Resolution of the European Economic and Social Committee on Jointly tackling an existential threat: social partners and civil society for implementation of ambitious climate action

(2023/C 75/01)

Rapporteurs:

Peter SCHMIDT Isabel CAÑO AGUILAR Sandra PARTHIE Josep PUXEU ROCAMORA Neža REPANŠEK Lutz RIBBE

Legal basis	Rule 50 of the Rules of Procedure Resolution
Adopted at plenary	26.10.2022
Plenary session No	573
Outcome of vote (for/against/abstentions)	104/1/0

The annual meeting of the United Nations Framework Convention on Climate Change (COP27) will take place in Sharm El-Sheikh, Egypt, from 6 to 18 November.

In line with the EESC Bureau memo of 22 February 2022, the EESC established an Ad Hoc Group on the Conference of the Parties of the United Nations Framework Convention on Climate Change to prepare the EESC’s COP resolution, aligned with the next COP’s priorities and UNFCCC negotiation processes, and to make the Committee as a whole more familiar with the UNFCCC process and involve it in the climate change negotiations.

The AHG has six members from the NAT section, plus a youth representative who participates regularly, following the own-initiative opinion Towards structured youth engagement on climate and sustainability in the EU decision-making process (1). In the last few months, the AHG met with relevant organisations and institutions, such as the European Commission, the Committee of the Regions, the High-Level Climate Champions office and Climate Action Tracker, as well as representatives from the civil society constituencies — young people, business, farmers, trade unions and environmental NGOs — to exchange information and look for synergies. The climate emergency was stressed in all these conversations.

2022 is becoming a year in which climate change is driving extreme weather events more acutely than ever. From scorching heatwaves and fires in Europe and parts of South Asia to disastrous flooding in Pakistan and Bangladesh, and prolonged drought in East Africa, with thousands of people killed, and millions more displaced or on the brink of famine.

In this regard, the recent report of the Intergovernmental Panel on Climate Change (2) states that, to limit global warming to 1,5 oC, greenhouse gas emissions must peak ‘at the latest before 2025’, that emissions need to halve by 2030, and that deep and immediate emissions reductions across all sectors are imperative in order for this to happen. However, policies presently in place are projected to result in about 2,7 oC and the current country commitments — Nationally Determined Contributions — will limit warming to 2,4 oC (3).

Russia’s invasion of Ukraine has dramatically added complexity to an already economically and socially difficult situation. Yet the climate urgency cannot be put on hold. Any special measure adopted must be exceptional and time-limited, and the European Union needs to accelerate the reshaping of its energy and climate policy to address short term shocks while advancing towards the inescapable decarbonisation of societies. Europe has to be the leader on climate action, closing the gaps between ambition and policy measures.

The resolution prepared by the AHG members calls on the EU institutions and governments to step up climate ambition, in line with science and scientific information, and places a particular focus on the role of organised civil society in accelerating climate action. Social resilience can only be strengthened with an empowered civil society, social actors and grassroots movements.

We are the last generation that can stop climate change, and the EESC, as the voice of European civil society, ought to play a leading role in promoting these transformations towards carbon-neutral, inclusive and socially fair societies.

Policy recommendations of the European Economic and Social Committee

Stepping up climate ambition to address the climate emergency and enhancing the EU’s climate action

As the voice of organised civil society in Europe, acting in its capacity as an advisory body to the European Parliament, the Council and the Commission, and as part of the global civil society community,

1.

the European Economic and Social Committee (EESC) points out that the United Nations Framework Convention on Climate Change (UNFCCC) was adopted 30 years ago with the ultimate objective of achieving ‘stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system’ (Article 2), and that this objective has not been achieved;

2.

points out that the Paris Agreement in 2015 moved us all from the qualitative objective of the Climate Convention — to prevent interference with the climate — to a quantitative target: ‘holding the increase in the global average temperature to well below 2 oC above pre-industrial levels and pursuing efforts to limit the temperature increase to 1,5 oC above pre-industrial levels’ (4);

3.

stresses that the 1,5 oC goal will not be sufficient to avoid the dramatic consequences of climate change. As evidence shows, climate change is already altering every region across the globe. Floods, droughts, storms, fires and heatwaves are increasing exponentially, with devastating social effects and an economic impact of billions every year (5);

4.

stresses that we are living through a climate emergency and that we should not give up on Article 2 of the Convention despite the UNFCCC currently falling short in its ability to deliver;

5.

is deeply convinced that policy decisions need to respond to science and scientific information, and points out that the IPCC has set clear benchmarks: emissions must peak ‘at the latest before 2025’ (6) and the world needs to cut emissions by 45 % below 2010 levels by 2030 to keep the possibility of 1,5 oC alive;

6.

acknowledges that Russia’s invasion of Ukraine has added to an already difficult situation characterised by inflation, high energy and food prices and possible energy shortages, having a harsh impact on citizens’ lives, and creating severe social and economic challenges, at least in the short term. The EESC believes that the current situation raises the urgency of European climate action even further, and that the new geopolitical situation reinforces the need for the EU to accelerate the reshaping of its energy and climate policy;

7.

is convinced that the European Green Deal needs to be strengthened to achieve the objective of decarbonisation of the economy, further reduce external dependencies, ensure resilience and enhance a just transition, and that exceptional derogations to agreed targets can only be granted for a limited time (7); and believes that the development of open strategic autonomy should ensure reduced dependencies in energy, critical raw materials and food;

8.

urges the EU to take a leadership role and calls on the European Commission and the EU Member States to update the nationally determined contribution (NDC) following the Glasgow Climate Pact; calls for a global fair distribution grounded in equity, historical responsibility and capability;

9.

welcomes the European Parliament’s decisions on the ETS (8) and carbon sinks (9), resulting in a slight increase in the EU emissions reduction target, which, though insufficient, constitutes a call to have the EU NDCs increased;

10.

expresses concern at the fact that many countries have announced long-term plans aimed at achieving climate neutrality by 2050 or 2060 which are not backed up with commensurate short- and medium-term plans, and therefore calls on the European Commission to intensify EU diplomacy efforts on promoting the adoption of European Green Deal-like policy frameworks by the international community, and stands ready to support this endeavour by working with civil society organisations worldwide, taking the Agenda 2030 and the sustainable development goals as the compass for the decisive years to come;

11.

asks the EU to further develop sectoral approaches for tailor-made measures or ‘climate clubs’ that could be developed amongst countries with the most ambitious climate action programmes to encourage faster action on the part of other nations — the implementation of the Carbon Border Adjustment Mechanism (CBAM) could be a tool for this;

12.

considers that decisive and clearly defined action is necessary to make Article 6 of the Paris Agreement operational and complete the Paris rulebook, which establishes a framework for voluntary international cooperation for countries to reduce emissions to meet their pledges, avoiding some of the pitfalls concerning double counting or the risk of fake emissions reduction credits;

Reviewing our current economic model to effectively address mitigation and adaptation, and ensuring adequate access to climate finance

13.

emphasises that, to accelerate the transition towards a climate-neutral society, we need to review our current economic model to re-think the way in which we consume and produce and the way we value sufficiency, and calls on the EU to propose a new vision of prosperity for people and the planet based on the principles of environmental sustainability, the right to a decent life and the protection of social values (10);

14.

proposes a new governance framework to develop these transformational changes, and encourages governments and regional authorities to create Just Transition Commissions to allow the social partners and civil society organisations, including youth organisations, to provide recommendations and to negotiate and develop national and regional just transition plans (11); considers that existing initiatives to address the social challenges of the green transformation have remained fragmented (12);

15.

believes that the rapid shift towards a decarbonised economy will entail massive challenges for citizens, workers, companies and regions, especially those that are the most reliant on carbon-intensive sectors and industries (13), and that the NDCs should include undertaking a granular mapping and analysis of the impacts the transition will have on employment and skills in the country, sub-regions and sectors, including on subcontractors and downstream value chains, accompanied by national job plans and just transition strategies (14), based on the ILO principle of just transition; therefore endorses the proposal from the Conference on the Future of Europe (15) to ensure a just transition, which protects workers and jobs through proper funding for transition and further research;

16.

underlines that the private sector’s responsibility for achieving the decarbonisation goal will require the rapid transformation of systems on an unprecedented scale, and points out that the private sector has a crucial role to play in the process;

17.

acknowledges the many and varied efforts made by companies and entrepreneurs across the EU to develop business solutions to mitigate and adapt to climate-change related challenges, and believes that innovative and responsible business models should tackle climate change by focusing on measurable sustainability targets, including the reduced use of water, energy or chemicals;

18.

is concerned that the reduction of greenhouse gas (GHG) emissions in the EU is coming with an increase in emissions abroad to satisfy EU consumption, generating GHG spill-over effects (16), and considers that the EU’s GHG inventory approach needs to incorporate the GHG emissions associated with imported products, that decoupling socioeconomic progress from negative domestic and imported impacts on climate and biodiversity has to become a priority, and that CBAM is a supportive measure to achieve this goal;

19.

notes that biodiversity loss and climate change mutually reinforce each other, as stressed by the scientific community, calls for a holistic approach to environmental action addressing the linkages between biodiversity loss and climate change, and proposes reviewing and increasing the size of protected areas and the efforts to protect remaining natural resources under the EU Biodiversity Strategy for 2030 (17);

20.

is concerned by the fact that the impact of climate change is disproportionately affecting the most vulnerable people and that the communities that are least responsible for global emissions are facing the worst impacts and do not always have the resources to cope;

21.

points out that adaptation action is becoming more and more critical as abnormal climate events multiply and that it is essential to better anticipate the impacts of climate change, highlights that the Paris Agreement underscores the importance of national-level adaptation planning processes by committing all countries to report on progress made, and urges that inclusivity be streamlined to avoid reinforcing existing inequalities;

22.

calls for an increase in total climate finance contributions by developed countries, with ‘equal emphasis’ on financing mitigation and adaptation, as, without additional adaptation finance, adaptation planning and implementation will be limited, particularly in developing countries; calls for further steps to ensure that this principle is upheld, given that mitigation safeguards against deepening the climate crisis for future generations, while adaptation safeguards current and future generations from the extreme weather events caused by already existing climate change (18), and recalls that climate change adaptation funding currently accounts for only 25 % of global climate finance and that prior commitments that adaptation finance will increase to 40 % by 2025 are not being met (19);

23.

welcomes the EUR 100 million Commission contribution to the Adaptation Fund, while urging EU Member States to double adaptation finance from 2019 levels by 2025, and calls for additional efforts to meet the USD 100 billion-goal Delivery Plan; highlights the fact that there is currently no global financing facility to support recovery from the loss and damage these people endure and urges the EU Member States and the Commission to commit to the ‘loss and damage facility’ in order to repair the consequences of climate change;

24.

believes that, as part of climate justice action, EU governments and institutions must develop a forward-looking and comprehensive European migration and asylum policy that provides protection for climate-displaced persons, starting with the formal recognition of climate refugees;

Boosting effective sectoral action to achieve climate neutrality

25.

highlights that the circular economy and bioeconomy are enablers for developing a new vision of prosperity for people, and need to be further accelerated (20), pointing out that circular economy strategies implemented across sectors and nations have the potential to slash global GHG emissions by 39 % (21); expresses concern that the EU is only around 12 % circular despite the major legislative upgrading process launched in 2015 via the first EU Action Plan on circular economy, and believes that further progress can only be achieved by engaging with all civil society components, notably to overcome remaining political, cultural, infrastructural, governance-related, and financial barriers (22);

26.

calls for transition strategies for putting in place sustainable food systems to be duly integrated in NDCs and acknowledges that, while many countries mention the mitigation and adaptation potential of agriculture in their NDCs, very few set targets in relation to other stages of the food system (23), leaving opportunities largely untapped (24); reiterates its recommendations to adopt comprehensive food policies, such as the Farm to Fork Strategy, including climate measures, and to ensure structured engagement of stakeholders across the food supply chain (25) and across all levels of governance, particularly placing producers at the heart of agricultural strategies and involving them in policy-making;

27.

is concerned about the situation of Africa, which has contributed less than 4 % of global emissions but stands out disproportionately as one of the most vulnerable regions in the world and, given that COP27 is taking place in Africa, makes a clear plea to the EU to prioritise financial, technical and capacity-building resources for Africa to support the continent’s commitment at the Paris COP21, and to take account of the fact that most of the African Nationally Determined Contributions (NDCs) contain mitigation and adaptation targets that are conditional on receiving appropriate international support, bringing into question the protection of high-value conservation ecosystems such as forests or savannahs, and fossil fuel extraction;

28.

calls for an immediate halt to fossil fuel subsidies, welcomes the communication on REPowerEU, as it presents solutions in line with the objectives of the Green Deal and the European Energy Union (26) (27), and believes that governments need to provide a framework for investment in breakthrough technologies in areas such as energy efficiency and renewable energy production, through support for research, innovation and development, and that regulation should be designed to enable and empower the development and market uptake of new technologies, including demand-side measures to create lead markets and incentivise consumption of low-carbon products (28);

29.

welcomes digital solutions enabling environmental protection and sustainability transformation in transport, energy systems, buildings, agriculture and other sectors, but also notes that overall digitalisation has so far not contributed to a reduction in energy demand and carbon emissions, and therefore stresses the need for supportive policies to mitigate rebound and induction effects (29);

