Select Committee on European Union Sixth Report


7 March 2000

By the Select Committee appointed to consider European Union documents and other matters relating to the European Union.



Doc. No. 5256/00 Employment, Economic Reforms and Social Cohesion—towards a Europe based on innovation and knowledge

1. A Special European Council is to be held in Lisbon, Portugal, on 23 and 24 March 2000. The theme of the Council will be employment. However, the wide ramifications of employment policy may be gauged from the title given to the Portuguese Presidency's preparatory paper: Employment, economic reforms and social cohesion—towards a Europe based on innovation and knowledge[1]. This document was the basis of the inquiry carried out by Sub-Committee F (Social Affairs, Education and Home Affairs). Evidence was heard from Michael Wills MP, Parliamentary Under-Secretary of State at the Department for Education and Employment, who was accompanied by officials from the DfEE and the Department of Trade and Industry. The transcript of their evidence, together with the Presidency document, forms the bulk of this Report. What follows is a brief summary of the background to the Lisbon Special European Council, of the Government's expectations for the Council, and of the views of the Sub-Committee.

2. The Community's direct involvement in employment policy derives from the Amsterdam Treaty, which was signed in 1997, though not coming into force until May 1999. This introduced a new Title into the EC Treaty (Title VIII), which sets up the framework for Member States and the Community to develop "a coordinated strategy for employment and particularly for promoting a skilled, trained and adaptable workforce and labour markets responsive to economic change" (Article 125). The introduction of the new Title reflected widespread concern among Member States about the high levels of unemployment within the EU during the 1990s. Governments accepted that weaknesses in national education and training, together with over-regulation of labour markets, had contributed to the problem of high employment. However, while it was recognised that promoting employment was "a matter of common concern", requiring "cooperation", it was specified that "the competences of the Member States" and "national practices" would be respected (Articles 126-127).

3. The Member States regarded these new provisions of the EC Treaty as so important that they did not wait for the coming into force of the Amsterdam Treaty to take action. At the Luxembourg "jobs summit" of November 1997 they mapped out Community action in the field of employment. The Commission was instructed to prepare Community-wide guidelines for employment policy, based on four pillars: entrepreneurship, employability, adaptability and equal opportunities. These guidelines were then translated into national policy by means of National Action Plans, prepared by the Member States and submitted to the Commission and Council for examination. Comparative analysis of these Action Plans has resulted in Joint Employment Reports in 1998 and 1999, identifying priority fields of action and making recommendations for national employment policies.

4. The Luxembourg process has been evaluated and added to at two further European Councils. At the Cardiff summit in 1998 the Council stressed that job creation relied on sustained economic growth, and launched an initiative on structural policy in order to encourage reforms for improving competitiveness and the working of markets. The aim was to reduce the burdens on small firms and to facilitate the creation of new small businesses.

5. The next stage was reached at the Cologne summit of June 1999, which added a third element, the "Cologne process", or "European Employment Pact". The pact emphasises the need for a mix of macroeconomic policies "geared to growth and employment while maintaining price stability"[2]. A "macroeconomic dialogue" was set up, to take place in the Economic and Finance Council of Ministers and the Labour and Social Affairs Council, with the participation of other interested groups—the Commission, the European Central Bank and the social partners (trade unions and employers). The aim of this dialogue is to ensure that monetary policy, fiscal policy and wage development interact "in a mutually supportive way".

6. The idea for a Special European Council on employment, to be held during the Portuguese Presidency, had first been raised at a meeting between the British Prime Minister and his Spanish counterpart, Mr Aznar, in April 1999. The Cologne Presidency Conclusions took up this idea, inviting the Portuguese to convene in the spring of 2000 a Special European Council on employment, economic reform and social cohesion, "to review the progress made after the Cologne, Cardiff and Luxembourg processes"[3].

7. The potential agenda for the Lisbon Special European Council has continued to grow since Cologne. In September 1999 the Commissioner for Employment and Social Policy, Mrs Diamantopoulou, described a new set of priorities to the European Parliament. These included: maximising the job creation potential of the "information society"; encouraging "reskilling" and modernising industrial relations; promoting the services sector; encouraging local economies; combating discrimination and social exclusion. The first of these priorities has received particular attention, notably through the Commission's "e-Europe" initiative[4], which will be discussed at Lisbon.

