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					                                                                         Sagsnr.
                                                                         Ref. Bruxelles-kontoret
                                                                         Den 12.03.05



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In 2000, the EU launched an ambitious programme for qualitative growth and full
employment. The aim is, that by 2010, the EU is to be the most competitive and
dynamic knowledge-based economy in the world capable of sustainable growth and
social cohesion.
We are now half-way down the road and on 22-23 March there will be a Spring
Summit where the Lisbon strategy will be at the top of the agenda.
When looking back, there are indications that considerable progress has taken place.
11m new jobs have been created in the EU. New jobs continue to be created, but at a
slower pace. The structural reforms in the EU have not brought about the desired
results. During the past years, productivity has dropped by 50 per cent, and growth in
the EU is now below 2 per cent.

Furthermore, the latest report from the Commission’s Directorate-General for
Employment, Social Affairs and Equal Opportunities shows that there are now 19.1m
unemployed persons in the EU and that 68m EU-citizens are currently living in
poverty or risk marginalization.
The Lisbon strategy is therefore under immense pressure. Virtually all assessments
conclude that we will not be able to reach the 2010 targets. The new Commission has
therefore prepared a new strategy for reaching these targets.
The Commission now focuses much more on regular market-, growth- and
competition policies. Structural reforms, deregulation, longer and cheaper work hours
                                    s
seem to constitute the Commission' new strategy.
Social reforms and investments into welfare are currently generally seen as growth
inhibitors. They are also perceived as something which can only be afforded once
growth has increased. Social policy and labour market policy (pillar 2 of the Lisbon
strategy) are thus no longer seen as productive elements of the economic policy and of
the Lisbon strategy.
The EU is finding itself at a crossroads – Is it to preserve the original balance of the
Lisbon strategy or should it allow the dominance of out-dated economic structural
policies according to which social reforms are inhibitors to growth?
The following pages document another and more tenable and efficient way out of the
current employment crisis of the EU. First of all, targeted and coordinated
employment- and investment policies would create 4m new jobs without deviations
from the Growth and Stability Pact.
Secondly, it can now be substantiated that – contrary to common belief - social
investments actually lead to higher employment and lower unemployment rates. In
other words; Social and labour market policy are growth drivers.
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The EU is currently faced with the paradox that we have a surplus on trade with
countries outside the EU and a relatively stable economy, but at the same time, we
have low growth levels, low employment rates and high unemployment rates.
In order to change this adverse employment situation, there is a need to increase
private and public investments. This will boost growth as it will boost intra-EU
demand.
If the EU is to live up to its growth potential and reach the Lisbon targets, the key is
increased intra-EU demand.


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                      18.6                                                      18.6

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                                                                                       Percentage of GDP
  Percentage of GDP




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                              Private total fixed capital formation
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Recent forecasts prepared by The Economic Council of the Labour Movement in
Denmark show, that if the EU aims for an “intelligent” coordinated public
employment- and investment strategy for education & training, lifelong learning,
research, etc, this will lead to a considerable increase in growth and employment.
These investments would generate particularly successful and lasting results and
thereby increase the likeliness of reaching the Lisbon aims.
More specifically, these estimates show that if the EU-15 countries increase
investments by 1 per cent of GDP, this will lead to an annual 3 per cent increase in
growth in the years preceding 2010, compared to a mere 2 per cent increase if the
countries take no specific action.




                                                                                                           2
These estimates also clearly demonstrate that this pro-active initiative is fully
compatible with the Growth and Stability Pact. According to the estimates, the
increased costs will quickly be recovered through a rise in employment rates (fewer
public expenses) and increased revenues from taxation.


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  Percent of total population aged 15-64




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                                                2004   2005   2006        2007      2008       2009   2010

                                                               Forecast      Growth scenario

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Such an increase in growth through a coordinated investment into employment will
generate 4m new jobs in the EU!
Amongst other things, this can be established against the background that the
European economies are so closely connected that a coordinated initiative will entail
markedly positive spill-over effects. Even if Germany and France were not to
participate, it would still have a noticeable positive effect on employment in these two
countries.
Naturally, these proactive economic- and employment policies cannot stand on their
own. They must be followed-up by certain countries (Germany and France for
example) implementing the necessary structural reforms as well as initiatives ensuring
a smoother operation of the single market.