30.

underlines that climate change also has serious repercussions for companies, in particular SMEs, such as interruption of supply chains and damage to production sites due to extreme weather phenomena, and forces them to make sometimes costly changes to their business and operation models, as well as investments to cope with regulatory or other requirements; considers that early adopters of new sustainable business models should be supported to ensure that their innovation does not lead to a competitive disadvantage;

31.

emphasises that support to the private sector must respect the principles of equitable access to SME finance tools and should be based solely on climate objectives (30), and that extensive work across value chains and cross-sector collaboration will be required;

32.

considers that harmonisation and standardisation are key to achieving industry-wide scalability of solutions through technology, skills enhancement and regulation that should be supported by EU governments at international level, and that it will be key for SMEs in particular to get accompanying instruments and capacity building to meet new requirements and increase market access in the EU;

Empowering civil society to accelerate climate action and calling for a new governance framework

33.

highlights that the scale of action needed requires integrated, multilevel policies and cross-sectoral solutions with a genuine engagement of civil society, and therefore proposes a new governance framework to develop these transformational changes;

34.

considers that, at workplace level, this new governance framework should guarantee social dialogue by ensuring workers’ rights and participation and strengthening collective agreements;

35.

considers that broader dialogue should also be strengthened, with the input of the regions, rural actors and cities, social partners, cooperatives and civil society, to ensure social justice and credibility, and to give specific meaning to the commitment that no one should be left behind (31). For instance, facilitating prosumer approaches can speed up the transition to a cleaner energy system, create new economic models, and help to protect the most vulnerable groups in our societies from being, for example, cut off from heat, light and information technology;

36.

is firmly convinced that bottom-up and grassroots initiatives need to be truly supported and encouraged to accelerate climate change mitigation and adaptation and strengthen social resilience, thus unleashing the potential of a culture of cooperation and bottom-up solutions; and believes that there is an equal and essential need to invest more in social innovation to mainstream the cultural and societal changes required to embed climate protection into the daily lives of businesses, public authorities and households;

37.

believes that gender should not be addressed as a separate and siloed issue but should be considered fundamental, in order to avoid gender-blind measures and policies. Climate change does not have the same impact on all sections of the population, and climate change policies, if not designed correctly, can perpetuate these injustices and unbalances. For example, women’s unequal participation in decision-making processes and labour markets compounds inequalities and often prevents women from fully contributing to climate-related planning, policy-making and implementation (32);

38.

is convinced that stronger youth engagement in decision-making processes, from the drafting of legislative proposals and initiatives through to implementation, monitoring and follow-up, will best take on board the intergenerational dimension of these shifts (33). This is why, since 2021, the EESC has started to include a youth delegate in the official EU delegation to UNFCCC COP meetings, and has committed to amplifying the voices of young people and youth organisations within the Committee’s work; the EESC strongly recommends that parties and other stakeholders adopt a similar approach;

39.

acknowledges the role of indigenous people on the frontlines of climate change — indigenous people steward over 80 % of the planet’s remaining biodiversity (34); welcomes the increasing engagement of indigenous peoples in climate policy and urges parties to actively involve them in implementing climate action;

40.

the EESC commits to undertaking actions to implement the aforementioned policy recommendations.

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(1)  OJ C 429, 11.12.2020, p. 44.

(2)  https://www.ipcc.ch/2022/04/04/ipcc-ar6-wgiii-pressrelease/.

(3)  https://climateactiontracker.org/global/temperatures/.

(4)  The Paris Agreement.

(5)  Based on: ‘Economic losses from weather and climate-related extremes in Europe reached around half a trillion euros over past 40 years’ — European Environment Agency; ‘New report: World counts the cost of a year of climate breakdown’ — UK charity fighting global poverty — Christian Aid — Media Centre; ‘The Costs of Extreme Weather Events Caused by Climate Change’ — CMCC; ‘Billion-Dollar Weather and Climate Disasters’ — National Centers for Environmental Information (NCEI).

(6)  Climate Change 2022: Mitigation of Climate Change — IPCC.

(7)  EESC resolution on the War in Ukraine and its economic, social and environmental impact (OJ C 290, 29.7.2022, p. 1).

(8)  Climate change: Parliament pushes for faster EU action and energy independence.

(9)  Fit for 55: Parliament agrees to higher EU carbon sink ambitions by 2030.

(10)  EESC opinion on The sustainable economy we need (OJ C 106, 31.3.2020, p. 1).

(11)  EESC opinion on ‘Fit for 55’: delivering the EU’s 2030 Climate Target on the way to climate neutrality (OJ C 275, 18.7.2022, p. 101).

(12)  EESC opinion on Social dialogue within the green transition (OJ C 486, 21.12.2022, p. 95).

(13)  EESC opinion on ‘Fit for 55’: delivering the EU’s 2030 Climate Target on the way to climate neutrality (OJ C 275, 18.7.2022, p. 101).

(14)  EESC opinion on ‘Fit for 55’: delivering the EU’s 2030 Climate Target on the way to climate neutrality (OJ C 275, 18.7.2022, p. 101).

(15)  Conference on the Future of Europe — Recommendations adopted by the European Citizens’ Panel.

(16)  2021 Europe Sustainable Development Report — SDSN Europe.

(17)  Ongoing EESC opinion (NAT/841) on Nature restoration targets under EU biodiversity strategy.

(18)  EESC opinion on New EU strategy on adaptation to climate change (OJ C 374, 16.9.2021, p. 84).

(19)  António Guterres: ‘50% of All Climate Finance Needed for Adaptation’.

(20)  EESC opinion on Developing synergies across different circular economy roadmaps (OJ C 14, 15.1.2020, p. 29).

(21)  Circularity Gap Report 2021 ‘Climate Change Mitigation through the Circular Economy’.

(22)  EESC opinion on New EU strategy on adaptation to climate change (OJ C 374, 16.9.2021, p. 84).

(23)  Enhancing NDCs For Food Systems — recommendations for decision-makers — NDC Action Project.

(24)  EESC opinion on Food security and sustainable food systems (OJ C 194, 12.5.2022, p. 72).

(25)  EESC opinion on ‘From farm to fork’: a sustainable food strategy (OJ C 429, 11.12.2020, p. 268).

(26)  EESC opinion on Climate justice (OJ C 81, 2.3.2018, p. 22) and on New EU strategy on adaptation to climate change (OJ C 374, 16.9.2021, p. 84).

(27)  EESC opinion on REPowerEU: Joint European Action for more affordable, secure and sustainable energy (OJ C 323, 26.8.2022, p. 123).

(28)  EESC opinion on ‘Fit for 55’: delivering the EU’s 2030 Climate Target on the way to climate neutrality (OJ C 275, 18.7.2022, p. 101).

(29)  EESC opinion on Digitalisation and Sustainability — status quo and need for action in civil society perspective (OJ C 429, 11.12.2020, p. 187).

(30)  EESC opinion on ‘Fit for 55’: delivering the EU’s 2030 Climate Target on the way to climate neutrality (OJ C 275, 18.7.2022, p. 101).

(31)  EESC opinion on ‘Fit for 55’: delivering the EU’s 2030 Climate Target on the way to climate neutrality (OJ C 275, 18.7.2022, p. 101).

(32)  2020 Pocket Guide to Gender Equality under the UNFCCC — WEDO.

(33)  EESC opinion on Towards structured youth engagement on climate and sustainability in the EU decision-making process (OJ C 429, 11.12.2020, p. 44).

(34)  ‘Indigenous peoples defend Earth’s biodiversity — but they’re in danger’.

Opinion of the European Economic and Social Committee on Digital Sovereignty: a crucial pillar for EU’s digitalisation and growth

(own-initiative opinion)

(2023/C 75/02)

Rapporteur:

Philip VON BROCKDORFF

Plenary Assembly decision	20.1.2022
Legal basis	Rule 52(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	Single Market, Production and Consumption
Adopted in section	7.10.2022
Adopted at plenary	26.10.2022
Plenary session No	573
Outcome of vote (for/against/abstentions)	185/0/3

1.   Conclusions and recommendations

1.1.

Despite significant progress to enhance the EU’s digital sovereignty, there is still heavy reliance on non-EU-based tech companies. This is limiting the EU’s leadership and strategic autonomy in the digital world, and in turn limiting the EU’s economic growth potential.

1.2.

In an online environment still dominated by non-EU tech companies, the question arises as to the degree of control EU citizens, businesses and governments may have over their digital data. This may not appear to be a priority in the current crisis, but the need to address the digital sovereignty imbalance cannot downplayed.

1.3.

Against this background, the EESC is of the view that the EU needs to reduce its dependency on non-EU tech giants by doubling its efforts to develop a secure, inclusive and values-based digital economy capable of competing with non-EU tech giants and placing emphasis on reliable connectivity, data security and artificial intelligence (AI).

1.4.

The EESC, therefore, calls for investment in the digital sector to be directed to a significant extent towards an open strategic autonomy in the digital economy. This should include investing in digital capacities, education and vocational training, infrastructure and technologies. The EESC also calls for a level playing field in the digital transformation where workers’ rights are protected and where businesses of all sizes can co-exist and thrive without over-regulation.

1.5.

The EESC notes that innovations such as cloud computing and AI have become important strategic assets within the EU, contributing positively to the potential growth of the EU economy. However, the EU is losing ground in the global race to develop new technologies in the digital world, and for some technologies EU private investment is lagging behind similar investment in the US and China.

1.6.

The EESC calls for renewed efforts for public-private partnerships in digital technologies to be set up and for large-scale EU research in the field of new technologies to be supported with the specific aim of keeping pace with US and Chinese research capabilities.

1.7.

The EESC argues that the existing imbalances in digital sovereignty are partly due to national barriers that continue to impede the achievement of a genuine Single Market. As things stand, the Single Market is essentially a compound of multiple smaller national markets, without the scale needed for any single EU-based company to compete with the digital giants of this world. In addition, there are different levels of digital development, infrastructures and capacities across the EU.

1.8.

The EESC calls on the Commission to move ahead with its digital regulatory framework aimed at protecting EU citizens from the excesses of the digital world whilst at the same time providing a framework for a more human-centric and ethical environment.

1.9.

Equally important is making online platforms, ecosystems and online activities more open, fair and predictable with rules covering algorithm transparency and neutrality, and data-sharing and interoperability being considered.

1.10.

The EESC supports calls for the EU to develop a cloud and data infrastructure to build its digital sovereignty and address the huge imbalance of the cloud and data storage market being almost totally dominated by non-EU companies.

1.11.

The EESC also recognises the potential for the EU to become a global leader in data collection and processing, which is the backbone of the digital economy. An EU data framework for data collection and sharing has huge potential in strategic sectors such as health, the labour market and transport.

1.12.

The EESC calls for competition and consumer protection policies in the Single Market to be updated. This should also focus on distortive practices of non-EU tech companies as well as the growing influence of Chinese digital companies in the EU. In this connection, the EESC welcomes regulatory developments such the Digital Markets Act and the proposed European Chips Act.

1.13.

The EESC acknowledges the key role played by small and medium sized enterprises (SMEs) in shaping the EU’s digital sovereignty, especially through their interactions with large EU tech companies.

1.14.

Finally, the EESC highlights the importance of education at all levels (be it vocational or academic) in developing the EU’s digital sovereignty.

2.   Background

2.1.

Digital sovereignty can be tentatively described as the autonomy by which governments and businesses manage and set up their own data, hardware and software. For far too long, concern has been expressed about the heavy reliance of the EU on a small number of large tech companies operating outside the EU.

2.2.

Evidence of the EU’s heavy reliance on non-EU tech companies is that an estimated 92 % of all the data in the Western world is stored on US-owned servers. That includes online data, data retrieved from social media and data administered by national governments (1).

2.3.

Not surprisingly, this state of affairs has led to growing concern that EU businesses and national governments may not have complete control of data and remain heavily reliant on large non-EU tech companies, making it difficult for EU-based tech companies to rival counterparts in the US. Another concern is that the EU is slowly but surely losing its capacity to enforce legislation effectively in the digital environment.

2.4.

Worryingly, this heavy reliance on US-based tech companies is limiting the EU’s leadership and strategic autonomy in the digital world, which could in turn limit the EU’s economic growth potential. The economic influence of non-EU based tech companies cannot be downplayed. The same can be said of their influence on EU citizens and their consumption patterns, but also how they shape the way they interact with fellow citizens in the EU and outside.

2.5.

Today, non-EU large tech companies know more about us than perhaps our closest family members and friends do, and the lack of privacy is of concern. In effect, we do not control our own data online: large tech companies do, and the web remains largely unregulated. Efforts such as the EU’s General Data Protection Regulation (GDPR) (2) have attempted to define new rules of the road. The problem is that tech companies move faster than the EU in addressing this problem. Large tech companies often operate in spaces where they have a significant information advantage over regulators and by and large remain free to track online movements by citizens, gathering information in the process, and exploiting those insights for profit.

2.6.

