Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - European values in the globalised world - Contribution of the Commission to the October Meeting of Heads of State and Government
Date: 2005-10-20
Institutions: European Commission
Subjects: economic and social cohesion, economic reform, equal treatment, globalisation, social development, social structure, summit meeting, the EU's international role

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 03.11.2005 
COM(2005) 525 final/2 

CORRIGENDUM 
Paragraphe 2 du point 3.3. 
Concerne uniquement les versions :FR DE EN. 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

European values in the globalised world  

Contribution of the Commission to the October Meeting of Heads of State and 
Government 

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Table of Contents 

1. 

2. 

3. 

3.1. 

3.2. 

3.3. 

4. 

Introduction .................................................................................................................. 3 

Unity and diversity in shaping economic and social policies ...................................... 4 

Completing the transformation – today’s performance, today’s and tomorrow’s 
challenges..................................................................................................................... 5 

Current policies have not delivered social justice for everyone .................................. 5 

Globalisation ................................................................................................................ 6 

Ageing .......................................................................................................................... 9 

Responding to the Challenge ....................................................................................... 9 

4.1.  Who should do what? The role of Europe ................................................................... 9 

4.2. 

Ideas for change ........................................................................................................... 9 

4.2.1.  The EU level ................................................................................................................ 9 

4.2.2.  The national level......................................................................................................... 9 

4.2.3.  The new partnership of the EU and member states...................................................... 9 

5. 

Conclusion.................................................................................................................... 9 

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1. 

INTRODUCTION 

Europe  must  reform  and  modernise  its  policies  to  preserve  its  values.  Modernisation  is 
essential  to  continue  keep  Europe’s  historically  high  levels  of  prosperity,  social  cohesion, 
environmental protection and quality of life.  

Today, the Europe of dynamism, innovation and openness, of 3G mobile communications or 
the  World  Wide  Web,  sits  side  by  side  with  the  Europe  of  19  million  unemployed,  child 
poverty and stagnant growth, where too many are excluded from opportunity and prosperity. 
This is an uncomfortable duality which undermines the many achievements of the European 
Union and its Member States after a half century of peace and improved living standards.  

For  several  decades  after  the  creation  of  the  European  Community,  the  existing  structures 
helped to deliver outcomes which matched the ambitions of the Community as it was. But this 
is increasingly no longer the case.  

Growth is slowing, structural unemployment remains high, inequalities are rising. Unless we 
are able to change, the forces of global competition, the impact of new technologies and our 
ageing  population  will  increase  the  gap  between  the  two  Europes,  and  between  Europe  and 
the world. Our economic success and the financial viability of our social systems – pensions, 
welfare, health – is called into question.  

This  is  not  simply  a  matter  of  economics  or  public  finances;  this  is  first  and  foremost  a 
question of social justice. This is about the kind of Europe we want our children to live in – 
and how we pay for it.  

The status quo is not an option. With growth, and more Europeans in more productive jobs, 
we  can  achieve  the  outcomes  which  meet  Europeans’ expectations and  values.  By acting in 
the areas that matter most, we can advance European integration. Growth and jobs is a truly 
European agenda.  

The  need  for  change  is  widely  recognised;  for  example  in  the  reform  process  launched  in 
Lisbon in March 2000. But this analysis has not yet been fully translated into action. Europe 
can  no  longer  afford  to  wait;  because  what  is  different  five  years  on  is  the  added  sense  of 
urgency1.  Global  competition,  particularly  from  Asia,  has 
intensified.  Cutting-edge 
knowledge is no longer confined to Europe or North America. Indian universities are turning 
out more than a quarter of million engineers every year. Research spending in China is set to 
catch that in the EU by 2010.  

The good news is that we are not starting from scratch. Important reforms have already been 
launched  in  many  Member  States.  These  build  on  the  stability  offered  by  the  euro  and 
economic  and  monetary  union.  All  have  committed  themselves  to  going  further  and  faster. 
And we have the new Lisbon strategy for growth and jobs, launched this year. Furthermore, 
the  European  Union  is  uniquely  well  placed  to  help  this  transformation.  Economic  and 
monetary union and the euro offer a backdrop of stability and low inflation. Now Europe can 
use its scale, as the biggest trading block in the world, to help deliver ambitious and balanced 

1 

Jobs,  Jobs,  Jobs,  Creating  more  employment  in  Europe,  High  Level  Employment  Task  Force, 
November 2003 and Facing the Challenge, High Level Task Force, November 2004. 

