnership agreements between local
and regional authorities in different countries, with
support from appropriate EU programmes, could be
particularly productive.

Lastly, when local development coalitions (such as a
territorial pact) are launched, they often come up against
mutual mistrust between the various local operators. By
acting as coordinator and guarantor, a local or regional
authority can trigger a virtuous circle of equally shared
responsibility between the various public and private
operators, for the purposes of development and employ-
ment.

Promoting entrepreneurship:

3.2.2.
this concerns
both business start-up schemes and services that foster
the survival and growth of new businesses.

It is important, especially for small and very small
enterprises, that entrepreneurship be promoted by local
and regional authorities, since they alone can reach
every corner of a region.

3.2. Active employment policies

3.2.1.
Increasing the employability of the workforce:
this type of scheme should endeavour to match labour
supply and demand, while bearing in mind the workers’
views (e.g. young people’s needs).

There are two particular spheres in which local and
regional authority action can be especially important:
policies centred on young people and policies for the
long-term unemployed.

Through training, accurate information and cultural
measures, young people must be given the means to map
out their own career paths as self-employed workers or
employees, taking account of local opportunities while
making the most of their abilities and educational
background.

Furthermore, specific measures should be taken to boost
female entrepreneurship, as this is the labour force
category with the highest number of people unemployed
(or remaining outside the labour market).

Workers who are technically self-employed but who
work for only one customer are a separate case. Generally
speaking, external insurance networks should be set up
to give these workers the same rights as full employees
(there have been some interesting examples of this in
Finland).
In some cases, ways could be found of
encouraging such workers to set up fully-fledged busi-
nesses, and to highlight the particular character of
cooperatives and the social economy in general.

3.2.3.
Encouraging the adaptability of firms and
workers: this aspect covers all those programmes that
improve the working environment for firms and pub-
licize the services on offer, in which local and regional
authorities should act as regional coordinators and
facilitators. This has already been referred to under
point 3.1.

For the long-term unemployed, while applying the
non-welfare instruments existing in certain countries
(such as community work), local and regional authorities
can take action to raise awareness of opportunities and,
where possible, to restore skills and abilities to the
production system.

3.2.4.
Strengthening policies for equal opportunities:
the document should be more explicit, not least because
those projects that can be set up at local and regional
level, in accordance with structural policies, have a far

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wider scope than employment policies (for instance,
more flexible services for families, incentives for scien-
tific and technical training, policies on working time).

Local and regional-level
initiatives are especially
important for female employment and, above all, female
entrepreneurship.

Firstly, at this level, solutions can be found for problems
associated with families and small children; secondly,
women must be protected from terms of employment
(working from home, teleworking, part-time work)
which when left to private bargaining can often conceal
less qualified and more poorly paid jobs.

The availability of child-care should also be mentioned
as an important factor in giving men and women equal
access to the labour market.

3.3.
As for wage moderation, the idea of widening
wage distribution downwards is generally unacceptable
in Europe; it is feasible only in areas where the cost of
living is lower, providing it is part of a mutually
approved plan to develop/revive the area in question (as
with the Italian ‘area contracts’ for instance).

In any event, minimum pay levels should not be set
artificially, but rather they should be based on the
market and reflect productivity differences relating to
qualifications, sectors and regions.

Furthermore, it must be decided on a case by case basis
whether wage control that penalizes only the weaker
sections of society is justifiable or fair.

3.4. When it comes to tackling these issues, local and
regional authority officials in Europe are still at a

Brussels, 19 November 1998.

professional disadvantage, caught between their usual
workload and new European demands.

The Committee of the Regions is of the opinion that the
role of these officials in the near future will be critical
in linking and harmonizing EU structural policies with
local development and employment projects.

For that reason, local and regional authority officials in
Europe should be given access to appropriate training
programmes,
internships and information pooling
schemes. The ‘Eurotraining’ programme has been well
received and it is hoped that it will be extended to cover
economic and employment policy issues. Local and
regional authority officials must be assured the possi-
bility to take part in the European Social Fund’s new
programmes so that they can develop their professional
skills and thus local administration.

It should also be borne in mind, however, that the usual
workload of
local and regional authority officials
generally gives them less time to take part in training
programmes that are too lengthy or complex.

It might therefore be helpful to devise a training course,
like the one recommended for local and regional
government officials but aimed at young people. The
aim would be to create a new ‘European’ job profile,
for advising officials and assisting with participation
in EU programmes and the dissemination of good
administrative practice, while also promoting partner-
ships and cooperation between local and regional
authorities in other Member States.

The Committee of the Regions hopes that the Com-
mission will take these recommendations into account
and translate them into specific EU measures.

The President

of the Committee of the Regions

Manfred DAMMEYER