Against this backdrop, the Commission President had identified digital policy as one of the main priorities for her 2019-2024 term in office, pledging technological sovereignty. We are still some way from achieving that, however, and the Commission itself has expressed concern about non-EU large tech companies flouting EU rules and core values. In recent years, the internet economy has consolidated around these tech giants, who use cookies to control data and maintain oligopolistic market power. For its part, the European Parliament has expressed concerns about the security threats connected with growing Chinese technological presence in the EU and, in particular, has called for action at EU level to reduce China’s increasing influence in 5G infrastructure.

2.7.

Worryingly, entire sectors of the EU economy remain heavily dependent on large, non-EU based online platforms. This deprives Member States of their digital sovereignty in key areas such as copyright, data protection, and taxation. This concern has also been extended to other areas such as e-commerce and online disinformation.

2.8.

In an online environment that is dominated by non-EU tech companies, the question arises as to whether EU citizens can recover control of their digital data and whether the EU can address the digital sovereignty imbalance effectively and within a reasonable time frame. Insights into these questions are contained in sections 3 and 4.

3.   General comments

3.1.

In the first instance, the EU needs to reduce its dependency on non-EU tech giants by doubling its efforts to develop a secure, inclusive and values-based digital economy capable of competing with non-EU tech giants and placing emphasis on reliable connectivity, data security and artificial intelligence (AI). The EESC considers the values-based aspect of particular importance and places emphasis on the social and ethical dimension as well as the rights of workers in a digital economy.

3.2.

The Commission responded to the developments in the digital economy by drafting a Digital Compass for the EU’s digital decade in 2021 focusing on infrastructures, government, businesses, and skills. This compass set targets at EU and national level, proposed a robust joint governance framework to monitor progress and address insufficiencies and further proposed multi-country projects combining investments from the EU, Member States and the private sector. This was supplemented by the Digital Markets Act, a legislative framework that is aimed at providing a higher degree of competition in the European Digital Markets by preventing large companies from abusing their market power and by allowing new players to enter the market. More recently, the proposed European Chips Act aims to increase microchip production across the EU in response to rising demand and to reduce dependency on suppliers from outside Europe. This would counteract the dominance of China especially in the production of semi-conductor chips.

3.3.

As the EU economy rebounds after the pandemic, and in the face of rising prices, the EESC calls for the successful implementation of the Digital Compass and for EU governments to provide incentives for businesses to further invest in digital capacities and human resources. This investment would help boost strategic autonomy in the digital transformation of the EU economy. Investment by EU governments in improving digital capacities, infrastructure and technologies is also considered vital.

3.4.

The EESC notes that innovations such as cloud computing and AI have become important strategic assets within the EU, contributing positively to the potential growth of the EU economy. However, the EU is still losing ground in the global race to develop new technologies in the digital world. In AI, for example, EU private investment is lagging behind similar investment in the US and China. The same applies in the case of data collection and data access technologies and quantum computing, with the EU’s investment in blockchain technologies and the internet of Things also lagging behind similar investment in the US and China.

3.5.

The EESC also notes the various financial instruments in place to narrow the gap with US and Chinese investment in digital technologies. These instruments could certainly support research and innovation in digital technologies but, as pointed out in point 3.3, further investment is required, and the EESC calls for renewed efforts for public-private partnerships in digital technologies to be set up and for large-scale EU research in the field of new technologies to be supported with the specific aim of keeping pace with US and Chinese research capabilities.

3.6.

The EESC believes that digital sovereignty is not simply a matter of the EU regaining lost ground or being ahead of the digital curve. Neither is it a question of whether digital sovereignty is about the EU being protectionist in nature. It is about creating a level playing field for EU-based tech companies with a view, as indicated in the title of this own-initiative opinion, to enhancing the EU’s economic growth potential and thus benefitting EU society at large.

3.7.

There are valid reasons to why EU-based tech companies may need to be treated more favourably than non-EU based companies if they are to be among the top global digital leaders. However, the EESC argues that the existing imbalances in digital sovereignty are partly due to national barriers that continue to impede the achievement of a genuine Single Market. As things stand, the Single Market is essentially a compound of multiple smaller national markets, without the scale needed for any single EU-based company to compete with the Microsofts of this world. There are also different levels of development and infrastructures across the EU. It is not surprising, therefore, that the digital market continues to be dominated by non-EU companies.

3.8.

The EESC also believes that addressing digital sovereignty will help address concerns regarding privacy and personal data, taxation, data and government procurement. This will not happen overnight despite a more robust regulatory framework. Taxation, in particular, has emerged as an area of controversy because US-based tech companies may derive revenue through interactions with clients in the EU, raising the question of physical presence, which usually triggers taxability.

3.9.

Finally, the EESC has, in a previous opinion (3), already stressed the importance of digital sovereignty as a key pillar of Europe’s economic, social and environmental development and has also stressed that this sovereignty must be based on global competitiveness and on strong cooperation between Member States. This is an essential precondition for the EU to become a global leader on the international scene, especially with regard to the reliability of digital technologies.

4.   Specific comments

4.1.

The EESC calls on Member States to effectively implement the digital regulatory framework aimed at protecting EU citizens from the excesses of the digital world whilst at the same time providing a framework for a more human-centric and ethical environment. The EESC is of the view that the regulatory framework should help manage the EU digital sector more effectively. Also, the protection of workers and the right to collective bargaining should facilitate the transition towards digitalisation. At the same time, EU tech companies should be allowed sufficient space to innovate and step up compared with non-EU tech companies, with international partnerships being encouraged when possible.

4.2.

Setting rules for EU data will help make the EU more sovereign in the nominal sense but will not be sufficient for EU tech companies to match the global reach of non-EU based companies. That can only be achieved with political direction, investment in research and innovation, and addressing the existing shortcomings of the Single Market.

4.3.

This implies a more forward-looking approach to the regulatory framework that will shape the digital economy in the years to come. Equally as important is making online platforms, eco-systems and online activities more open, fair and predictable with rules covering algorithm transparency and neutrality, and data-sharing and interoperability being considered.

4.4.

In building the EU’s digital sovereignty the EESC calls for increased coordination between national jurisdictions and, in particular, the regulators in this field. A re-think of the existing governance structures is required in order both to strengthen interaction across Member States and to facilitate joint decision-taking related to the digital field. In the EESC’s view, this will be critical to support efforts to achieve some form of digital sovereignty. At the same time, the EESC cautions against overregulation, which could impair potential economic growth.

4.5.

The EESC supports calls for the EU to develop a cloud and data infrastructure to build its digital sovereignty and address the huge imbalance of the cloud and data storage market being almost totally dominated by non-EU companies. This would also help reduce the security risks for EU citizens. In this connection, the EESC reiterates its support for the EU Gaia-X project initiative, which seeks to provide a secure environment for managing data for citizens, businesses and governments.

4.6.

The EESC also recognises the potential for the EU to become a global leader in data collection and processing, which is the backbone of the digital economy. An EU data framework for data collection and sharing has huge potential in strategic sectors such as health, the labour market and transport. This would allow citizens and businesses access to EU-wide data (in line with privacy and data protections rules) and would enhance efficiency in the Single Market.

4.7.

In this connection, the EESC calls for competition policy in the Single Market to be updated and the existing imbalances to be addressed. This should also focus on distortive practices of non-EU tech companies as well as the growing influence of Chinese digital companies in the EU.

4.8.

The EESC acknowledges that achieving digital sovereignty will depend on (i) how EU-based tech companies adapt to the legislative framework, (ii) measures to address the shortcomings of the Single Market, and (iii) EU-based research and innovation in the digital field, and investment opportunities. At the same, the EESC cannot ignore the role SMEs could play in shaping the EU’s digital sovereignty. SMEs may not have the financial resources to shape the digital economy directly, but they can certainly contribute through interactions with large EU tech companies.

4.9.

Finally, the EESC highlights the importance of education at all levels (be it vocational or academic) in developing the EU’s digital sovereignty: education institutions must invest in relevant research and innovation and a framework of qualified personnel must be created that is capable of supporting the EU’s digital strategy. A coordinated approach across education institutions in the EU is also recommended.

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(1)  https://www.weforum.org/agenda/2021/03/europe-digital-sovereignty/.

(2)  Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation) (OJ L 119, 4.5.2016, p. 1).

(3)  OJ C 365, 23.9.2022, p. 13.

Opinion of the European Economic and Social Committee on Emergency preparedness

(own-initiative opinion)

(2023/C 75/03)

Rapporteur:

Paul RÜBIG

Plenary Assembly decision	24.2.2022
Legal basis	Rule 52(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	Single Market, Production and Consumption
Adopted in section	7.10.2022
Adopted at plenary	26.10.2022
Plenary session No	573
Outcome of vote (for/against/abstentions)	184/8/9

1.   Conclusions and recommendations

1.1.

The European Economic and Social Committee (EESC) asks the European Commission and Member States to urgently develop a plan to substantially increase the EU’s single market autonomy/sovereignty regarding energy generation facilities, food and water production and the mining of the necessary raw materials, including sovereignty/autonomy for the technologies needed. This EU autonomy/sovereignty must consist of the respective R & D, material processing, design, manufacturing, installation, start-up and maintenance of the facilities within the EU single market so as to avoid energy poverty and unemployment among EU citizens and consumers. The most efficient preparedness for emergencies is based on resilience, be it technical or social. Continuous improvements in the resilience of energy systems towards natural, political or any other threats should be integrated into all energy policies.

1.2.

The EESC recommends that the EU define short-term measures for building energy production facilities within the EU single market as a matter of urgency with a view to achieving the EU’s goal of autonomy/sovereignty.

1.3.

The EESC estimates that widespread and long-lasting European energy shortages can be prevented by taking the following actions: — technology openness (regarding energy production and usage applications); — strengthening and developing the European energy single market; — enhancing cooperation and coordination with like-minded partners, as well as closer cooperation with neighbouring and non-EU States; — pursuing an ambitious trade policy and the diversification of supply; — tackling labour market mismatches; — improving communication and raising awareness; — accelerating innovation and digitalisation; — facilitating access to finance; — ensuring sufficient investments (to facilitate the green transition, etc.); — ensuring that policies are realistic. For example, in the field of energy and climate we must reassess the Fit for 55 package in order to strike a balance between delivering on the goals for 2030 and 2050 and finding a pathway through this transition that is economically and socially bearable. Emissions’ trading profits should be used to finance a price cap on gas on the basis of the US Henry Hub and investment in new energy production facilities within the EU.

1.4.

To avoid having to reconsider the timelines for the Green Deal and to implement realistic energy policies the options, impact and risk assessment procedures for the EU’s Green Deal and energy policy should include not only the impact of the measures on the climate, but also the impact on the purchasing power of EU consumers and the impact on the competitiveness of the EU economy, thus safeguarding jobs in the EU.

1.5.

Considering the severity of the crisis, the EESC is of the opinion that no measures should be ruled out in the response to this crisis.

1.6.

Within the set of measures to be taken, part of the response should, according to the EESC, be to implement the EU SET plan ( S trategic Energy Technology) and the REPowerEU plan, in particular: — improving energy efficiency and promoting circularity; — implementing the REPowerEU plan to end the EU’s dependence on Russian fossil fuels; — increasing gas storage and coordinated refilling operations; monitoring and optimising electricity markets; channelling investments towards energy systems and enhancing connectivity in the immediate neighbourhood through ACER (1), BEREC, ENTSO-G (2), ENTSO-E (3) and the European Institute of Innovation and Technology’s knowledge and innovation communities (KICs) on InnoEnergy, Raw materials and Manufacturing considering developments in the European Hydrogen Backbone, H2 and CO2 Storage. — Let us create 1 000 EU energy production plants with a 14-day authorisation procedure and start investment immediately with 50 % EU financial support from emissions’ trading revenues.

1.7.

The EESC recommends that consumers be encouraged and supported to invest in their own energy production and efficiency. This will require information campaigns and tax incentives.

1.8.

Furthermore, the EESC estimates that the EU should build new transport infrastructure for the transmission of energy and energy resources (pipeline from North Africa to Spain) and for renewable energy sources like hydrogen, biomethane and ammonia (Campfire).

1.9.

As a response to the crisis, the EESC recommends a series of short-term measures: — safeguarding other sources, especially oil, coal, gas, uranium, water, food and animal feed; — developing plans and concepts for saving and rationing energy in all 27 EU Member States: — rationing should have clear priorities, e.g. negotiating plans for rationing energy for energy-intensive industries, and negotiating new WTO trade agreements with new priorities for food, feed, water and sanitation; — prioritising electricity and gas storage and supply for hospitals, medical care, emergency services and care for older and vulnerable people; — issuing rules for safeguarding sufficient oil and gas reserve levels; — promoting energy savings and new sources of energy; — stepping up EU R & D on energy research, especially alternative energies, fusion energy, energy storage, hydrogen and ammonia technologies, energy efficiency of energy-intensive industrial processes and consumer appliances; — accelerating public approval procedures for new projects that provide additional energy in the short and medium term, such as hydrogen unloading stations in EU harbours, pipelines and harbour facilities for re-gasification of liquefied gas (LNG); — asking all firms in the EU that produce or provide products and services needed in emergency situations to secure their emergency electricity supply, update their emergency plans and organise periodic emergency training, etc. (for instance, companies involved in telecommunications and broadcasting, emergency services, public IT servers and electricity providers).

1.10.

Beyond the short-term measures, the EESC also recommends a series of medium- and long-term measures:

1.10.1.