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solutions to international problems from climate change to trade. EU funding and programmes 
can  play  a  significant  role  in  supporting  national  action,  which  makes  the  need  for  an 
agreement  on  the  future  financial  perspectives  before  the  end  of  the  year  all  the  more 
important.  Our  external  instruments,  from  enlargement  to  development  policy,  can  spread 
prosperity and security beyond Europe’s existing borders.  

There can be no partial solutions. No single country can meet these challenges alone. Acting 
together at a European and national level, we can give Europe a future. We can have a strong 
voice, projecting European vision and European values among our partners around the world 

2. 

UNITY AND DIVERSITY IN SHAPING ECONOMIC AND SOCIAL POLICIES 

Common  European  values  underpin  each  of  our  social  models.  They  are  the  foundations  of 
our specific European approach to economic and social policies. 

The  EU’s  Member  States  have  developed  its  own  approach  reflecting  its  history  and 
collective  choices.  Each  has  blended  together  common  elements  such  as  public  pensions, 
health  and  long-term  care,  social  protection,  education,  labour  market  regulation  and 
redistribution through tax policies. Member States are responsible for shaping and delivering 
these different services.  

The  variations  within  the  EU  are  considerable.  For  example,  Lithuania,  Latvia  and  Ireland 
spend 14 to 15% of GDP on social protection systems, the UK and Belgium 27% and France 
and Sweden 30%. The level of public pensions under such systems varies considerably in the 
EU from between  31 and 37%  of  average earnings  in  Ireland,  the  UK  and  Belgium  to  over 
70% in Austria, Finland, Hungary, Italy, Luxembourg, Portugal and Spain.  

This report does not attempt to single out particular “models”, but rather recognises (i) that no 
country  has  yet  found  all  the  answers  and  (ii)  that  each  system  has  distinctly  European 
characteristics on which we should build:  

– 

– 

First,  national  economic  and  social  policies  are  built  on  shared  values  such  as 
solidarity  and  cohesion,  equal  opportunities  and  the  fight  against  all  forms  of 
discrimination,  adequate  health  and  safety  in  the  workplace,  universal  access  to 
education  and  healthcare,  quality  of  life  and  quality  in  work,  sustainable 
development and the involvement of civil society. These values represent a European 
choice in favour of a social market economy. They are reflected in the EU treaties, 
its  action  and  legislation,  as  well  as  in  the  European  Convention  of  Human  Rights 
and our Charter of fundamental rights. 

Second,  European  citizens  have  greater  expectations  of  the  state  than  their 
equivalents  in  the  Asia  or  America.  The  public  sector  tends  to  play  a  big  role, 
either  through  regulation  or  government  spending,  in  the  organisation  and 
financing of national systems. In addition, all Member States have a played a strong 
role in the delivery of high quality services of general interest which have been a 
key  feature  of  economic  and  social  development.  On  average,  the  25  EU  Member 
States devote 27% of GDP to public spending on social protection, compared to 15% 
in the United States and 17% in Japan.  

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– 

– 

Third, a strong “European dimension” reinforces national systems. In contrast to 
other  regions  of  the  world,  national  systems  here  are  reinforced  by  European  level 
policies  (such  as  the  stability  offered  by  macro-economic  policy,  the  dynamism 
created by the internal market and the social agenda, and the cohesion promoted by 
EU Structural Funding).  

Fourth,  there  is  a  strong  tradition  of  social  dialogue  and  partnership  between 
governments,  industry  and  trade  unions  –  even  if  the  detailed  mechanisms  vary 
considerably between Member States. At a European level, this has been reflected in 
the EU Treaties and, for example, the regular Tripartite Social Summits.  

But do the existing approaches provide answers to current challenges? 

3. 

COMPLETING  THE  TRANSFORMATION  –  TODAY’S  PERFORMANCE,  TODAY’S  AND 
TOMORROW’S CHALLENGES.  

Today’s policies are challenged by new technologies, ageing and globalisation. Ageing offers 
longer  lives  in  better  health,  globalisation  creates  opportunities  for  both  consumers  and 
businesses.  Yet  ageing  challenges  the  financial  sustainability  of  current  systems,  and 
globalisation challenges our ability to compete. Is Europe ready to change? 

3.1. 

Current policies have not delivered social justice for everyone  

Even without new challenges, poor economic performance is already today making it difficult 
for governments to meet people’s expectations. 

