2014 is an opportunity for a more ambitious policy, since governance reforms are on track and the economy is recovering. And it is a necessity, since the midterm review has revealed that without strategy change the EU 2020 goals for employment, research, poverty reduction and energy efficiency will be missed, writes Karl Aiginger.
Karl Aiginger is director of the Austrian Institute of Economic Research (WIFO).
The urgent need for more forward looking European policies is highlighted by the report “Stock Taking of the Europe 2020 Strategy” (European Commission, 2014).
It reveals that the EU 2020 goals for employment, R&D expenditures, poverty reduction and energy efficiency will stay out of reach if member countries do not strive beyond incremental improvements. Furthermore investment is sluggish and unemployment has reached unsustainable levels. Young people face the danger of becoming part of a lost generation.
The upcoming European Council on March 20th will finalise the guidelines for the National Reform Programmes for 2014. The current guidelines embedded in the Annual Growth Survey (AGS) sets exactly the same policy priority areas as in the last years, an ecological priority area is missing. No change from the past austerity policy to a future oriented dynamic, more inclusive and sustainable Europe is suggested. 2014 could be an opportunity for less austerity, since several reforms are on track, public deficits have been reduced, and the economy as well as exports – even in crisis hit countries - is restarting to grow.
A good general guideline for the National Reform Programmes would be, that each country should specify how to reduce the current gaps between actual and target values by at least one quarter in 2014 and 2015, in the four areas of R&D, employment, poverty reduction and energy efficiency. Only in these circumstances can the final gap actually be bridged in the remaining five years.
The following specific changes are needed:
- A priority area addressing environmental targets. Increasing energy efficiency should be added. Higher energy efficiency in Europe would neutralize higher energy prices in the US. Clean technologies can boost exports and stabilize the recovery.
- The strategy for reducing youth unemployment should be sharpened and frontloaded. Migration from countries with high youth unemployment to those with a shortage of qualified labour should be encouraged (this could be circular migration, where people return to their home country after some time).
- “Contractual reform agreements” should be implemented starting and financed in 2014 to solve country specific structural problems in education, training and labour market exclusion.
- Expenditure on innovation and education should be sharply increased, not only “protected” from budget cuts as it reads in the current guidelines (AGS).
Combating tax fraud and tax evasion could be a source to finance reforms and evasions. Furthermore expenditures could be cut with highest priority the subsidies for fossil energy should be eliminated. Better cooperation between the military sector of the 28 member countries could save at least 30 bn. €, about the money needed to combat youth unemployment effectively. Emission taxes, property and inheritance taxes could be used to reduce significantly the tax burden on low wage earners and small and medium sized enterprises. This would increase employment and reduce the difference of 16 million jobs which currently are missing towards the Europe 2020 goals.
Europe can become a role model for social and ecological innovations driven by the vision of an open dynamic society, where different countries set their own priorities within the European model. The year 2014 is a good time to change the course towards more ambitious and to start future oriented reforms. Supporting the recovery by emphasizing social and ecological goals will make the European Semester 2014 a success.