The EESC asks the European Commission to develop plans and to undertake the following EU-wide coordinated measures and actions: — implement methane splitting by electrolysis/pyrolysis and steam methane to produce hydrogen and solid carbon; — use the diversified and long-lasting methane reserves as a raw material for hydrogen (energy carrier), and carbon, and fully explore their benefits as soil improvers for agriculture to increase yields and improve food security; — massively speed-up the procurement of critical energy infrastructure, i.e. simplify and streamline EU regulations that slow down the procurement of critical energy infrastructure; — the new EU Water Framework Directive. Priority must be given to securing a quick energy supply; — the EU’s new supply chain regulation has to be simplified. The focus should be on securing a sustainable supply of critical raw materials and goods to the EU, negotiated in bilateral trade-agreements; — reinforce production chains and transport systems to offset possible future disruption to the availability of critical raw materials for EU firms (industry and trade); — reduce dependence on imports of critical materials and prefabricated products; — focus on the EU’s technological sovereignty/autonomy; — develop a cross-border power network infrastructure (380 kV or higher); — secure the production of transformers for electricity voltage change (high/low, AC/DC); — restart the thousands of energy production projects (hydropower, geothermal, hydro storage, etc.) that have been sidelined for years either because they had a bad pay-back ratio (due to cheap gas from Russia) or due to bureaucratic barriers; — explore new exploitation technologies. There are several regions within the EU with substantial natural gas reservoirs which can be extracted using new technologies recently developed by European universities. In light of the EU’s target for energy sovereignty/autonomy, the EU should seriously look into these new technologies and encourage the regions to try them; — reconsider local gas/oil, and e-fuel production where possible and needed or ramp up existing production as a short-term measure.

1.10.2.

Step up vocational training and skills for electricians and farmers and create jobs in water stewardship.

1.10.3.

The EESC recommends that the number of European STEM-students (STEM = Science, Technology, Engineering, Mathematics) be increased, since it is remaining stagnant while countries in Asia have substantially increased their numbers of physics, ICT and engineering students. The EESC recommends setting initiatives and incentives to increase the number of additional engineers, technicians and high-tech jobs in Europe to reach its technological sovereignty/autonomy goals.

1.10.4.

Last but not least, the EESC estimates that it is important to keep the purchasing power of EU citizens and consumers high by focusing on the EU’s technology sovereignty/autonomy and thus reducing its dependence on imports (technology and energy imports) and increasing the number of high-tech jobs in Europe.

1.11.

To summarise the conclusions and recommendations, the question is whether the order of priorities in the mind of consumers has switched from: 1 environment, 2 price and 3 security of supply to: 1 security of supply, 2 price and 3 environment.

2.   General comments

2.1.

Definition of ‘emergency management’: ‘emergency management’ means the organisation and management of the resources and responsibilities for dealing with all humanitarian aspects of emergencies, i.e.: — prevention; — preparedness; — response; — mitigation; — recovery.

2.2.

No one knows how long this brutal war in Ukraine will last, how much infrastructure will be destroyed, or how many millions of Ukrainian refugees will flee to the EU Member States — adding millions of new consumers to the single market.

2.3.

The war in Ukraine will certainly have dramatic consequences for the EU, since the EU heavily relies on fossil fuels and raw materials imported from Russia and Ukraine. Investment into own mining and production facilities for power is urgently recommended to achieve autonomy/sovereignty — one of the EU’s main goals.

2.4.

In 2021, some European countries imported 100 % of their natural gas imports from Russia, and some imported around 70 % of their oil imports from Russia. As of September 2022, some EU countries (e.g. Poland, Bulgaria and all three Baltic States) had stopped importing gas from Russia and many EU countries had managed to considerably reduce their imports of Russian natural gas by increasing gas imports from other countries, primarily LNG via LNG-terminals. In response, gas-prices have soared and are still rising in the EU. As of July 2022, average gas prices in the EU have been approximately eight times higher than in the USA, thus adversely affecting the EU’s competiveness.

2.5.

Consequently, the risk of massive job losses in the EU is increasing. According to EUROFER, the EU steel industry directly employs 330 000 highly-skilled people, and indirectly supports up to 2,2 million more. The aluminium, cement, paper, glass and chemical industries also directly and indirectly employ hundreds of thousands of people. Within the single market, the production facilities for energy production could provide hundreds of thousands of new well-paid jobs, and therefore increase the purchasing power of EU consumers.

2.6.

As regards food security, European countries will systematically seek to become less dependent on the supply of wheat from Ukraine and Russia. We need to look into fertiliser subsidies, set aside land for food and feed production and use agri-food waste to produce biogas.

3.   Disaster preparedness (4)

3.1.

The EU has done a great deal regarding preparing for emergencies, however, the war in Ukraine has shown the EU that it has to continue and even step up its efforts in the following areas: — power outages (blackouts) caused by technical failures, cyberattacks, etc. that could affect: — communication systems; — sanitation systems, water supply and wastewater treatment; — industry business continuity; — electricity and gas rationing plans for EU consumers and EU industry. This risk has increased dramatically since the war in Ukraine; — disruption to the availability of raw materials due to production chain or transport system breakdowns (e.g. the traffic jam involving 400 large cargo ships in the Shanghai harbour in April 2022 due to Shanghai’s COVID-19 lockdown); — cyber threats or incidents: how could the EU build business resilience and ensure business continuity to safeguard the supply needed for EU consumers? — other attacks: enterprises must be equipped to withstand and rapidly recover from attacks.

3.2.

Emergencies and disasters emphasise the importance of the UN’s 17 Sustainable Development Goals (SDGs) (5). Disasters can be natural disasters (6), disasters caused by industrial or technological accidents (man-made machinery, ABC disasters), war and political and civil disasters (7), epidemics and famines, and the impact of food and feed production.

4.   Important organisations within the European Commission

4.1.

The EU does not lack competent and specialised bodies to help guide the debate and preparations on ‘Emergency preparedness’. Specifically, these include: — DG ECHO (European Civil Protection and Humanitarian Aid Operations) (8); — ERCC (Emergency Response Coordination Centre) (9); — UCP (Union Civil Protection) Knowledge Network (10); — European Union Civil Protection Mechanism (UCPM) (11).

5.   Current examples of potential critical emergencies for the EU Member States, especially in the field of energy-producing facilities

5.1.

Breakdown in the fossil energy production supply chain (coal, oil, natural gas, uranium). In 2021, fossil fuels made up approximately 80 % of all primary energy used in the EU, the majority of which had been imported.

5.2.

Power blackouts and subsequent communication breakdowns caused by technical failures, cyberwar or terror attacks. Renewable electric power production is erratic: the wind does not always blow and the sun does not always shine when the EU needs high amounts of energy, thus any increase in wind and PV-power generation capacities within the EU has to be accompanied by a build-up of huge energy storage facilities.

5.3.

The ability to secure critical raw materials supplies (copper, lithium, cobalt, rare earth elements, etc.) through new EU single market strategies on mining, recycling, etc.

5.4.

The ability to secure a competitive single market for half-finished product supplies (e.g. the EU auto industry has seen a severe shortage of Ukrainian-produced cable looms since the war in Ukraine started).

5.5.

The material requirements for the enormous number of wind turbines needed to reach the decarbonisation goals for electricity production exceed the annual global production of copper by a factor of 14 (25 million tons versus the 350 million tons needed), the annual global production of aluminium by a factor of 7,2, and the annual global production of the special steel needed for wind turbines by a factor of 3,9. Solar panels are mainly produced in China.

5.6.

Massive fossil fuel supplies are urgently needed until a sufficient amount of production facilities for renewable energy installations has been built in the EU.

6.   Response

6.1.

Given the magnitude of the EU’s energy consumption, the EU’s green transition will take roughly two decades. The Council meeting in Versailles recommended that the transition be accelerated, which would prove a very challenging task.

6.2.

The major bottleneck preventing a faster transfer is not only about money, but rather the materials needed for the approximately 700 000 large 5 MW wind turbines needed across the EU, and the millions of photovoltaic installations, fusion energy, waterpower and energy storage facilities. In addition, geothermal facilities and hydrogen and ammonia and CO2-storage facilities will have to be built. In order to distribute the massively increased amount of decentralised electric power generated, high-voltage and medium-voltage power transmission lines will have to be expanded on a colossal scale.

6.3.

Each of these 700 000 large 5 MW wind turbines (which typically produce 12,5 GWh of electric energy p.a.) has a height of around 200 metres, a foundation of around 2 000 tons of reinforced concrete, requires approximately 600 tons of special steel, 20 tons of copper and a supply of very scarce rare earth materials which have to be imported mainly from China or Russia. If these tons of materials required are multiplied by the approximately 700 000 wind turbines needed within the EU, it becomes clear that we will need huge amounts of concrete, steel, copper and other materials — the production of which would emit huge additional amounts of CO2. For rare earth elements (for the electric generators and batteries), neodymium, dysprosium, etc., the shortage problem is even more dire, and would be very difficult to solve by 2050.

7.   Mitigation

7.1.

If Germany continues to build wind turbines at 2021 rates, building the 70 000 wind turbines needed for the Green Deal would take 160 years.

7.2.

To summarise, many engineers claim that achieving the Green Deal goals by 2050 is very challenging due to shortages of materials (rare earth elements, copper, steel, etc.), and of engineers and skilled workers (e.g. electricians) both being necessary for the EU’s Green Deal.

8.   Prevention

8.1.

Many energy-intensive industries are to be converted to renewable green hydrogen or ammonia produced by renewable electric power by 2050, including the steel industry, the chemical industry and the cement industry. Many people are unaware that transitioning all these energy-intensive industries requires approximately 10 times more renewable electric power than the transition to e-mobility and decarbonising the steel industry.

8.2.

Iron and steel production accounts for a quarter of all global industrial CO2 emissions. Around 1 870 million tons of steel were produced worldwide in 2020; approximately 57 % of that was produced in China, and 7 % in the EU. Of the 1 870 million tons of steel produced globally, around 1 300 million tons (65 %) are made via the integrated blast furnace route, where iron ore is reduced with coke, generating very high CO2 emissions (approximately 1,4 tons of CO2 per ton of steel).

8.3.

Within the EU 27 Member States, approximately 150 million tons of steel are produced p.a., approximately 90 million tons thereof via the blast furnace route. To switch the production of these 90 million tons of pig iron (reduced in the blast furnace with coke) to renewable hydrogen green iron, around 360 TWh p.a. of renewable electricity would be needed (by 2050). 360 TWh p.a. is a huge amount of renewable energy! It is more renewable electricity than that needed for the electrification of all passenger cars in the whole EU. No less than 30 000 large wind turbines will be needed to produce this renewable electricity for the EU’s steel industry.

8.4.

Looking at the European Union, electricity production in 2019 was approx. 2 904 TWh, only around 35 % of which was from renewable sources. However, about 38 % (1 112 TWh) was produced from fossil fuels and around 26 % from nuclear power (765 TWh). Only 13 % was produced from wind power, 12 % from hydropower plants, 4 % from solar power plants, 4 % from bioenergy and 2 % from geothermal supplies. The bulk of renewable electricity generation in the European Union in 2019 (1 005 TWh) was from wind power (367 TWh, 42 % of all renewables). A further 39 % was generated by hydropower plants (345 TWh), 12 % from solar power plants (125 TWh) and the remaining 6 % from bioenergy (55 TWh).

8.5.

The expansion of pumped storage hydropower plants is necessary to stabilise the grid in the event of an imminent blackout.

8.6.

Hydropower must be moved up the energy and climate policy agenda. Sustainably developed hydropower plants need to be recognised as renewable energy sources. Governments should include large and small hydropower in their long-term deployment targets, energy plans and renewable energy incentive schemes, on a par with variable renewables.

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(1)  EU Agency for the Cooperation of Energy Regulators.

(2)  https://www.entsog.eu/

(3)  https://www.entsoe.eu/

(4)  https://ec.europa.eu/echo/what/humanitarian-aid/disaster-preparedness_de

(5)  https://sdgs.un.org/goals

(6)  https://www.conserve-energy-future.com/10-worst-natural-disasters.php

(7)  https://www.samhsa.gov/find-help/disaster-distress-helpline/disaster-types/incidents-mass-violence

(8)  https://ec.europa.eu/echo/index_de

(9)  https://erccportal.jrc.ec.europa.eu/

(10)  https://civil-protection-knowledge-network.europa.eu/

(11)  https://ec.europa.eu/echo/what/civil-protection/eu-civil-protection-mechanism_de

Opinion of the European Economic and Social Committee on ‘A Digital Euro’

(own-initiative opinion)

(2023/C 75/04)

Rapporteur:

Juraj SIPKO

Plenary Assembly decision	20.1.2022
Legal basis	Rule 52(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	Economic and Monetary Union and Economic and Social Cohesion
Adopted in section	6.10.2022
Adopted at plenary	26.10.2022
Plenary session No	573
Outcome of vote (for/against/abstentions)	183/1/1

1.   Conclusions and recommendations

1.1.