– 

19  million  unemployed  is  unacceptable.  The  combination  of  low  employment  rates 
and  unacceptably  high  and  persistent  levels  of  unemployment  in  many  Member 
States  is  the  number  one  social  problem  we  face.  Young  people,  women,  migrants 
and  older  workers  (between  55-64)  are  the  hardest  hit  –  the  employment  rate  for 
women, for example, is on average 13% lower than the rate for men. Despite reforms 
of  pension  systems  and  early  retirement  schemes,  in  2003  only  40.2%  of  older 
workers (aged 55-64) were still in employment; the rate was 60% in the US and 62% 
in Japan.  

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Graph 1: Duration of unemployment in 19 OECD countries (2003) 

% of  unemployed

<1 month

> 1 year

70.0

60.0

50.0

40.0

30.0

20.0

10.0

0.0

US SE DK UK

FI

LU NL

PT

IE

ES HU FR BE PL CZ DE HE IT

SK

– 

– 

– 

Faster re-employment 

Slower re-employment 

Source: OECD (2004). Labour Force statistics 1983-2003 

Weakness  in  education,  research,  innovation  and  productivity  are  holding  back 
labour  markets  and  economic  performance  in  some  Member  States.  People  do  not 
have  the  skills  that  business  need.  Knowledge  and  technology  matter;  yet  although 
we  have  boosted  the  numbers  of  maths  and  science  graduates,  too  few  of  them 
choose to pursue scientific careers and those that do often move to the US to do so. 
Two  thirds  of  differences  in  standards  of  living  between  the  US  and  the  EU  result 
from poor productivity performance here. Research investment in China is growing 
by 20% per year.  

The barriers to entry and exit on the job market are too high. Employment regulation 
and social institutions must help give those outside the job market and those on the 
first  rung  of  employment  more  opportunity  to  progress  to  better,  more  secure 
employment.  

The  gap  between  the  rich  and  the  poor  in  the  EU  is  considerable,  both  within 
Member  States  and  between  them.  Over  25%  of  EU  citizens  live  in  regions  whose 
output is below 75% of the EU average. For Europe as a whole, the gap between the 
richest fifth and the poorest fifth of the population is growing. One in five children 
live at risk of poverty and the risks are higher for the children of lone mothers and 
households where parents are unemployed.  

3.2. 

Globalisation 

Globalisation is not new. But the speed at which it is now happening is extraordinary. We feel 
every day the impact of the emergence of new economic giants such as China, India and other 
nations. And the EU is not closing the gap with the United States. 

– 

World trade has grown by more than 8% annually in the decade from 1992 and new 
trading  giants  have  emerged.  Twenty  years  ago  just  10  per  cent  of  manufactured 

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goods  came  from  developing  and  emerging  countries.  By  2020  China’s  and  India 
share alone could be 50%. The share of China and India in world trade in goods has 
increased.  The  date  shows  that  in  2004,  China’s  share  of  global  merchandise  trade 
surpassed that of Japan.  

Graph 2: Shares of world trade in Goods (excl. intra EU-25 trade) 

25,0%

20,0%

15,0%

10,0%

5,0%

0,0%

EU-25 (excl. intra)
US
Japan
China
India

1995
19,1%
16,5%
9,5%
3,4%
0,8%

2004
18,5%
17,1%
7,4%
8,4%
1,2%

1995

2004

EU-25

US

Japan China+India (China upper part, India striped segment)

Source: WTO statistical database and IMF (DOTS). 

– 

China and India are attracting research investment and rapidly shedding their image 
as “low cost, low value” economies. While China has relied heavily on the strength 
of  its  manufacturing  exports  as  a  key  driver  for  growth,  India’s  success  has  been 
more  visible  in  services.  In  both  cases,  the  key  export  sector  records  an  increasing 
technological content as shown by the share of high tech goods and services of China 
and India in their total exports. 

Graph 3: Share of high-tech exports--------------Graph 4: Share of ICT related services exports 
(% of country's manufactured exports)---------------------------- (% of country's commercial service exports) 

80

70

60

50

40

30

20

10

25

20

15

10

5

0

0
9
9
1

1
9
9
1

2
9
9
1

3
9
9
1

4
9
9
1

5
9
9
1

6
9
9
1

7
9
9
1

8
9
9
1

9
9
9
1

0
0
0
2

1
0
0
2

2
0
0
2

0
9
9
1

1
9
9
1

2
9
9
1

3
9
9
1

4
9
9
1

5
9
9
1

6
9
9
1

7
9
9
1

8
9
9
1

9
9
9
1

0
0
0
2

1
0
0
2

2
0
0
2

China--------             India--------          World 

China------------        India-----------      World 

Source: WB Global Development Indicators 

Note:  ICT  commercial  services  exports  include  computer,  information,  communication  services  and  services  other  than 
transport, travel, insurance and financial. 

