Opinion of the Economic and Social Committee on 'The macroeconomic dimension of employment policy'
Date: 1999-10-20
Institutions: European Economic and Social Committee
Subjects: economic growth, economic stabilisation, employment policy, job creation, macroeconomics

C 368/36

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Official Journal of the European Communities

20.12.1999

Opinion of the Economic and Social Committee on ‘The macroeconomic dimension of
employment policy’

(1999/C 368/13)

On 27 May 1999, the Economic and Social Committee decided, under Rule 23(2) of its Rules of
Procedure, to draw up an own-initiative opinion on ‘The macroeconomic dimension of employment
policy.’

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was
responsible for preparing the Committee’s work on the subject, adopted its opinion on 29 September
1999. The rapporteur was Mr Vasco Cal.

At its 367th plenary session of 20 and 21 October 1999 (meeting of 20 October), the Economic and
Social Committee adopted the following opinion by 76 votes to two with four abstentions.

1.
The Economic and Social Committee notes with satisfac-
tion that the recommendation it made in its last opinion on
the preparation of the Broad guidelines of the economic
policies of the Member States and of the Community (1),
namely: the launching of a macroeconomic dialogue involving
the Council, the Commission, the European Central Bank and
the social partners at European level, to improve coordination
between wage trends, fiscal policy and monetary policy, in
order to encourage growth and job creation, is to be acted on
this autumn. The Committee is prepared to assist the main
players in this macroeconomic dialogue by providing back-up,
in accordance with the institutional role assigned to it by the
Treaties.

2.
This macroeconomic dialogue will pave the way for an
approach integrating all policies affecting employment. The
fight against unemployment must involve coordinating macro-
economic policies as well as implementing labour market
policies. Economic policies, research policy, social policy and
fiscal policy must all be geared towards the demands of
employment.

3.
The Committee’s concerns and observations on Com-
munity economic growth (which is not yet strong enough)
and employment (which is still too high overall) remain as
expressed in the opinion mentioned in paragraph 1. The
present opinion will focus on the key points.

4.
The Committee is increasingly convinced that the sta-
bility and growth policy (reducing budget deficits, aiming for
price stability and raising real salaries in line with productivity,
while providing a sufficiently high return on investment to
secure higher growth) is the only viable one for the Com-
munity; 90 % of the EU’s wealth is generated by its internal
market. This stability and growth policy must, therefore, be
continued over the coming years. At this point in the current

(1) Committee opinion of 27 May 1999 on the ‘1999 Annual
Economic Report — The EU economy at the arrival of the
euro: promoting growth, employment and stability’, OJ C 209,
22.7.1999, paragraph 4.6.

business cycle and in view of the overriding considerations of
economic and social cohesion, the EU’s medium- and long-
term objectives must remain those of balancing budgets and
reducing public debt.

5.
The Member States must, of course, ensure that budget-
ary streamlining is not secured at the expense of productive
investment — as has been the case in certain Member States
over recent years — as this could put paid to the economic
recovery that the European Union is undoubtedly experiencing
owing to its largely sound economic foundations. Prudence is
required but also action. The economic climate has proved
more clement than the spring forecasts suggested, and positive
openings are emerging; the current situation no longer justifies
pessimism, but rather the opposite.

5.1.
The Committee is convinced that the European Union
can draw on the economic, technological and skills-related
resources necessary to equip it to combat external threats.
Now that the main decisions on implementing the euro have
been taken, the Community should learn to rely on a largely
internal demand structure. ‘As an economic entity, Europe has
great growth potential, and the Broad Economic Policy
Guidelines should propose the measures necessary to realise
this potential’(1).

The Committee feels that the European Union must
5.2.
have a medium-term growth target of at
least 3,5 % in
order to create enough jobs to reduce the current level of
unemployment to 3 or 4 %, over the next 10 years or so, and
to raise the employment level to around 70 %, as proposed by
the Commission in the autumn of 1997 in its first draft
employment policy guidelines. The challenges facing each
country vary, however, as some of the objectives have already
been achieved by certain countries; this highlights the need to
conduct macroeconomic dialogue at national level as well.

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5.2.1. Medium-term growth must be underpinned by a
sustained increase in real investment (by about 7 % per annum
so as to move from the current 19 % to 22-23 % of GDP) in
order to generate the jobs needed and to prevent the emergence
of inflationary pressures as a result of a lack of productive
capacity. Long-term interest rates and the profitability of
enterprises are currently favourable conditions. Still to be
developed is a macroeconomic policy which would permit
sustainable growth and appropriate expansion of demand.
This policy must be buttressed by economic reforms in
accordance with the processes initiated by the Luxembourg
and Cardiff Summits — reforms which seek to improve the
competitiveness and operation of the labour market and of
markets in goods, services and capital.

8.
The Committee feels that everything possible should be
done to support domestic demand and improve the general
climate for productive investment and new businesses. Bearing
in mind financial constraints and the redistributive role of the
budget, a reduction of the tax burden on companies and
also households could stimulate investment and boost the
confidence of entrepreneurs and consumers. The Committee
has for several years been calling for the authorisation, under
certain conditions, in the Member States which so wish, of a
reduction in VAT rates on products and services with a high
labour content. The Committee is pleased that the Commission
has presented a draft directive to this end, on which the
Committee has issued a largely favourable opinion (1).