The rapid process of technological innovation in the financial sector has led to the gradual development of digital currencies by central banks around the world. Like other central banks worldwide, the European Central Bank (ECB-Eurosystem) adopted a decision in July 2021 to launch an ‘investigation phase’ ahead of the possible introduction of a digital euro. The EESC is pleased that the ECB is continuing to work towards the introduction of a digital euro. Currently, the ECB-Eurosystem is taking a step-by-step approach towards the adoption of a digital euro, which is following a set time line. However, a decision on whether to adopt a digital euro has not yet been taken.

1.2.

The EESC considers financial and digital inclusiveness to be very important in the introduction of the digital euro. Thus, it expects that the digital euro will benefit everyone in the euro area. The digital euro should enable payment transactions to be carried out more quickly and more efficiently.

1.3.

The EESC notes that the digital euro will constitute a new form of money. In this regard, it stresses that while all of the positive aspects and opportunities offered must be taken into account when considering its adoption, all of the potential risks must also be pointed out, especially in relation to the financial sector. Therefore, the monitoring, supervision and management of the potential risks involved will need to be taken into account when designing the digital euro.

1.4.

The EESC considers financial stability to be one of the key issues when moving towards the introduction of a digital euro. Therefore, as it moves forward, it will be important that the ECB takes all necessary measures in the area of supervision to counter unlawful transactions, particularly for the purposes of money laundering and terrorist financing (AML/CFT), as well as to combat cyber attacks.

1.5.

As preparations are made for the possible introduction of a digital euro, the EESC sees scope for making the payment system more efficient and competitive. The digital euro could reduce risk while promoting financial stability.

1.6.

The EESC supports the steps taken by the ECB-Eurosystem towards the introduction of a digital euro. Given that this is a very complex project that is also strongly influenced by the current dynamic development of innovative technologies, it will be important that the ECB sets out various design options. Accordingly, it will be important to enable both online and offline transactions. Furthermore, in cross-border payment transactions, systems will need to be compatible with each other.

1.7.

The EESC is closely monitoring the ECB’s work on adopting a digital euro and will continue to do so. It will therefore be important that, as the decision-making process at ECB-Eurosystem level moves forward, all substantive and systemic measures are taken to select the most appropriate model that ensures financial inclusiveness, financial stability and privacy. The ECB is currently exploring and reviewing various design options.

1.8.

Given that this is a complex and particularly demanding project, which concerns every resident of the Member States of the European Union, the EESC stresses the need for civil society to be involved in the next stages of preparations, negotiations and discussions on the introduction of a digital euro.

2.   General comments

2.1.

The continuing evolution of technology is leading to rapid digitalisation across all sectors of the economy, including the overarching social structure. The rapid development and impact of technological innovation can also be seen in the financial sector and in institutions providing payment services. The rapid process of digitalisation is also continuing in the public sector.

2.2.

Central banks around the world are currently discussing and deciding on whether to introduce a central bank digital currency (CBDC). At this point, the central banks of the Bahamas and Nigeria have adopted a digital currency as legal tender. In addition, more than 110 countries around the world are exploring the possibility of introducing a digital currency.

2.3.

As the first G20 state to do so, the People’s Republic of China (1) has successfully launched a digital currency project, which is so far not interlinked with other central banks around the world. In January 2022, the US Federal Reserve System published a study on the advantages and disadvantages of introducing a digital dollar.

2.4.

Some 90 % of central banks, accounting for 95 % of global GDP, are currently in the process of considering the adoption of a digital currency (2). Around half of the world’s central banks are developing or carrying out specific trials in relation to the introduction of CBDCs. Moreover, two thirds of central banks intend to introduce a CBDC for retail transactions in the short or medium term.

2.5.

There is general agreement that lower costs and more efficient, faster and more secure payment transactions can be expected following the introduction of digital currencies by central banks.

2.6.

This process of central banks adopting digital currencies is linked to the dynamic developments in the cryptocurrency market. Furthermore, the emergence and rapid spread of COVID-19 has further accelerated this digitalisation process.

2.7.

When making decisions on introducing central bank digital currencies, it will be important to take into account the impact of such a move on macro-financial stability. States that have decided to adopt and potentially implement digital currencies are expected to see significant benefits, not only in terms of speed, efficiency, and volume of operations, but also in respect of the uninterrupted functioning of the payment and settlement system.

2.8.

The introduction of a digital euro by the European Central Bank (ECB) should be aimed at preserving the role of public money as the anchor of the payments system, and also contribute to European strategic autonomy and economic efficiency. In addition, it should contribute to a fairer, more diverse, and more resilient European retail payments market, while ensuring a high degree of privacy and security. The Eurosystem is indeed committed to enabling high privacy standards. However, higher levels of privacy than current payments solutions would need to be integrated into the regulatory framework.

3.   Main comments

3.1.

The EESC points out that the ECB should be focused on reducing and eliminating potential risks, when moving towards the introduction of a digital euro. As to the digital euro itself, there are several models under discussion, including models based on third-party validation and peer-to-peer validation and with offline or online functionality (3).

3.2.

The EESC expects to see the ECB’s strategy for adopting a digital euro involve an examination of the risks involved of every kind and a focus on taking measures to eliminate the potential risks.

3.3.

The EESC stresses that the ECB’s plans to introduce a digital euro should also focus on maintaining financial stability and ensuring a smooth monetary transition. Therefore, further in-depth analyses of the different design features of a digital euro will be important, including in relation to the future impact of the digital euro on macro-financial stability.

3.4.

The EESC expects that the process of technological development will also need to take into account other possible risks associated with this process. The ECB’s digital euro strategy will thus face two challenges, namely ensuring financial stability and smooth monetary policy transition on the one hand, and ensuring a dynamic process of technological development and innovation on the other hand.

3.5.

The EESC expects that all necessary measures against terrorist financing and other illegal operations will need to be taken when foreign payments are made (4). In this regard, the EESC sees considerable scope for mutually beneficial international cooperation and coordination between central banks and international monetary-financial and economic institutions (5).

3.6.

The EESC notes that when assessing the different forms of money, the functions they perform should be considered, i.e. the functions of store of value, unit of account, and medium of exchange. A digital euro should be mainly used as a means of payment and not become an instrument for financial investments, in order to avoid negative consequences for the financial sector.

3.7.

The EESC considers that, in order to achieve the maximum effect as regards this payment function, it will be important that the supply of funds is sufficient and free from any restrictions. The EESC also points out that, in reciprocal payment and settlement relations, it will be important for both natural and legal persons to be accepted. However, there will need to be tools in place to prevent the digital euro from being used for investment purposes (6).

3.8.

The EESC expects that the ECB will have to grapple with certain challenges when considering the introduction of a digital euro, in particular as regards the security of payments, their efficiency, financial inclusiveness, including financial stability and monetary policy transmission, etc. Private sector corporations’ plans to introduce digital currencies have accelerated CBDC projects. It is very important that the ECB anticipates further competition from private-sector digital currencies (7).

3.9.

The EESC points out that it will be important for the ECB to decide how to establish the conditions to prevent a potential market failure. Moreover, it will also be necessary to determine how to deal with private banks, as well as financial institutions providing domestic and foreign payment services. The ECB will therefore have an important decision to make at the preparatory stage as to which CBDC model to opt for.

3.10.

As of now, these are the recognised models for central bank digital currencies: the direct model, the indirect model, the intermediated model and the hybrid model. Furthermore, the EESC points out that one of the biggest challenges in deploying one of the possible models for the ECB’s digital currency will be the interoperability between central banks (8).

3.11.

The EESC would expect that cross-border payment systems for retail transactions using the digital euro will be sufficiently fast, lower cost, more transparent, more secure and much more accessible.

3.12.

The EESC stresses that the interconnection of retail payments will make it easier for individual transactions to be carried out under the different models adopted by the individual central banks when introducing the digital euro. The better the interoperability between payment service providers, the greater the satisfaction of users and service providers.

3.13.

The EESC envisages the digital euro as a new form of money. Technological innovation is leading to two forms of digital currency, namely (a) central bank digital assets and (b) private digital assets. Here, account must be taken not only of potential competition, but also of the status of the digital euro in international monetary relations, as the second most important reserve currency.

4.   Specific recommendations

4.1.

The EESC points out that if a digital euro is introduced, the ECB, in cooperation with commercial banks, will ensure that cash continues to be provided and can still be used in retail operations (9).

4.2.

The EESC points out that the ECB should monitor all potential risks. ‘Stablecoin’ will be one important measure for ensuring the stability of the currency in the blockchain (10). It will thus be important to specify how the ECB will deal with this form of digital currency — stablecoin — which could also be linked to the digital euro.

4.3.

The EESC stresses that cash will remain very important for the inclusiveness of a currency. Certain sections of society — especially older and financially vulnerable people — do not always have access to digital accounts and credit cards. For them, cash is the only means of payment. Besides, cash is a protection against excessive intrusiveness into the private sphere of citizens. The increasing volume of banknotes in the economy is proof of the trust in this form of money, probably also after and because of the financial crisis of 2008.

4.4.

The EESC notes that currently almost all of the central banks in the world that have adopted a strategy for introducing a central bank digital currency are seeking to establish and are testing out the form, system, design and model of their future digital currencies.

4.5.

The EESC sees the dilemma facing the ECB as a result of the process of technological innovation (11) in how to continue with the process of digitalising the euro that is under way, ensuring links with other central bank digital currencies, while also ensuring financial inclusiveness, and macroeconomic and financial stability.

4.6.

The EESC expects that the introduction of a digital euro is not envisaged as resolving all issues related to the evolving technological revolution. A significant decrease in cash payment methods can be expected. Furthermore, the issue of monetary sovereignty will need to be addressed, not least supporting the digitalisation process linked to foreign payments and transfers, including tackling the key issue of financial inclusion. These are all open questions that the ECB still faces today.

4.7.

The EESC notes that there cannot be a one-size-fits-all approach to a digital euro for all Member States, as there are national differences. Therefore, in the transition to a digital euro, the scope for its use in each country will need to be the primary consideration. The digital euro will be offered to all euro-area citizens, just as cash is offered to all euro-area citizens, regardless of their country. Its use may differ depending on the habits and norms of the individual countries.

4.8.

The EESC understands that when seeking to shape the different features of the introduction of the digital euro, it will be important to take particular account of privacy conditions as well as of the timing of the market launch. It will also be important to use the current infrastructure and the new technical architecture to ensure the security of payment transactions and procedures as regards customer identification.

4.9.

The EESC believes that in reality the digital euro will involve a high degree of privacy protection. Although the time frame has not yet been pinned down exactly, it is very important to make careful preparations at this stage. In addition, the EESC notes that when issuing a digital euro, the ECB will take all AML/CFT requirements into account, but that this does not mean that the ECB itself will do the KYC (know-your-customer) checks; these could be done, for instance, by supervised entities, depending on the design of the digital euro.

4.10.

The EESC believes that the assessment of national sovereignty as well as the impact on the European banking system will also be important. Although the entire European payment system is currently not completely uniform, it is a great advantage that it is accessible to both natural and legal persons. Up to now, and since the global financial crisis, it has been relatively efficient, stable and secure.

4.11.

The EESC calls for the completion of the Banking Union. A complete and genuine Banking Union would be beneficial to further strengthen the resilience and uniformity of the European banking sector. This is also crucial and beneficial in the light of a potential digital euro.

4.12.

The EESC points out that commercial banks in euro area countries currently benefit from favourable conditions for payment transactions. Against this backdrop, the commercial banks and other institutions in the financial sector, including institutions providing payment services, would be expected to cooperate intensively with the ECB in the design and introduction of the digital euro.

4.13.

The introduction and implementation of CBDCs in euro area countries will need to take into account at least the following, very important, aspects: i) when adopting the digital euro as the basic means of payment, the option of carrying out payment transactions in cash will still need to be available; ii) the need for the digital euro to be usable and accessible within the euro area, and potentially also abroad; and, iii) the digitalisation process should mean that the digital euro can be used in transactions under the new conditions that did not exist for cash payments.

4.14.

The EESC expects that the ECB is preparing and is set to implement a range of measures aimed at introducing a digital euro, in accordance with the time frame adopted. In addition, it stresses the need for very close cooperation when it comes to ensuring a high degree of payment system interconnection, not only within the euro area Member States, but also with other central banks around the world and with relevant monetary-financial institutions, which will also provide the necessary technical assistance.

4.15.

The introduction of a digital euro will require a whole set of substantive and systemic conditions to be put in place to ensure that it functions effectively. As this will affect all citizens of the euro area Member States, including the Member States of the EU, there is a clear need for civil society, research and academia to be included in the next stages of discussions on adopting and introducing a digital euro.

---

(1)  China launched a digital yuan project back in 2014, and the currency was in use during the Winter Olympic Games in 2022. So far, the digital yuan has been used only on Chinese territory.

(2)  For more information, see: https://news.bitcoin.com/105-countries-are-exploring-central-bank-digital-currencies-cbdc-tracker-shows/

(3)  For more information, see:

https://www.ecb.europa.eu/paym/digital_euro/investigation/governance/shared/files/ecb.degov220504_magdesignfeatures.en.pdf?2e15ee7911b93a720fbdebe09cfa1a79

(4)  More information can be found in the latest EESC opinion on the subject, on the Anti-money laundering legislative package, (OJ C 152, 6.4.2022, p. 89).