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– 

– 

– 

– 

The performance gap with the US has not narrowed. This applies not only in terms 
of living standards, growth and employment, but also in key areas – like investment 
in R&D and new technologies, the numbers of patents issued and the percentage of 
the population with a tertiary education. Europe is also lagging in the take up of new 
technologies important for improving productivity. 

Financial  markets  have  led  the  way  in  globalisation.  Trade  and  investment  have 
gone  hand  in  hand,  spurring  financial  market  integration  along  the  way.  Foreign 
direct investment rose from 5% of global GDP in 1985 to over 15% in the late 1990s. 
China, who as recently as 1990 received little - around 1.4% of FDI, was the largest 
recipient  in  2003,  followed  by  France  and  the  US.  As  a  further  sign  of 
internationalisation, the world’s 100 biggest international companies employ almost 
half of their workforce outside their home country.  

Technology  and  market  opening  both  in  Europe  and  globally  has  helped  fuel  this 
rapid  growth.  More  trade,  drawing  on  cheaper  communication  costs  and  transport, 
has made it easier for businesses to source goods and services from other parts of the 
world  –  opening  opportunities  for  exporters  here,  but  also  presenting  new 
competitive  pressures.  The  broadband  revolution,  (as  well  as  language  and 
technology  skills  in  places  like  India),  have  allowed  an  increasingly  wide  range  of 
services to be traded – encouraging outsourcing of a range of service activities by EU 
businesses, but also attracting additional trade and investment into the EU.  

Marked  differences  in  labour  costs  are  one  factor  in  the  success  of  new  economic 
players.  Such  stark  differences  reflect  to  a  large  extent  very  diverse  labour 
productivity levels. This means that Europe cannot expect to compete on costs alone 
–  but  rather  must  increase  productivity  and  quality  drawing  on  its  technological 
strengths  and  ability  to  compete  in  products  and  services  with  a  higher  knowledge 
content. 

Graph 5: Total labour costs (2002) 

US$

30.0

25.0

20.0

15.0

10.0

5.0

0.0

India

China

Brazil 

Mexico 
Czech Republic

Portugal 
Singapore 
New Zealand 

Korea 

Israel 

Spain 

Italy 

Ireland 

OECD
Australia 

United Kingdom 
Canada 
France 

Luxembourg 
Japan

Sweden 

United States
Austria

Netherlands 

Belgium 
Switzerland 

Germany

Denmark 

Norway 

Average hourly compensations in US dollars- evaluated at market exchange rates for production workers in manufacturing in 2002. 

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Source:  OECD  (2005),  which  quotes  the  following  sources:  OECD  STAN  database  and  U.S>  Department  of  Labor,  Bureau  of  Labor 
Statistics, Foreign Labor Statistics, November 2004, except that wage data for India are estimates based on 2001 and 2003 data from Oxford 
Economic forecasting. 

– 

Global demand for energy is growing while supply remains very  tight.  Oil and gas 
prices  have  increased  two  fold  compared  to  their  level  five  years  ago.  Growth  in 
China  and  India  has  boosted  global  energy  use  there  at  the  same  time  that  US 
consumption has increased. Within twenty five years, the EU is likely to import up to 
90% of its oil and gas needs. The combination of high prices and reliance on external 
supply risks slowing even further prospects for future growth. 

There is a disconnect between our perception of globalisation and our behaviour. It is a source 
of  anxiety,  particularly  in  those  EU  countries  with  high  unemployment,  but  most  jobs  are 
created and lost within a country’s economy, not as a result of shifting production to another 
part of the world. We must remember that globalisation is driven by a very human desire – the 
desire of billions of people to create a better life for themselves and their families.  

Globalisation is being led by all of us, by the choices we make and the opportunities it offers 
us  to  experience  new  things.  And  globalisation  does  not  mean  that  if  others  get  richer,  we 
must get poorer. Prosperity is a dynamic concept. Globalisation is the chance to increase the 
size of the whole cake, so that everybody gets a slice.  

At  the  same  time,  the  anxieties  about  globalisation  are  real  and  must  be  addressed,  not 
ignored. And globalisation shines a spotlight on existing weaknesses. It confirms the need for 
well-functioning  markets  and  policies  that  mitigate  the  negative  impacts  that  global 
competitive pressures bring. It highlights as well the need for structural reforms to ensure that 
the  EU  can  remain  an  attractive  place  to  invest,  particularly  for  research  and  innovation 
activities in high value products and services, where our businesses excel. 