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It is often claimed that a high level of social security is incompatible with high
employment rates. Politicians are thus faced with the choice between generating high
employment rates at the expense of social/welfare investments - or vice-versa.



                                                                                                             3
But in reality, the contrary is the case. New forecasts show that the EU-member states
with the highest relative investments into social welfare are also the countries that
have the highest employment and the lowest unemployment rates.
For the first time, it is now documented that the contrary is true!!
Figure 1 shows the ”social investments” of EU-member states calculated on the basis
of the definition of the ILO (cf. the below appendix) In order to provide a broader
basis for comparison, the US and Japan are included in the index.


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                                   Economic security index

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Not surprisingly, the Nordic countries are the top scorers while the US, for example, is
at the middle of the list among the new member states from Central and Eastern
Europe. As for the ”old” EU-15 countries, Greece is the country that offers the lowest
level of economic security to its citizens.
Below, the countries’ investments into social security are compared to the employment
rate, and the employment rate is measured from the vertical axis whereas the social
index of the ILO is measured from the horizontal axis:




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          If we assume that the predominant and commonly held views are correct, the balance
          between the social security index and the employment rate should be adverse – and the
          slope of the regression line should thus take a downward trend from the left towards
          the right. However, in reality, the contrary is the case.
          It can be seen from the figure that the countries that ensure a relatively high level of
          economic security for workers are also the countries that have the highest employment
          rates.




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                     Furthermore, it is worth noting that this tendency is not only true for the total index,
                     but is also seen in all the 7 variables which the index is based on.
                     The same tendency is also seen when comparing the social index to the development
                     in the unemployment rate – however not as distinctly. Once again, the countries that
                     provide good social services are also the countries with the lowest relative
                     unemployment rates. Here, the result is similar for all seven variables and not merely
                     seen in the total index.
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                     These recent studies have shed a new and more critical light on the political main
                     strategy of the Commission, i.e. firstly, that growth and employment are boosted
                     through market-oriented structural reforms.




                                                                                                                             6
Secondly, that increased growth is not compatible with high social standards for
workers, including the allegation that a high level of economic security impedes high
employment rates.

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The above discussion has dealt with the possibility of a new EU-strategy which does
not only involve purely market-oriented structural reforms. It is possible to strike a
balance between the three pillars of the Lisbon strategy, and even to generate a result
which is more efficient.
Firstly, estimates demonstrate that coordinated investments into research and skills can
increase total growth in the EU by 1 per cent resulting 4m new jobs.
Naturally, this cannot stand on its own. These initiatives must be supplemented with
the necessary structural reforms, amongst others in Germany and France. However
such reforms are more easily introduced in times of economic upturn which is why the
aforementioned initiatives could serve as the necessary wall-breaker.
Secondly, there is no “trade off” between a high level of social security and the
employment rate. On the contrary, for the first time, new forecasts indicate that the
EU-member states which have the highest score according to the ILO’s social index
are the same countries that have the highest employment rate and the lowest
unemployment rates.
In conclusion, it can be established that there is another and more efficient solution to
the current employment situation in the EU. And this approach does not entail a
deterioration of social standards vis-à-vis the workers, but benefits all sides.
There is thus ample reason for changing the strategy and for maintaining the balance
of the Lisbon strategy. Denmark and the Nordic countries have been the front runners
of this strategy.




                                                                                            7
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The estimate according to the social index of the ILO is based on the following 7
variables.


 /DERXU PDUNHW VHFXULW\    The availability of adequate opportunities through state-
                              guaranteed full employment.
 (PSOR\PHQW VHFXULW\       Protection against arbitrary dismissal; employment
                              protection legislation.
 -RE VHFXULW\              Security against frequent changes in job content; an
                              occupation or career as a “nice”.
 :RUN VHFXULW\             Protection against accidents; health and safety;
                              provisions on unsocial working hours
 6NLOOV VHFXULW\           Widespread opportunities to gain and retain skills
                              (education and training).
 ,QFRPH VHFXULW\           Protection of income through measures such as minimum
                              wages, indexation, wage replacement benefits and
                              measures that reduce income inequality.
 5HSUHVHQWDWLRQ VHFXULW\   Protection of collective voice in the labour market (trade
                              unions and their rights).




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