(5)  The following institutions are most closely involved in the process of introducing a central bank digital currency: the International Monetary Fund, the Bank for International Settlements, the World Bank, and other public and private monetary-financial and economic institutions.

(6)  For more information, see:

https://www.ecb.europa.eu/paym/digital_euro/investigation/governance/shared/files/ecb.degov220711_tools.en.pdf?fb2430528d8f964513dd66ffcd8cbaf7

(7)  Private digital currencies (cryptocurrencies) can compete with central bank digital currencies. Since the global financial crisis, there has been a significant rise in private digital currencies.

(8)  When linking up different models of cross-border payment systems, it is important that they are compatible with each other.

(9)  For more information, see the previous EESC opinion on a Retail Payments Strategy for the EU, (OJ C 220, 9.6.2021, p. 72).

(10)  Stablecoin is a fixed-price cryptocurrency whose market value is attached to other assets. Unlike other cryptocurrencies, such as bitcoin, stablecoin can be pegged to assets such as certain reserves or convertible currencies that can be traded on exchanges, including the US dollar or the euro.

(11)  The technological development here is based on a process of decentralising finance, as with the experiments being carried out by the big technology firms, for example. Diem/Libra and the introduction of the e-CNY are the result of a revolutionary technological process.

Opinion of the European Economic and Social Committee on Recapitalising EU companies — An innovative way towards sustained and inclusive recovery

(own-initiative opinion)

(2023/C 75/05)

Rapporteur:

Antonio GARCÍA DEL RIEGO

Plenary Assembly decision	20.1.2022
Legal basis	Rule 52(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	Economic and Monetary Union and Economic and Social Cohesion
Adopted in section	6.10.2022
Adopted at plenary	26.10.2022
Plenary session No	573
Outcome of vote (for/against/abstentions)	186/0/2

1.   Conclusions and recommendations

1.1.

Recent evidence estimates an equity and hybrid capital shortfall of EUR 450-600 billion. This puts many companies at risk, especially considering that new economic tensions are arising and that EU companies are over-indebted. EU companies rely mainly on banking financing, and other sources of funding should therefore be encouraged. This requires involving actors such as asset managers, insurance companies and pension funds.

1.2.

In this context, the EESC recommends the development of a framework that enhances hybrid financial instruments, so that they are easy to implement, reinforce firms’ balance sheets and allow companies to maintain their level of investment without increasing their indebtedness. This would allow them to remain competitive and to be able to adapt to the future, by boosting their green and digital transformations.

1.3.

Highly subordinated instruments are the best possible alternative for several reasons: i) They already exist and are regulated in different European countries, making them a secure instrument for Micro, Small and Medium-Sized Enterprises (MSMEs); ii) They are an agile long-term solution, easy to implement, for firms of all sizes, compared to more sophisticated alternatives such as bonds or shares; iii) They are a product compatible with family businesses, which account for 60 % of EU firms, as usually these families wish to retain control of their company.

1.4.

To be an effective solution, these instruments should have a quasi-equity status, so as to not account as debt in balance sheets, ranking just before equity in waterfall payments in the event that a company is liquidated.

1.5.

To have a large impact, reaching companies of all sizes, the best option is a scheme where there is collaboration between private and public institutions, including banks, asset managers, public sector, and institutional investors (insurers and pension funds).

1.6.

This recommendation serves a long-term goal with a solution that can be implemented in the short term, and would support the Capital Markets Union (CMU). An EU-wide instrument model could benefit from the visibility, liquidity and scale of the single market and generate broad appeal among institutional investors seeking debt and hybrid-type risk profiles but with higher returns, while catering to the needs of smaller companies. With sufficient EU-wide scale, a successful framework could develop into a well-defined asset class, encouraging investment and EU integration.

2.   Background

2.1.

Small and medium-sized companies are the heart of the economy: in the EU-27, they represent 99,8 % of all firms, almost two thirds (65 %) of employment and more than half (53 %) of the value added generated by the non-financial business sector (NFBS) (1). They are the real economy and the main factor for social cohesion in many European regions. There were over 22,5 million SMEs in 2020. There are just under 200 000 medium-sized SMEs, but they account for 17,3 % of value added and 16 % of employment (2).

2.2.

COVID-19 hit the economy hard throughout 2020 and for part of 2021, but the rapid response of governments with temporary public measures prevented a widespread wave of COVID-19-related bankruptcies, mainly through solutions to address liquidity and short-term issues that have resulted in over-indebtedness among EU companies.

2.3.

The end of most public support measures already granted coincides with new tensions affecting the global and European economies, such as energy crisis, inflation, the end of the ECB’s accommodative monetary stance, the widening of risk premia, the increased cost of financing, problems in supply chains and Russia’s invasion of Ukraine.

2.4.

Europe’s position as the leader of the green transition will require large investments from public and private agents. SMEs’ weakened position could make it difficult for them to adapt to new standards and cause them to lag behind large corporations or mid-sized companies from other parts of the world.

2.5.

Given that a high proportion of companies are overindebted (3) and at the same time need long-term resources to face upcoming challenges, new solutions that reinforce the capital of MSMEs and small midcaps are needed. Existing initiatives at European level, such as EIB’s ESCALAR programme, usually target high-growth corporates that are considered scale-ups or companies in their early stages that are financed by venture capital funds. New solutions should complement those currently in place and focus on existing and established MSMEs and small midcaps, which make up the majority of European firms.

2.6.

Some countries have launched selective measures to reinforce the investment capacity of companies, while avoiding the risk of ‘zombification’. In Spain and France, these programmes represent more than EUR 30 billion for 15 000 companies (4), using deeply subordinated loans as the main instrument and credit rating as a selection criterion to ensure recipients are viable firms.

3.   General observations

3.1.

The over-indebtedness of European companies demands some sort of recapitalisation instrument that allows them to keep or increase their investment effort. Public markets have supported existing listed companies reasonably well to date, but private ones lack the depth to support smaller companies. The equity and hybrid capital gap that the EU could face because of the pandemic and the reduction of state support measures is estimated at EUR 450-600 billion (5).

3.2.

MSMEs and small mid-caps generally report that they find it more difficult to access finance than large companies, especially long-term financing:

3.2.1.

When applying for a loan, a larger proportion claims that they face obstacles (7 % of SMEs compared with 4 % of large companies), they have lower success rates (72 % vs 85 %) and higher rejection rates (6 % vs 2 %) as well as worse conditions, according to the SAFE survey (6).

3.2.2.

Family businesses represent more than 60 % of all European companies (with the figures rising to 85 % in Spain and 75 % in Italy, France and Germany (7)). These companies are less likely to seek equity alternatives for long-term financing that require giving up control of the company.

3.3.

On top of this, SMEs tend to have a less diversified portfolio of external financial instruments, often bank-based and geared towards short-term uses. i) SMEs’ dependency on banks remains high in the Eurozone, with 70 % of external financing being reliant on banks, against 40 % in the US (8). ii) 63 % of large firms report using funds for fixed investment, compared with 38 % of SMEs, and only 28 % of micro firms (9).

3.4.

This own-initiative opinion therefore recommends developing a common framework for highly subordinated financial instruments that boosts the recapitalisation of EU companies. This framework should ensure that these instruments have a quasi-equity consideration, so it does not affect the debt ratio of companies and their corporate rating.

3.4.1.

This opinion calls the EU to take action collectively to properly develop this common framework in line with the principles of subsidiarity and proportionality, authorising intervention by the Union when the objectives of an action can be better achieved at Union level by reason of scale and effects of the proposed action.

3.4.2.

This framework for highly subordinated instruments should: i) Close the aforementioned financing shortfall in long-term financing to reinforce balance sheets and support investment; ii) Provide family businesses with an instrument to boost their long-term investments without giving up control of their firm, as studies show that they are willing to distribute a share of profits and/or issue hybrid instruments (10); iii) Be compatible with the practices of the main financial providers (commercial banks, asset managers, the public sector) so it can reach a majority of companies; iv) Help to attract institutional investors, such as insurance companies and pension funds, subject to the PRIIPs Regulation (11), who manage savings and are a key player for channelling more assets to the real economy.

3.5.

There are different highly subordinated instruments that could be used to reinforce SMEs and midcaps balance sheets, such as bonds, convertible bonds, dual-share schemes, and hybrid loans (such as participative loans): i) Bond issuance is mainly used by large caps and for large emissions. They are complex and expensive. For example, even if the use of corporate bonds has grown considerably in recent years, there are only 2 000 active issuers in total, mainly larger companies (12); ii) Private Convertible bonds have the main advantage of being extremely flexible in terms of structure, as they are a private contract. However, that also implies a low level of security for smaller companies, usually with less financial literacy, and a high transaction cost. They are mainly used by sophisticated venture capital providers; iii) Dual share schemes refer to the issuance of two classes of shares, one of which usually has limited or no voting rights, while providing equity. Although in some Member States this instrument is allowed (13) (such as the Nordic countries, Poland, Portugal and Italy), in many others (such as Germany, France and Spain) it is not, and a large-scale deployment seems tougher to achieve, since it would require a high degree of adaptation to the company issuing shares; iv) Hybrid loans are debt instruments that are deeply subordinated and oriented towards the long term (usually including grace periods). This is an instrument that is regulated in many jurisdictions, giving companies more security, and making the process more agile, since the product is not created in each operation. On top of this, it does not penalise companies in terms of indebtedness, as it ranks last in the repayment order, before equity.   Deployment Feasibility Track Record Company protection Investor protection Bonds Low High Low Medium High Convertible bonds Medium Medium Low Low High Dual shares Low Medium Medium High Medium Hybrid loans High High Medium-High High Medium Source: Inbonis Rating.

3.6.

A hybrid loan instrument is the best alternative for several reasons: i) They represent a long-term solution that is easy to implement and provides greater protection to companies, when compared with bonds or shares; ii) For MSMEs, it ensures that there is no dilution or loss of control, while having cost-related advantages, such as tax deductibility or lower issuance costs); iii) For lenders, it offers an attractive return, with no need to involve holders in corporate decisions; iv) Participative loans, a type of hybrid loan, already exist and are regulated in many European countries, such as Spain (préstamos participativos), France, (prêts participatifs), Germany (Partiarisches Darlehen) or recently Portugal (empréstimos participativos) (14).

3.6.1.

Hybrid loans are the chosen instrument for different public and private initiatives to address the lack of capital funding across the EU: at least six programmes in three Member States, as well as some European Investment Fund programmes, use this hybrid participative loan: i) France has the Relance Programme, an EUR 12,7 billion government-supported subordinated debt programme, targeted at 10 000 firms, mainly SMEs, using participative loans and subordinated bonds. This programme is being distributed by banks and is financed by institutional investors; ii) In Spain, the EUR 1 billion Fund for the Recapitalisation of Covid-Affected Firms, for SMEs and midcaps that have solvency issues but are viable, using participating loans; iii) Also in Spain, a 15-year, EUR 9 billion total Support Fund for the Productive Industrial Investment (EUR 600 million a year), public financed, using regular debt, participative loans and equity, targeted at companies with industrial investment projects; iv) In Valencia, the regional development bank, Instituto Valenciano de Finanzas, has launched several financing programmes that use a participative loan to support SMEs and strategic Midcaps with an investment project, totalling EUR 400 million a year; v) The Netherlands launched an EUR 400 million SME subordinated loan support programme.

3.7.

To ensure effective deployment that reaches all MSMEs and has the maximum impact, the best operational scheme is one where there are multiple public and private originators and distributors, who might not be the same. Originators include banks, asset managers as well as the public sector, whereas the investors can be the own banks, the public-sector or institutional investors (insurers and pension funds). This framework refers to newly originated transactions, not the securitisation of existing ones. This is, for example, what was done in France, with its Relance programme (15).

3.8.

Mitigation of potentially perceived risks of a hybrid loan scheme being distributed at scale across Europe: Perceived risk Solution Supervising shadow banking Including tools to manage risk, such as the credit rating, would remove the risk of shadow banking. Crowding out banks A hybrid loan instrument would restore the solvency of companies and banks would therefore be willing to keep lending to them. Compatibility with Debt Equity Bias Reduction Allowance (DEBRA) initiative This initiative also seeks to avoid the over-indebtedness of companies, so it is compatible with the main objective of the DEBRA initiative. Restoring solvency of non-viable companies Introducing market standards such as the credit rating would prevent non-viable companies from accessing these instruments. Many public programmes using participative loans have included this requirement.

4.   Specific observations

4.1.

The proposed framework for hybrid loans should meet certain standards that make it attractive to all stakeholders: companies, financial providers acting as distributors and institutional investors.

4.2.

It is essential that the framework ensures an equity consideration for this type of hybrid loan with the following effects: i) For the calculation of the debt capital ratio, so it does not add to existing indebtedness or does not have an excessive impact on the debt-to-capital ratio. For example, in France Article 313-14 of the Code monétaire et financier [Monetary and Financial Code] establishes that ‘participative loans are, for the purposes of assessing the financial situation of the companies receiving them, treated as equity capital’; ii) For the purposes of capital reduction. This is the case, for example, of the Spanish regulation, which states that participative loans are included in the calculation of equity for the purposes of capital reduction and dissolution of companies, and that early repayment or amortization of participative loans can only happen if it is followed by a capital increase of the same amount (16); iii) In the event of insolvency, this hybrid loan should have a subordinated status, ranking behind ordinary debts or common creditors, and before shareholders. Failure to construct the debt in this way would likely undermine firms’ ability to raise debt from traditional sources. One of the aims of the CMU Action Plan is to achieve greater convergence among the different insolvency regimes across EU Member States.