3.3. 

Ageing  

Under current trends the population of the current European Union will be both smaller and 
older  in  2050,  partly  due  to  low  birth  rates.  At  the  same  time,  the  upward  trend  in  life 
expectancy at birth will continue; by 2050 life expectancy will have risen to 81 for men and 
86 for women. While migration to the Union has been significant in recent years, it does not, 
however,  on  its  own  provide  a  long-term  solution  to  falling  birth  rates  and  our  ageing 
population.  

– 

– 

– 

Europeans  will  get  older.  By  2050  there  may  be  48  million  fewer  15-64  year  olds 
and 58 million more people over 65. Over the coming decades, Europe will change 
from having four people of working-age for every elderly citizen in 2004 to a ratio of 
2 to 1. Fertility rates are declining in most member states and without more family 
friendly policies any turnaround in this trend is likely to be slow.  

A smaller workforce will drag down growth. From 2015 a shrinking workforce will 
act as a brake on potential growth in the Union, reducing it from 2 to 2.5% today to 
just 1.25% by 2040. The impact will be even more marked in the ten Member States 
that have recently joined the EU.  

Lower growth will come at a time just when the costs of an ageing population start to 
peak.  Under  current  policies,  projections  suggest  spending,  for  example,  for  age 
related spending on pensions, health and long-term care will increase by between 4 

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and  8  %  of  GDP  in  coming  decades.  Some  EU  countries  may  face  even  higher 
increases. More than half of all EU Member States, the majority of which are in the 
euro area, face significant risks to the sustainability of their public finances. For the 
EU as a whole, this suggests unsustainable increases in public debt or unacceptable 
increases in taxation and/or cuts in the services or benefits provided. 

Graph 6: Impact of ageing on potential growth rates 

%
3,5

3

2,5

2

1,5

1

0,5

0

USA

EU15

JAPAN

2000

2010

2020

2030

2040

2050

Source: European Commission 

Member  States  and  the  EU  institutions  have  been  taking  steps  to  respond  to  the  ageing 
challenge.  At  national  level,  important  reforms  of  pension  systems  and  of  early  retirement 
arrangements  have  been  launched  in  several  Member  States.  At  EU  level,  macro-economic 
policies  offer  a  path  towards  stability  and  sound  public  finances  which  should  put  Member 
States  in  a  better  position  to  meet  future  spending  increases.  Delivery  of  agreed  reforms 
(within  the  Lisbon  agenda)  should  improve  long-term  economic  performance,  while  an 
important  debate  is  also  underway  on  the  right  policies,  for  governments  and  for  the  Social 
Partners, to support “active ageing” and better reconcile work and private lives.  

4. 

RESPONDING TO THE CHALLENGE 

Before considering ways to respond to the challenges described above, it is essential to accept 
that they can only be tackled if improved economic performance and effective social systems 
support each other. There are many examples of these mutually reinforcing links: 

– 

– 

Ageing populations. We want more people to work, productively for longer. But to 
do  that  they  need  the  skills  to  enable  them  to  take  full  advantage  of  new 
technologies. And we must both create the jobs and give people the chance to take 
them.  This  is  particularly  true  for  those  who  cannot  work  without  affordable  child 
care, but it also means, for example, reviewing tax and benefit systems to make sure 
that it pays people to work.  

Globalisation  and  change.  Our  firms  benefit  from  more  open  markets  and 
technological  innovation,  inside  and  outside  the  EU.  But  we  also  need  to  help 
individuals,  by  getting  the  right  policies  to  support  people  whose  jobs  disappear; 
helping them to find new jobs, quickly. That is especially important for people who 
have missed out on school and need new skills later in life.  

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– 

Mobility. In a globalised world with an ageing population, greater mobility within the 
European Union (both within and between Member States) will be essential, not least 
to improve people’s chances of finding work and learning and using new skills. The 
same  is  true  for  non  EU  workers  as  well.  That  means  breaking  down  barriers  to 
opportunity. But that must be accompanied by measures to eliminate discrimination 
and promote integration.  

The bottom line is that we will only meet the new challenge if people have a new attitude 
to work and our social systems have a new attitude towards people. This can be achieved 
when modernisation of social systems accompanies economic reform. 

The long-term sustainability of our social systems 

The European Council of 22 and 23 March 2005 requested the Commission "to reflect on the 
issues arising about how to ensure sustainable funding of our social model". 