5.2.2.
In a number of Member States, public investment
has suffered as a result of those countries’ efforts to meet the
convergence criteria for entry to the third stage of EMU. The
Committee would therefore urge that public spending be
reorganised in order to provide more incentives for investment.
In particular, governments should encourage a partnership
between the public and private sectors as regards investment.
Moreover, Community level initiatives, such as those relating
to the trans-European networks, could usefully be put into
practice.

The recovery, still hesitant, should be encouraged by
6.
measures to stimulate investment and boost private consumer
confidence. Increased investment boosts employment pros-
pects and the confidence of the public, producers and con-
sumers alike. An injection of around 0,5 % of GNP could help
to consolidate recovery. It takes more than a year for the
effects of investment to work through to production.

7.
In view of the challenges the information and learning
society poses for Europe, companies’ efforts to defend their
competitive edge on increasingly globalised markets should be
backed by more vigorous investment policies, especially in
technology and skills. Meanwhile,
in sectors that are not
directly concerned by globalisation, investment can be usefully
channelled towards boosting capacity to meet domestic
demand and, more generally, creating jobs. The new Objec-
tive 3, in combination with the other development measures
financed by the Structural Funds, may provide an important
stimulus for the skills development policies of the Member
States. The importance of basic and continuing training
must also be stressed. Employment services must enhance
employability by supporting and advising young people and
the unemployed with regard to their training, to enable them
to demonstrate their aptitude for a given job to full effect. Both
sides of industry could help by drafting blueprints on this area
and thus revitalising employment services.

9.
A common monetary policy within the euro area, which
also obliges the other four countries to conduct almost exactly
the same policy, places a large burden on budgetary policy
(taxes and spending) in order to support the monetary policy
while taking account of the differing business cycle situations
in the Member States. This is perhaps the largest challenge
after the creation of the common monetary policy. It must be
emphasised that
the necessary coordination of budgetary
policy does not mean that the same policy must be performed
in all the Member States.

10.
The Committee would stress that the main driving
force behind job creation is growth. The employment policy
measures advocated in Luxembourg, as supplemented by the
structural programme (services and capital markets) launched
in Cardiff, should accompany the appropriate macroeconomic
policy mix, embracing budgetary, monetary and incomes
policy, in order to create a climate of confidence to stimulate
consumption and investment and thus to boost employment
in a durable way.

The Committee reiterates its call for wage rises to reflect
11.
not only inflation (which is still very low) but also productivity
gains and the need to secure company profitability (generally
very good in the Community), while increasing purchasing
power. The rise in consumer demand and in public and private
investment must give the economy fresh impetus.

12. Member States’ structural policies and research and
development programmes must support efforts to create jobs,
while placing them within a long-term, sustainable perspective.

(1) Opinion of 26 May 1999 on the Proposal for a Council Directive
amending Directive 77/388/EEC as regards the possibility of
applying on an experimental basis a reduced VAT rate on
labour-intensive services, OJ C 209, 22.7.1999.

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13.
The Committee notes that, in recent months, banks in
certain countries have reacted to rumours of rising inflation
by raising mortgage costs disproportionately (from 4,6 % to
near 6 %). However, these increases have not been matched by
higher interest rates on savings accounts, which are vitally
important to household budgets throughout the European
Union.

infrastructure. However,

may be necessary to sharpen the competitive edge of our
industrial
the ensuing company
restructuring must never be conducted at the expense of the
workers. Mass redundancies do have an impact on public
confidence, demand and thus the operation and growth of the
economy as a whole, which in turn affects major financial and
industrial conglomerates.

14.
The Committee would once more draw attention to the
systemic risks arising in part from suppliers’ credit (interest
rate risk), the advent of increasingly sophisticated financial
products and the speed with which purchase orders, orders to
sell and other financial transactions are carried out. It welcomes
the recent measures taken by the Bank for International
Settlements, designed to establish more stringent and,
in
particular, more effective prudential rules for the financial
structure of banks (importance of equity capital), for the
internal and external audit of the capital flows of financial
institutions, and for market rules (transparency) to be observed
by parties to financial transactions. In the Committee’s view,
the rules eventually agreed on should apply to all financial
operators. As the EU provides over 60 % of the funds allocated
to developing countries, the Commission should take the
necessary action before March 2000 to ensure that
the
European Union’s specific interests are taken into account in
the decisions of the Basle Committee.

15.
The new waves of economic concentration (cooper-
ation, mergers and joint-ventures between major companies)

Brussels, 20 October 1999.

Conclusion

16.
The Committee calls for the continuation of the stability
and growth policy for employment. The main players in the
October macroeconomic dialogue, namely the governments
and the Commission (budget and structural policies), the
European Central Bank (monetary policy) and the social
partners (wage and labour market policy), should continue to
coordinate their efforts to build up consumer and investor
confidence, and so stimulate demand, which, along with
structural reforms designed to sharpen the competitive edge
of European companies, remains the main locomotive for
growth and job creation.

17.
The Committee welcomes the stability policy of the
European Central Bank. The ECB’s decision of 8 April 1999 to
cut interest rates lent definite support to a stability policy
geared to growth and job creation. The ECB has shouldered
the responsibilities assigned to it by the Treaty.

The President

of the Economic and Social Committee

Beatrice RANGONI MACHIAVELLI