4.2.1.

There are cases in which hybrid loans have an equity consideration according to International Financial Reporting Standards (IFRS) and Basel II. For example, when a hybrid loan has perpetual maturity, it qualifies as equity under IFRS rules due to its deeply subordinated status (17). In general, hybrid instruments can be considered as equity if they are unguaranteed, subordinated and fully disbursed, if they are not redeemable at the initiative of the holder, if they can be used to cover losses and if the obligation to pay interests can be postponed (18).

4.2.2.

The EESC recommends modifying the Accounting Directive 2013/34/EU of the European Parliament and of the Council (19) so that the accounting procedure is harmonised for hybrid loans or other types of debt that have a maturity longer than eight years (20) with a grace period of at least three and with a variable interest rate, part of it linked to ‘success’ defined at discretion (e.g., on growth, on profitability…). This modification will facilitate the computation of hybrid loans as equity when calculating the net worth of a company for commercial law purposes and treated as equity or own funds for accounting purposes.

4.3.

To avoid uncertainty, the instrument should keep its debt consideration for other purposes (i.e., tax and legal), therefore the issuance of an equity-like instrument should not involve loss of voting control for companies.

4.3.1.

Another important point for companies and investors alike is that the periodic interest paid on the subordinated debt instrument must not be subject to any tax withholding or deduction at source, so that the pool receives the interest income on a gross basis.

4.4.

Regarding the investment side, a quasi-equity instrument such as the one proposed would qualify as an eligible instrument for European Long-Term Investment Funds (ELTIFs), according to Article 10 of the ELTIF Regulation (21), enabling it instantly to become part of the financial ecosystem.

4.4.1.

The ELTIFs could later be marketed in the EU by publishing a prospectus or a Key Information Document (KID) that complies with the requirement of the Prospectus Regulation (22) or the Packaged retail and insurance-based investment products Regulation, respectively. This would help integrate retail investors into private debt and the real economy, something that has not yet been achieved with the crowdlending initiatives.

4.4.2.

Ideally, the instrument should incorporate market standards such as credit ratings by ESMA-registered agencies or Environmental, Social and Governance indicators assessments, to enhance the investor base.

4.5.

Lastly, this initiative would support the CMU. An EU-wide approach, a common European instrument model, could benefit from the visibility, liquidity and scale of the single market and generate broad appeal amongst institutional investors seeking debt and hybrid-type risk profiles but with better returns, while catering to the needs of smaller companies. With sufficient EU-wide scale, a successful framework could develop into a well-defined asset class encouraging investment and EU integration.

---

(1)  Annual Report on European SMEs 2020/2021, European Commission, July 2021.

(2)  Annual Report on European SMEs 2020/2021, European Commission, July 2021.

(3)  The debt ratio increased by 18,8 percentage points between the end of 2019 and early 2021, peaking at 164,4 %. ECB Economic Bulletin, Issue 2/2022.

(4)  Ministry of Economy of France, COFIDES, SEPIDES, Instituto Valenciano de Finanzas.

(5)  Recapitalising EU businesses post COVID-19, AFME and PwC.

(6)  Survey on the access to finance of enterprises (SAFE), European Commission, November 2021.

(7)  European Family Businesses, EFB.

(8)  European SMEs Financing Gap, Euler Hermes.

(9)  Survey on the access to finance of enterprises (SAFE), European Commission, November 2021.

(10)  Recapitalising EU businesses post COVID-19, AFME and PwC.

(11)  Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs) (JO L 352 du 9.12.2014, p. 1).

(12)  The rise of non-bank finance and its implications for monetary policy transmission, 2021, ECB.

(13)  Study on minority shareholders protection, final report, European Commission.

(14)  Legal framework of participative loans approved by Decree Law 11/2022 of January 12.

(15)  Dispositif de garantie aux fonds de prêts participatifs et d’obligations subordonnées [French State Guarantee scheme for participative loan and subordinated bond funds], European Commission.

(16)  Resolution of December 20, 1996, of the Instituto de Contabilidad y Auditoría de Cuentas (Accounting and Auditing Institute).

(17)  Decision of the Commission SA.60113 (2021/N) — Finland — COVID-19 aid to Finnair.

(18)  Basel II. 4. Hybrid debt/capital instruments, Annex 1a. Definition of capital. (d) Hybrid debt/capital instruments.

(19)  Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC (OJ L 182, 29.6.2013, p. 19).

(20)  It has to be remembered that the average life of a company is around that number, and for private equity is even lower (five years).

(21)  Regulation (EU) 2015/760 of the European Parliament and of the Council of 29 April 2015 on European long-term investment funds (OJ L 123 19.5.2015, p. 98).

(22)  Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC (OJ L 168, 30.6.2017, p. 12).

Opinion of the European Economic and Social Committee — Additional considerations on Communication from the Commission to the European Parliament, the European Council, the Council, the European Central Bank, the European Economic and Social Committee, the Committee of the Regions and the European Investment Bank — Annual Sustainable Growth Survey 2022

(COM(2021) 740 final)

(own-initiative opinion)

(2023/C 75/06)

Rapporteur:

Judith VORBACH

Plenary Assembly decision	24.3.2022
Legal basis	Rule 52(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	Economic and Monetary Union and Economic and Social Cohesion
Adopted in section	6.10.2022
Adopted at plenary	27.10.2022
Plenary session No	573
Outcome of vote (for/against/abstentions)	133/0/0

1.   Conclusions and recommendations

1.1.

Since the adoption of the first opinion on the Annual Sustainable Growth Survey 2022 (ASGS 2022), the situation has changed dramatically due to the Russian aggression against Ukraine. In the following, EU real GDP growth estimations were downgraded and inflation forecasts of the Eurozone were revised up to an all-time high, triggered largely by price hikes in the gas market. The EESC acknowledges that all key objectives of a prosperity-oriented economic policy are under pressure, while geoeconomic fragmentation and tensions as well as COVID-19 remain serious risk factors.

1.2.

The EESC explicitly reiterates its call for a balanced economic policy approach to tackle longstanding problems and to respond to the current crises. The EU’s goals as outlined in Article 3 of the TEU constitute the basis for the EU’s past, present and future prosperity, political stability, upward convergence, competitiveness and resilience. The current crisis must not be allowed to jeopardise fairness and environmental goals. With regard to rising prices, there is an urgent need to protect the most vulnerable and specifically exposed companies, in particular SMEs. Moreover, it is crucial to safeguard the purchasing power of low and medium-income households, who constitute a major part of economic demand. Solidarity with the people in the Ukraine, enhancing the EU’s strategic autonomy and striving for peace should also take centre stage.

1.3.

The Recovery and Resilience Facility (RRF) has become the key tool for delivering on the EU policy priorities under the European Semester (the Semester). It has helped to stabilise the economy during the pandemic and is playing a key role in responding to the current crisis. The EESC calls for the National Recovery and Resilience Plans (NRRPs) to be implemented in a such way that they have a tangible impact on people’s wellbeing. As the Country Specific Recommendations (CSRs) are going to play a more significant role, the EESC calls for careful monitoring and a balanced approach. The EESC calls for a reform of the Semester which guarantees quality participation of organised civil society (OCS). Concerning the NRRPs, the EESC welcomes the recommendation ‘drawing on the successful application of the partnership principle’, and calls for making the involvement of OCS mandatory.

1.4.

The EESC welcomes the increase in the renewable energy and efficiency targets and stresses that environmental sustainability must take centre stage, while also calling for a reform of the European electricity market to be promoted swiftly and as a matter of urgency. Massive investment is needed to promote the green transition and enhance strategic autonomy, and the EESC calls on the Commission to provide a structured view, showing which EU funds should be used and to what extent investment should be covered by EU programmes, Member States, or private or blended financing tools. The EESC recommends implementing a Climate Adjustment Fund and, in future, also looking into strengthening NextGenerationEU (NGEU) and/or InvestEU. When restructuring funds or drawing up the new Multiannual Financial Framework, the EESC warns against cutting funds relating to social objectives.

1.5.

The completion of the single market should further upward convergence between Member States. Distortions and barriers should be tackled and the regions should be supported to unlock their full potential. Progress is needed in completing the Capital Market and Banking Union as well in implementing the sustainable finance strategy is equally needed as ensuring financial market stability. The EESC calls for a fair and balanced approach to the enhancement of the business environment and productivity. Training and research remain vital tools to boost competitiveness and a fair twin transition and strategic autonomy. The EESC welcomes the proposals highlighted in the Communication on Our European Growth Model, but also stresses the importance of enhancing strategic autonomy, relocating the production of key products in the EU and not neglecting social and environmental goals along supply chains.

1.6.

The Commission rightly claims that public support to stimulate private investment needs to be well directed towards projects with clear added value, and competition policy should play a key role. The EESC stresses the importance of transparency and monitoring to ensure integrity and to achieve the intended goals. Windfall effects should be avoided by ensuring that investments that would have been made anyway are not subsidised, and public budgets should not be overburdened with risks. Finally, state aid measures should also be linked to the creation of quality jobs and to respect for workers’ rights, environmental standards and fiscal obligations.

1.7.

The EESC supports the Commission’s recommendations for allowing automatic stabilisers to operate, enhancing investment and to continuing to apply the general escape clause throughout 2023. However, the EESC has reservations concerning the limitation of the growth of nationally-financed current expenditure below medium-term potential output, and the intention to assess the relevance to open excessive deficit procedures in spring 2023. Thus far, the EU fiscal rules have barely been implemented and the sanctions have never been applied. The EESC reiterates its call for the fiscal framework to be modernised by setting realistic targets and incorporating a golden rule without jeopardising medium-term fiscal sustainability, while guidelines for a transition period should be put forward. A sound of value of the Euro has to be safeguarded, through a balanced monetary and fiscal approach in line with sound macroeconomic governance. Finally, the EESC highlights that a fair system of expenditure and revenue is a precondition for fiscal sustainability.

2.   General comments

2.1.

In February 2022, the EESC adopted an opinion on the ASGS 2022 (1). At that time, the EU had recently gone through the deepest recession in its history (2), while unprecedented supportive measures had been taken to soften the blow and stave off an unstable situation. With NGEU the EU had reached a new phase of economic policy and solidarity. As the Commission had allotted a significant role to the Semester in the RRF and therefore increased its importance for policy coordination, the EESC reiterated its call for closer involvement of OCS. The EESC welcomed the competitive sustainability agenda, while highlighting that its four dimensions — environmental sustainability, productivity, fairness and macroeconomic stability — should be placed on equal footing in order to achieve the intended reinforcing effects and a just green and digital transition.

2.2.

As in previous years, the additional opinion takes into account the ongoing Semester process and provides input for the next cycle. This is particularly important this year. Since the Russian aggression against Ukraine, the geopolitical landscape has changed dramatically, priorities have been shifted and policy has been adapted, as reflected in the Communications on RepowerEU (3) and Our European Growth Model (4). The Semester, which is itself undergoing a systemic change, has proved to be a credible framework for EU policy coordination during the pandemic. In the Spring Package, the implications of the current crisis are again reflected comprehensively. Similar to the Communication (5), this opinion is structured around the dimensions of the competitive sustainability agenda.

2.3.

The war in the Ukraine and the ensuing sanctions, together with containment measures applied in China and the deceleration of growth in the US, are hitting the EU economy. The rapid increase in energy and food commodity prices is feeding inflation, which erodes purchasing power and impedes competitiveness. The EU is vulnerable because of its geographical location, its heavy reliance on imported fuels and high integration in global value chains. In the Summer Forecast, real GDP growth estimations were downgraded to 2,7 % in 2022, while inflation forecasts were revised up to an all-time average high of 8,3 % in 2022 (6). The Commission stresses that the ‘unprecedented nature and size of the shocks ushered in by the war’ make projections highly uncertain. Further price increases, combined with second round effects, could reinforce stagflationary forces and political repercussions are likely. Geopolitical tensions and COVID-19 remain serious risk factors (7).

2.4.

The recent crisis puts pressure on all the key objectives of a prosperity-oriented economic policy (8), namely environmental sustainability, sustainable and inclusive growth, full employment and high-quality work, fair distribution, health and quality of life, financial stability, price stability, balanced trade based on a fair and competitive industrial and economic structure, and stable public finances. The EESC explicitly repeats its call for a balanced policy approach, which focuses on all of these objectives in order to tackle longstanding problems and to respond adequately to the present recent crises, in line with Article 3 TEU. Sticking to the EU’s aims and principles was the basis of the EU’s past prosperity, and also constitutes the basis for present and future political stability, upward convergence, competitiveness and resilience to new crisis. The EU’s reaction to the Russian aggression must not jeopardise fairness and environmental goals.

2.5.