Member States finance social systems through different combinations of direct taxes, indirect 
taxation,  and  social  security  contributions.  Responsibility  for  determining  most  aspects  of 
taxation policy and setting tax rates remains firmly with Member States. How can they adapt 
to the new circumstances?  

They could increase taxes. However, given the size of the budgetary challenges that national 
systems  will  be  facing,  this  does  not  always  offer  a  viable  solution  for  the  future  and  their 
freedom  to  adjust  rates  on  their  own  may  be  constrained  by  globalisation.  Cutting 
expenditure is an option, but in other cases could undermine our commitment to investment 
in knowledge, networks and people.  

Whatever  combination  of  solutions  is  chosen,  there  is  a  need  to  look  closely  at  making 
current tax systems perform better across the EU. A more co-ordinated approach at the EU 
level  and  more  effective  administrative  co-operation  between  Member  States  could 
significantly  improve  the  performance  of  tax  systems.  This  could  help  to  keep  economic 
activity  and  “mobile”  assets  (capital,  companies)  in  the  EU,  while  avoiding  the  risk  of 
concentrating tax on less mobile bases like labour. Work has already been launched with the 
Member States on a common consolidated corporate tax base, simpler and more uniform tax 
rules for cross-border activity and a better system to exchange information. 

The mix of taxes chosen by Member States may also impact the sustainable financing of our 
social  systems.  During  the  period  1970-1999,  effective  taxation  on  labour  has  increased 
while  taxes  on  both  capital  and  consumption  have  remained  broadly  stable.  This  heavier 
taxation  on  labour  appears  to  have  been  a  disincentive  to  the  creation  of  additional  jobs, 
especially low skilled jobs; but broadening the tax base by getting more people in work is still 
the most effective way for governments to raise revenues without raising tax rates. A shift of 
taxation  from  labour  to  consumption  and/or  pollution  taxes  could  also  help  as  part  of  a 
broader strategy to increase employment levels.  

4.1.  Who should do what? The role of Europe 

Today we have a more or less clear division of responsibilities. Member States are primarily 
responsible  for  designing  and  delivering  their  social  systems.  The  Union  has  broad 
responsibilities for the internal market,  but  also in  contributing to a wider set of goals from 
employment  and  cohesion  to  research  and  innovation;  policies  that  influence  the  success  of 
national systems. Economic policies and the welfare state cannot live without the other, but 
not all decisions need to be made at the same level.  

We should not underestimate the potential for the European Union to help the process of 
modernisation.  

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In shaping the international response to globalisation the impact of individual Member States 
acting alone is minimal. But Europe – 25 countries with shared values and strong institutions 
acting  together  –  has  a  real  chance  to  shape  globalisation,  in  areas  like  trade,  international 
labour  rules  or  tackling  global  health  or  security  threats.  Europe  has  much  to  offer  –  the 
world’s biggest trading block, the most important aid donor giving leverage in terms of social 
justice  and  human  rights  around  the  world,  and  the  leading  proponent  of  multi-lateral 
solutions  to  environmental  and  the  other  challenges  of  sustainable  development.  No  other 
country or region has this tremendous advantage.  

The  Union  provides  a  crucial  intermediate  level  –  between  the  national  action  and 
international rules. It is a successful example of “globalisation” on a regional scale. It offers 
the  right  space  for  effective  regulation  and  solidarity  in  which  the  benefits  of  regional 
integration  give  a  better  chance  to  benefit  from  globalisation.  Our  single  market  of  450 
million  people  offer  new  opportunities  for  growth,  jobs  and  investment,  while  flanking 
policies means that we can help Member States to cushion the impacts of change. 

Enlargement reinforces the effectiveness of our international action, just as it strengthens the 
case for more – not less – integration across the Union. It has made a decisive contribution to 
the economies of the acceding countries and opened the door to new opportunities for growth, 
investment and employment.  

Moreover the European Union has a unique set of instruments at its disposal.  

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Legislation,  both  to  drive  economic  change,  for  example  by  making  the  single 
market  a  reality,  and  to  ensure  that  it  is  accompanied  by  the  establishment  of 
standards safeguarding our values and quality of life. 

Executive powers, for example to enable the EU to make its weight felt in the trade 
talks  in  a  way  which  no  Member  State  on  its  own  could  do;  and  the  enforcement 
powers  and  judicial  system  necessaryto  ensure  that  our  legislative  objectives  are 
turned into reality, for the benefit of all Europeans. 

