EUROPEAN THINK-TANK REVIEW – XXVIII. (September 2014)

Written by | Monday, September 15th, 2014
European Values

Social Cohesion in Europe after the Crisis
Knut Dethlefsen, Janis A. Emmanouilidis, Achilleas Mitsos, Antoinnette Primatarova, Radomír Špok a Pawe? ?wieboda (Centre for European Strategy Foundation)

In the last few years, Europe has been forced to re-think its socio-economic model. Real household income declined significantly between 2008 and 2012, employment rates are lower and the number of people in poverty saw a steady rise with a growing divergence between EU countries. Cuts in public spending and internal devaluation have been the main tools that were employed to correct the unsustainable fiscal positions and to strengthen competitiveness. Outside of the eurozone, austerity has also been the prevailing policy, seen as inevitable to avoid economic instability.

The crisis has not hit everyone equally. Apart from issues of market failure, there have been significant increases of inequality within each of the Member States. Higher poverty rates have been observed, along with rise in inequalities between higher and lower income earners as well as intergenerational inequalities between age groups. Long-term consequences are only beginning to surface in the public debate as the most immediate pressures of the crisis are slowly overcome.

In this report, the authors look at the results of the survey they carried out in seven European countries, while reviewing perceptions of the socio-economic model. Subsequently, they make a number of recommendations on how to bridge the gap between expectations and reality among the European population.

Citizens expect Europe to develop a meaningful social dimension. In spite of the limitations of the established practice, the European Union should make the 2014-2019 institutional cycle one that is devoted to social betterment. The study outlines six components of this new approach. For example, it calls for the formulation of a Bill of Social Rights with guarantees of basic rights in this area or creating a European Pact for Social Investment aimed at the improvement of skills and human capital, as well as reinvigoration of social dialogue and renewed commitment of the Union to boosting intra-EU mobility. The new institutional term is the most conducive period for this type of transformation and the EU should not waste this opportunity.
(The study can be downloaded here : http://www.epc.eu/pub_details.php?cat_id=1&pub_id=4502)


Europe after the Eastern Enlargement of the European Union: 2004-2014
Ulrich Sedelmeier (Heinrich Böll Stiftung)

On 1 May 2014, the European Union celebrated the 10th anniversary of its first enlargement to include post-communist states in Eastern and Central Europe. The understanding of the historical significance of the EU’s eastern enlargement was reflected in the statement made on this occasion by European Council President Herman Van Rompuy, who claimed that “finally Europe had become ‘Europe’ again”. This paper turns to the question of how the EU’s attitude to enlargement has changed since 2004. There are clear signs of an ‘enlargement fatigue’ as Member State governments have become generally more reluctant to accept additional candidate countries.

The EU’s impact on domestic change in candidates for accession has been unprecedented in the context of the countries that joined in 2004 and 2007. The EU’s accession conditionality – tying the reward of membership to candidate countries’ compliance with conditions set by the EU – played a key role in this process. With regard to political conditions, especially concerning liberal-democratic principles, the EU’s ability to affect domestic changes has been more limited than in areas of economic policy. The democratic front-runners among the post-communist countries democratised without much influence of the EU, and the quality of democracy continues to differ between old EU Member States and the new members. At the same time, the EU’s ability to sanction backsliding in new members after accession is much weaker than prior to accession. Whilst the European Council may take measures against consistently non-democratic Member States, the majority requirements in the European Council and the European Parliament to use this power are extremely demanding.

Ten years after the first eastern enlargement, attitudes in the EU towards further enlargement – both among the public and among Member State governments – have become noticeably more negative. However, these changing attitudes cannot be attributed to the impact that enlargement had on the functioning of the EU, either with regard to decision-making or the implementation of common policies. Instead, signs of an ‘enlargement fatigue’ are partly due to structural difficulties in the current candidates that make it more challenging to meet the requirements for EU accession. More worryingly, they are also partly government responses to perceived cultural threats and anti-immigration sentiments in public opinion.
(The study can be downloaded here : http://www.boell.eu/en/2014/06/10/europe-after-eastern-enlargement-european-union-2004-2014)

Undercutting the Future? European Research Spending in Times of Fiscal Consolidation
Reinhilde Veugelers (Bruegel)

The European Union’s dangerous cocktail of high debt in some countries and subdued growth calls for smart fiscal consolidation. The areas most often highlighted as needing protection in the context of shrinking overall budgets include infrastructure, education and research and development. Amidst the ongoing fiscal consolidation, the EU has promoted – in its rhetoric at least – its preference for government research and innovation (R&I) investment as an area that deserves a special protection. R&I as a share of total public spending is currently in decline, although still higher than the pre-crisis level. It should also be noted that the share of R&I in public budgets is not high in general, particularly when considering the potentially high social rates of returns from public R&I investment. The relative importance of R&I in public budgets is substantially lower in the EU than in Japan, Switzerland, and the U.S. Behind the average EU trend, about half of the EU countries have stabilised or increased the share of their public budget spent on R&I. Innovation leaders include Finland, Sweden, Germany, Denmark and the UK. In contrast, Italy, Spain and Greece undertook deepest cuts in R&I investment.

One of the major sources of EU’s R&I funding was the Seventh Framework Programme for Research and Development (FP7) from 2007-13, now replaced by Horizon 2020 from 2014-20. With Horizon 2020, EU funding for R&I will amount to €80 billion, an increase of 30 percent compared to its predecessor. In some countries, FP7 almost doubled the volume of government R&I funding. In Latvia, Structural Fund allocations even triple the public R&I budget. The share of R&I in the total EU budget is now about 8 percent, much higher than the share of R&I spend in Member State budgets (1.4 percent in 2012). The question that still needs to be addressed is whether the cuts in the weaker countries are evidence of smart use of public R&I investment. A rigorous understanding of this question requires an assessment of the long-term impact on growth. The fact remains that the innovation-lagging countries were also less efficient in turning public R&I into growth. Cuts may therefore not hinder the countries’ growth potential, as long as these countries replace this with an improved capacity to effectively leverage external R&I spending into local growth.

Meanwhile, the Commission should ensure that its own increasing public R&I funding is used smartly and can be turned into growth. From a smart fiscal consolidation perspective, the Commission’s analysis should assess the impact on growth of the EU as a whole. All this requires an integration of micro and macro assessment exercises, which will make the division of the EU’s budget more effective. The Commission should devote more resources to further develop its applied macro-models as tools in support of the country-specific recommendations for R&I. Last but not least, the Commission should ensure efficient well-developed modelling and an empirical calibration of the various mechanisms which takes into account long-term impacts on growth. In the future, this will enable the EU to better manage its financial assets.
(The study can be downloaded here : http://www.bruegel.org/publications/publication-detail/publication/829-undercutting-the-future-european-research-spending-in-times-of-fiscal-consolidation/)

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