8. The UK Government has throughout expressed wholehearted support for the aims of the Lisbon summit. Mr Wills described the summit as "a potential turning point in European Union policy towards competitiveness, enterprise and social cohesion" (Q 1). He emphasised the pace of change in the global economy, driven by technological advances, and argued that the time had come for a change in the relationship between governments and business: "We can draw now a line between the old ways of doing things where governments essentially legislated to determine what businesses did and the new approach … where governments work to create the right environment within which businesses can succeed". He insisted that the key to this approach was flexibility, referring to "more flexible, open methods of cooperation, information sharing, exchange of best practice" (Q 3), and later stating that "flexible and adaptable labour markets are fundamental to prosperity in this new world" (Q 29). Education systems should respond by creating "highly skilled, flexible and adaptable individuals who can respond to the changing demands of business and the market place".

9. Mr Wills made it clear that the role of the Government and of the European Community should not be prescriptive, but enabling. Lisbon should lead not to a mass of new regulations or directives, but to the exchange of best practice ("benchmarking" not only within Europe, but with the most dynamic economies in the world), to the facilitating of e-commerce, the opening up of a European area of Research and Development, and the creation of a workforce skilled in IT. These policies he described as the "concrete outcomes" (Q 26) which should emerge from the Lisbon Council. His arguments echoed those of the Prime Minister, who recently stated to a European audience that "Government should have a role that is enabling: supporting small businesses; encouraging technological advance; investing in science; above all, promoting competition and removing the barriers to business growth". Economic policy, he said, should move "from regulation to education"[5].

10. The Committee views the propositions in the Presidency paper with some hesitation. It is not clear from it how far the Lisbon Council is likely to advance the UK Government's preferred economic and social model, or to fulfil the often-declared objective that the EU should aim "to do less, better". A wide range of new Community programmes, plans and policies are described, which seem to represent a substantial new extension of EU activities in employment policy on top of the existing processes agreed at Luxembourg, Cardiff and Cologne. But there is no explicit commitment to deregulation. There is, for instance, no mention of the liberalisation of energy markets or of the reduction of state aids to industry—though there is a proposal to set up an "Observatory on Industrial Change" (p. 22). The potential benefits of new technology, in terms of economic growth and the widening of opportunity, are huge. Openness in the Single Market, co-operation between Member States, benchmarking and the exchange of best practice—these should all help the Community to make the most of this potential. However, concerns were raised in the minds of the Committee by some of the objectives set out in the Presidency paper—by references to "renewing the European social model", to the need to "develop a European social agenda", reconsidering the "concepts of employment, work and activity" and developing "new ways of regulating the labour market … combining flexibility and security" (pp. 16-17). It remains to be seen how far the UK Government will be able to persuade our European partners to go down the path of innovation.

11. A further question concerns subsidiarity. Mr Wills described the ways the Government have invested in education, in order to ensure that all children will have access to new technology (Q 12). Such domestic achievements leave open the question of how far Community action will bring rewards over and above those Member States can reach through independent action or less formal bilateral discussions. Mr Wills argued that "at the very least we can all learn from each other's experiences" (Q 13). While this is clearly true it is not in itself a justification for Community action. Nor is his comment that we have to take it as a "starting point that questions as profoundly significant as those we are talking about should be addressed at a European level" (Q 15). For some of the areas included in the Lisbon agenda the issue of subsidiarity remains, in the Committee's view, unresolved.

12. The Committee remains uncertain of the underlying rationale of the Lisbon Special European Council. Mr Wills emphasised that it should not be seen as just a "benchmarking seminar" (Q 1), an occasion for sharing experiences and views. Instead he described an ambitious range of objectives for the summit: facilitating e-commerce; making European research and development "the best in the world"; giving citizens new skills and easy access to new technologies; creating a "single, integrated capital market"—a functioning single market in which small businesses can thrive. The danger is that the Lisbon summit will be long on objectives, but short on the means to achieve them. However, if "benchmarking" and the analysis and sharing of best practice can contribute to achieving such objectives, then the Lisbon summit, by showing how the EU can create opportunities for business while avoiding intrusive regulation, may indeed prove to be a turning point.

13. The Committee considers that the Lisbon Special European Council on employment raises important questions to which the attention of the House should be drawn, and makes this Report to the House for information.

1   Printed as Appendix 3. Back

2   Presidency Conclusions to Cologne European Council, Annex 1, para 2. Back

3   Cologne Presidency Conclusions, para 11. Back

4   See Europe, an Information Society for All-Communication on a Commission Initiative for the Special European Council of Lisbon, 23 & 24 March 2000 (COM(1999)687 final). Back

5   Speech in Davos, 28 January 2000. Back

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