Competition  and  state  aid  powers,  which  have  further  improved  as  a  result  of 
recent  reforms  under  this  Commission,  ensure  a  level  playing  field  between 
European  businesses,  small  and  large,  helping  to  improve  their  competitiveness, 
stimulate  innovation  and  growth,  and  guarantee  consumers  a  wide  choice  of  goods 
and services at affordable prices.  

A  budget,  essential  to  support  European  economic,  social  and  territorial  cohesion, 
European  IT,  energy  and  transport  networks,  education  and  European  research  and 
innovative industrial projects such as the GALILEO satellite system. 

An  area  of  freedom  security  and  justice,  which  contributes  to  creating  the 
conditions  for  competitiveness  in  Europe,  for  example,  through  the  better 
management of legal migration at EU level in order to unleash the full potential of 
European economies. 

External instruments from enlargement and the European Neighbourhood Policy to 
development  policy,  which  enable  us  to  stimulate  growth  and  project  our  values 
beyond our borders. The economic benefits of recent enlargements have been felt by 
new and existing member states alike. 

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– 

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EU  level  surveillance  and  co-ordinating  powers  within  our  economic  and 
monetary  union, which ensure  that  in  macro-economic policies all Member States 
move in the same direction, even if at different speeds.  

A role, with the Commission at the centre, as a catalyst for new ideas and reform, 
working in partnership with member states to encourage new approaches to change.  

4.2. 

Ideas for change  

So what can we do, both at national and European level? Economic, labour market and social 
modernisation  is  both  challenging  and  necessary,  but  the  starting  point  for  action  must  be 
greater coherence and coordination both between the different decision makers and between 
economic  and  social  policies.  On  policies,  it  is  essential  to  recognise  that  the  pursuit  of 
economic or labour market reforms is the pursuit of social justice; they are two sides of the 
same coin. On decision makers, many decisions are and should be taken and implemented at a 
national or sub-national level, whilst some are clearly for the EU, respecting the powers set 
out  in  the  European  Treaties.  What  follows  focuses  on  what  needs  to  be  done  and  at  what 
level. 

4.2.1.  The EU level 

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Complete  the  internal  market,  including  for  services,  telecoms,  energy,  and 
financial  services.  The  internal  market  adds  greater  dynamism  and  choice  to  the 
European  economy.  The  challenge  today  is  to  extend  its  many  benefits  to  the 
services sector in order to inject greater competition and to continue to improve our 
strong tradition of affordable and high quality services of general interest. Progress 
must also be made on the Community patent.  

Deliver  more  open  and  fairer  markets  within  the  EU  through  the  continued 
implementation of competition and state aid rules.  

Encourage  enterprise,  through  conditions  which  allow  European  businesses, 
particularly small and medium-sized businesses, to be set up and thrive. 

Improve  the  regulatory  environment  at  the  EU  level,  as  well  as  at  the  national 
level, to free businesses and citizens from unnecessary costs and red tape, focusing 
EU legislation where it can be most effective and adds value. 

Open  third  country  markets  for  European  producers,  in  particular  through  the 
completion  of  an  ambitious  and  balanced  agreement  in  the  Doha  round.  We  must 
promote  free  and  fair  trade  which  will  benefit  not  just  Europe  but  the  poorest 
countries as well. 

Agree the Financial Perspectives by the end of the year, to secure, for example, 
multi-annual  programmes  for  cohesion,  rural  development,  education,  research, 
innovation,  mobility  and  security;  and  to  agree  a  new  Globalisation  Adjustment 
Fund which can complement the structural funds, and notably the European Social 
Fund,  by  providing  a  swift  response,  focused  on  people,  to  urgent  problems  which 
result from globalisation. 

Assure the proper functioning of EMU as a key precondition to creating growth 
and jobs. 

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– 

Improve  European  economic  governance  and  strengthen  the  co-ordination  of 
economic  and  social  policies.  For  example,  by  strengthening  instruments  like  the 
EU’s integrated guidelines for growth and jobs and reinforcing their interaction with 
more effective EU level co-ordination in the area of social protection. The aim must 
be  to  be  in  better  position  to  monitor  progress  in  Member  States  and  offer  support 
where it is needed.  

4.2.2.  The national level 

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Implement  the  agreed  structural  reforms  and  policies  within  the  renewed 
Lisbon Strategy for growth and jobs. 

Raise  employment  rates  and  reduce  unemployment,  particularly  though  active 
labour market policies and promoting flexibility and adaptability designed to protect 
people rather than jobs; we must think as much about the jobholder as about the job.  

