AGS 2017: Cautious moves towards more investments

Today, the European Commission published its yearly Annual Growth Survey (AGS), jumpstarting the 2017 European Semester cycle of economic policy coordination. CESI Secretary General Klaus Heeger notes cautious calls by the European Commission to raise public social investments.

AGS 2017: Cautious moves towards more investments

Following some initial references to the need for more investments in last year’s AGS, this year’s edition features additional mentions in this field.

According to the Commission, Member States should invest more in labour market participation, quality jobs, training and upskilling and in social infrastructure and access to quality services, including childcare, healthcare, long-term care and education. ‘The low funding cost environment makes it an ideal time for the Member States to frontload public investments’, the Commission writes. It also made an important direct link between investments in human capital and economic growth, noting that investments in training ‘will be needed to push up growth of total factor productivity’.

CESI Secretary General Klaus Heeger said: “In this year’s AGS, the European Commission implies that investment in human capital is economically worthwhile. The Commission also recognises the urgency to deliver inclusive growth and fare better in the fight against poverty and social exclusion. In our view, this is vital for Europe’s economic and social recovery.”

At the same time, the AGS still needs a further paradigm shift towards enabling more public social investments. The Commission advocates more investments by those countries that can afford it, thus moving the euro area as a whole towards a positive fiscal stance, but warns all other Member States to do so. The Commission underscores that ‘where fiscal space does not exist [to invest, Member States] should deliver on the requirements given by the Stability and Growth Pact.’

“According to the Commission, cuts in public budgets still take precedence over public social investments. However, it is mostly those countries hit hardest by the crisis and with the highest debt levels which have the greatest social challenges but no scope to remedy because of the EU’s restrictive budgetary surveillance rules”, Klaus Heeger said.

The European Commission considers a more systematic application of existing flexibility rules under the Stability and Growth Pact (the so-called investment clause), which will allow Member States to make some investments even when stretching the provisions of the Stability and Growth Pact (SGP). This is encouraging but not sufficient.

“In sum, Member States continue to be threatened by EU sanctions in case of increased spending for social purposes and in human capital. What we need is a revision of the Stability and Growth Pact to allow Member States to invest more socially. Using creative arguments, the Commission and the Council recently let Spain and Portugal off the hook after they had violated the Pact, but if the rules were modified sensibly, there would be no more need to wind out of sanctions for reasonable spendings. Trade unions, civil society groups and politicians have increasingly been voicing support for this. Time is ripe for a Golden Rule for public social investments according to which certain expenditures in human capital and social cohesion can be exempted from the Pact. Also public administrations and public services need to be well-funded and equipped if they are to provide accessible and high quality support for citizens”, Klaus Heeger underlined.

On a more general note, he added: “CESI welcomes references in the AGS to the importance of social dialogue in the labour markets. However, there is no mentioning of the need for more inclusive and pluralist social dialogue. In our view, there are worrying trends across Europe of the largest trade unions finding themselves in increasingly privileged positions. In our view, all workers count and it should not exclusively be the biggest social partners that are heard by policy-makers and institutions.”

Picture: Secretary General Klaus Heeger © CESI 2016