Adapting pension, health and long-term care to meet changing needs  and offer 
adequate protection and universal access to quality care and updating the way risks 
and responsibilities are shared between the State and its citizens. National protection 
systems  should  deal  with  new  realities  such  as  single  parenthood  and  relationship 
breakdown.  They  should  also  offer  family  friendly  policies  which  address  the  low 
birth  rates  in  the  EU  and  offer  affordable  care  for  children,  to  increase  the 
possibility for women and single parents to enter and stay in the labour market.  

Offering  innovative  solutions  for  the  low  paid,  for  example:  to  “top  up”  the 
earnings  to  a  living  wage;  increase  workers’  productive  potential  so  that  they  can 
earn  more  –  this  means  giving  the  State  an  even  more  active  responsibility  to 
promote employability and bring down both long-term and youth unemployment. 

4.2.3.  The new partnership of the EU and member states  

It  is  clear  that  neither  the  EU  nor  member  states  can  deliver  change  on  their  own.  What 
follows  are  specific  suggestions  for  a  more  coordinated  approach  between  the  national  and 
supranational  level,  in  new  areas  for  action  both  for  economic  and  social  policy.  The 
Commission is open to exploring the development of new partnerships to enhance European 
action in these areas. These are  

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Create  an  environment  that  champions  innovation.  Knowledge,  research,  skills 
and education will be the currency of success in the face of globalisation. They are 
also at the core of efforts to help people adapt to a changing world throughout their 
lives.  We  must  look  at  how  to  develop  effective  European  projects  in  this  area, 
building  on  the  success  and  experience  of  Airbus  or  the  Galileo.  These  should  be 
assisted  by  support  for  excellence  in  our  universities,  and  a  closer  relationship 
between universities and business.  

Spell out a long-term and coherent energy policy. A new policy approach which 
considers the issue as a whole, in terms of both use of energy and the security and 
diversity of supply; linking energy to other policies such as research, agriculture and 
the environment, for example, bio-energy. This is an essential component of ensuring 
environmentally sustainable economic growth. 

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– 

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Direct  more  resources  (both  public  and  private)  to  education,  training  and 
skills; new approaches to job “security” which focus on giving people the skills they 
need  to  remain  adaptable  throughout  their  working  life,  rather  than  protecting 
particular jobs.  

Promote a renewal of the social dialogue at all levels. It should be play a full role in 
mobilising broad support and a common understanding of the challenges we face and 
the  solutions  proposed.  Given  the  close  linkage  between  action  at  EU  and  national 
level, the Social Partners should better articulate what they do at each level. 

Support efforts to deal with the social consequences of economic restructuring. 
Internal market reforms, the  modernisation of labour markets  and the  adaptation of 
social  systems  are  all  essential  elements  in  managing  globalisation  and  creating 
growth  and  jobs.  The  full  range  of  EU  policies  and  programmes  need  to  support 
national  efforts,  to  make  the  case  for  change  and  mobilise  support,  for  example, 
through Social Dialogue.  

Increase  cooperation  between  Member  States  to  strengthen  the  efficiency  and 
sustainability of tax systems helping to ensure more revenue is collected, simplifying 
life for taxpayers and improve the performance of economy. This means modernising 
and simplifying current systems. 

All this must be done within a context of maintaining sound macro-economic policies offering 
stability, sound public finances and low inflation. Such policies create the right conditions for 
growth, jobs and investment; by keeping inflation under control they help social cohesion and 
by  lowering  the  overall  level  of  government  debt  over  time,  they  leave  Member  States  in  a 
better position to meet the future costs of ageing.  

5. 

CONCLUSION 

The  need  for  reform  and  modernisation  is  clear.  All  Member  States  will  face  increased 
demand  for  social  services  and  challenges  in  financing  them.  We  must  modernise  to  ensure 
continued  high  quality  education  and  health  care,  satisfactory  jobs  for  all  and  adequate 
pensions.  Modernisation  will  give  us  the  confidence  to  reap  the  benefits  of  globalisation. 
Europe has a central role to play and the Commission will ensure that this will be the case. It 
will take the initiative, not least within its “Plan D” for dialogue with citizens, to explain why 
Europe  is  more  relevant  than  ever  in  providing  solutions  to  the  challenges  we  face.  The 
Commission stands ready to work with the Member States and other actors to construct a road 
map  which  describes  the  path  to  a  modern  Europe  which  delivers  economic  prosperity  and 
social justice. Through modernisation, we will preserve our values.  

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