The reasons for the unprecedented price hikes are manifold and also include European policy deficiencies. Commission President Ursula von der Leyen has quite rightly stated that the current electricity market design no longer works and needs to be reformed (9). The EESC urges the Commission and the Council to swiftly push forward a reform of the EU energy market, and as part of that also to tackle detrimental short-term volatility and long-term price increases. The EESC strongly calls for drastic, extraordinary and also temporary measures to be taken. Possible starting points include the merit order effect, the EU Energy Exchange (EEX), the misuse of market power and the impact of speculative transactions and high-frequency trading. Electricity prices should be decoupled from gas prices and price caps should be taken into account. Windfall profits should be skimmed off by levies, with care taken not to discourage investments in low-carbon solutions.

2.6.

The key focus of the EU’s priorities must be solidarity with the people in Ukraine, enhancing the EU’s strategic autonomy and striving for peace. This is in line with Article 21 TEU, which states that — amongst other things — the Union is to pursue policies to ‘safeguard its values, fundamental interests, security, independence and integrity’, ‘consolidate and support democracy’ and ‘preserve peace, prevent conflicts and strengthen international security’. To that end, the EESC also acknowledges the objectives enshrined in the Council’s Versailles Declaration, namely reinforcing EU sovereignty by reducing its strategic dependencies, increasing security of supply in the area of critical raw materials and phasing out fossil fuel dependencies on Russia. The EESC welcomes the steps being taken in order to progressively phase out fossil fuel dependencies and calls for further action in that direction.

2.7.

The RRF has become the key tool for delivering the EU policy priorities under the Semester and, indeed, it already has decisively helped to stabilise the economy during the pandemic, to amplify the twin transition and to step up cooperation between Commission and Member States. Henceforth, the RRF will play a key role in mobilising and steering resources to respond to the recent crisis and to implement REPowerEU. Member States are invited to propose a dedicated REPowerEU chapter in their NRRPs on the basis of the new CSRs. The EESC stresses the importance of implementing the updated NRRPs in an effective and sustainable way, so that they have a positive and tangible impact on people’s wellbeing. However, linking the achievement of the goals set out in the NRRPs to the disbursement of RRF tranches makes the CSRs more significant. This change in procedures has to be monitored and evaluated and the EESC calls on the Commission and the Council to ensure a balanced approach.

2.8.

In particular, closer involvement of social partners and civil society organisations in the Semester process is necessary at national level, in order to ensure that all societal groups are properly represented, to foster tailored-made solutions fully supported by OCS and to achieve broad ownership of the NRRPs. The EESC calls for a reform of the Semester which guarantees effective and quality participation with a directive or a regulation. During a formal consultation process based on rules and transparent procedures, civil society organisations should be duly informed in writing and given sufficient time to analyse the proposals and draft their remarks and proposals. The inclusion or rejection of these proposals should be accompanied by a justification contained in public documents.

2.9.

In the context of the NRRPs, the EESC appreciates the Commission’s recommendation on ‘drawing on the successful application of the partnership principle in cohesion policy programming and implementation’, as called for by the EESC in its opinion on ASGS 2022. The involvement of OCS has to become mandatory. In its first resolution (10) on civil society’s involvement in the design of the plans, the EESC concluded that this was largely insufficient in a majority of Member States and called for minimum standards to be laid down for such consultation. In its second resolution (11), the EESC called on many Member States to improve CSO involvement, transparent implementation and monitoring, as well as provision of information to the public, while encouraging further dialogue on NRRPs with all stakeholders, which could also help to prevent misuse and fraud. Moreover, the resolution includes good practices, such as establishing a monitoring body that includes OSC, which can serve as an example for other Member States. During its annual conference, the EESC’s European Semester Group renewed its call to make civil society participation mandatory by law (12). The call for proper involvement of OCS and local and regional authorities is also reflected in the joint own-initiative report of the Committees on Budgets and on Economic and Monetary Affairs on implementation of the RRF (13), providing the European Parliament’s input to the review report on RRF implementation which the European Commission adopted on 29 July 2022 (14).

3.   Specific comments

3.1.   Energy and environmental sustainability

3.1.1.

The Commission rightly highlights that accelerating decarbonisation ‘will reduce our dependence on fossil fuels while also helping reach our 2030 climate goals’. The EESC stresses that environmental sustainability must take centre stage and welcomes the increase in the renewable energy target to at least 45 % of the EU’s overall energy mix, along with the energy efficiency target of a 13 % drop in energy consumption by 2030 as part of the REPowerEU plan. Similarly, the recommendations concerning investments in energy are welcome, which should focus — among other things — on supporting vulnerable households, promoting sustainable mobility and industry decarbonisation, research and innovation and stepping up infrastructure, including in a cross-border context.

3.1.2.

Before the war in the Ukraine, there was already a gap between investment needs and financing. To reach the intermediate goal of a 55 % drop in emissions compared to 1990 by 2030, annual additional investment needs have been estimated at up to EUR 520 billion (15). Further needs arise for upskilling and reskilling, climate change adaptation and key technologies, such as batteries. On the other hand, about 30 % of the 2021-2027 EU budget will be spent on the green transition. Cohesion policy is expected to deliver around EUR 100 billion during this decade, and EUR 224,1 billion should come from the RRF (16). The Commission’s analysis has indicated that REPowerEU entails additional investment of EUR 210 billion between now and 2027, on top of what is needed to realise the objectives of the Fit for 55 proposals. To mobilise financing, various possibilities are proposed, largely relying on the RRF loan component. The EESC calls on the Commission to provide a structured view, showing which EU funds should be used and to what extent investment should be covered by EU programmes, Member States private investment or blended forms.

3.1.3.

Given the urgency and the common interest of accelerating energy transition, the EESC highly recommends that Member States swiftly and comprehensively use the opportunities offered by NGEU, the NRRPs and the recent REPowerEU Plan. If existing measures turn out to be not enough to meet the possibly rising funding needs, further action will be needed. The EESC calls for a Climate Adjustment Fund (17) to be established in order to provide immediate support in the event of disasters. Moreover, even if a golden rule is implemented, some Member States may still not have the capacity to raise the amounts needed without jeopardising their fiscal sustainability. Thus, strengthening the NGEU and/or InvestEU should be considered. Linking grants and/or loans to investment in energy transition might constitute a turning point. The EESC calls for a fair and balanced approach to the enhancement of the business environment and productivity. In any case, when restructuring existing funds and also in the context of the new Multiannual Financial Framework, the EESC warns against cutting funds relating to social objectives and a just transition.

3.1.4.

The Commission rightly highlights that the ‘transformation of the European economy will only succeed if it is fair and inclusive and if everybody can gain from the opportunities the twin transition brings.’ (18). These must not be empty words. The EESC reiterates its call for mapping and analysis of the impact the transition will have on employment and skills (19). Social dialogue and sound corporate governance with worker participation and the involvement of the social partners and civil society organisations in policymaking should be turned to even more in times of insecurity and crises. Finally, all aspects of environmental sustainability, including biodiversity and pollution prevention, should remain high on the agenda. The ‘do no significant harm principle’ should also be applied in the context of the updated NRRPs.

3.2.   Productivity

3.2.1.

The completion of the single market should further economic and social upward convergence between Member States. The EESC agrees with the Commission that distortions within and barriers to the single market need to be tackled. Helping the regions to unlock their full potential will not only contribute to a more integrated single market but also enhance the EU’s productivity and contribute to energy sustainability, as the capacity to produce renewables varies substantially between regions. Progress in completing the Capital Market and Banking Union is needed while ensuring financial market stability in order to further reliable and sound finance and investment. In particular, the borrowing for NGEU strengthens EU capital markets and the international role of the euro. Moreover, the EESC points to the sustainable finance framework which aims to channel private investment towards sustainability, while also stressing the importance of considering climate-related risks.

3.2.2.

The EESC welcomes a comprehensive policy approach that includes investment and reforms in order to enhance the business environment and promote productivity in a fair and balanced way. Reforms should focus on efficient public administration, modern transport infrastructure, quality training and education and resource efficiency. The EESC agrees with the Commission that independent, quality and efficient justice systems and well-functioning anti-corruption frameworks are essential. Research and innovation, together with education, remain vital tools for boosting productivity, competitiveness, the green and digital transitions, upward convergence and the EU’s strategic autonomy. The EESC welcomes the Commission’s recommendations to — among other things — facilitate knowledge transfers, produce excellence, foster business innovation and attract talent.

3.2.3.

The EESC comments on the Communication on Our European Growth Model as follows. The Commission highlights actions to reduce strategic dependencies, such as international partnerships, industrial alliances, public and private investment and, in particular, the diversification of supply chains. The EESC stresses how important it is that the EU promote a free trade agenda in a fair way without neglecting environmental and social goals along supply chains. When it comes to the supply of critical raw materials and supplies, the EU should not create new dependencies on states which do not share EU values, but strive for strategic autonomy. Moreover, the production of key products, such as medicines, should be relocated to the EU to secure their availability in the event of an emergency.

3.2.4.

Digitalisation is an enabler for the green transition, productivity and competitiveness. The Commission rightly highlights four areas of action, namely digital education, skills and competences, secure and sustainable digital and connectivity infrastructures, digital transformation of businesses, and the digitalisation of public services and education systems. To achieve these goals, more investments in key digital technologies are needed, including cyber security, artificial intelligence, data spaces and semiconductors. The EESC calls for sustainable digitalisation by safeguarding social rights, enhancing energy efficiency, and reducing electronic waste and water usage.

3.2.5.

The Commission claims that a major share of investments to finance the twin transition and to enhance resilience will come from the private sector, while public investments should be well targeted and help to crowd in private investments and correct market failures. Actually, the EU aims to mobilise at least EUR 1 trillion over the next decade through the EU budget and associated instruments. The Commission rightly states that public support needs to be well directed towards projects with clear added value, and competition policy should play a key role. In particular in the context of InvestEU or similar programmes, the EESC stresses the need for transparency and monitoring to ensure integrity and to achieve the intended goals. Windfall effects should be avoided by ensuring that investments that would have been made anyway are not subsidised. Allocations must be transparent and risks should be shared in a legally binding manner so that public sectors are not overburdened. In comparison to public funding, no higher costs should accrue, and state aid measures should be linked to the creation of quality jobs and to respect for workers’ rights, environmental standards and fiscal obligations.

3.3.   Fairness

3.3.1.

While the EU is relatively prosperous by global standards, inequalities between and within Member States and regions constitute a major challenge. The Commission illustrates that, thanks to a prompt policy response, overall income inequalities and risk of poverty or social exclusion remained relatively stable in 2019 and 2020, while mid-term effects are uncertain. Many that were already facing worse conditions have been disproportionally hit. The price hikes hit lower income households the hardest. Moreover, house prices continued to grow strongly, in some Member States recording the fastest growth in a decade, while interest rates are starting to increase. Millions of people suffer from reduced disposable incomes and are struggling to make ends meet. Huge uncertainties persist, climate-related disasters are on the rise and the twin transition is causing structural changes.

3.3.2.

Social sustainability is not only a goal in itself but also a precondition for a stable economic and political situation, fair productivity and competitiveness. Declining real incomes and clouded expectations affect not only individual wellbeing, but also economic demand and therefore investment plans, production and growth. Moreover, while the banking sector proved to be resilient and non-performing loans have been substantially reduced, except in the case of three Member States, this resilience may be jeopardised should there be a further economic downturn. The EESC warns against such second round effects. With a view to rising prices, there is an urgent need to protect the most vulnerable and to safeguard the purchasing power of low and medium-income households, who create a major part of demand.

3.3.3.

The EESC warmly welcomes the measures taken to protect the most vulnerable and to alleviate the social impact of the multiple crises in the EU, such as for instance SURE, and to support people fleeing from Ukraine. The EESC also agrees with the Commission on the importance of ensuring access to quality education at all levels, of adequate coverage by social safety nets and of affordable and social housing together with effective, resilient and sustainable healthcare systems. The EESC draws attention to the need to also support young people who are affected by the energy crisis. Indeed, the full implementation of European Pillar of Social Rights is crucial: its implementation in the European Semester cycle together with its monitoring via the Social Scoreboard is a step in the right direction. Last but not least, the reforms and investments within the NRRPs, which contribute to social inclusion and resilience, are very welcome.

3.3.4.

Interviews conducted in the context of the EESC’s resolution on OCS involvement indicate that the social dimension is relatively underdeveloped in some NRRPs. The EESC recommends paying attention to the distributive effects and carefully considering the European Pillar of Social Rights in the context of the NRRPs. Moreover, the EESC asks for an estimate to be provided of the investment needed to implement the Pillar. The EESC stresses the importance of striking a balance between economic freedoms and social and labour market rights. National protection rights in favour of employees should never be classified as administrative barriers to the market (20). When strengthening the single market, social and labour rights should be equally respected in order to safeguard the EU’s progress towards economic, social and environmental sustainability in a fair way.

3.4.   Macroeconomic Stability

3.4.1.

Enabling and implementing large-scale national and EU fiscal support contributed decisively to safeguarding economic, social and political stability, not least because they increased confidence. Moreover, while economic recovery has been seriously affected since the outbreak of war, the expansionary fiscal stance in 2022 is very likely to help moderate the impact of the recent crisis again and to safeguard stability. The EESC supports the Commission’s recommendations for allowing automatic stabilisers to operate and to enhance investment to implement the twin transitions. In particular, it is very pleased to see the general escape clause continue to apply throughout 2023, as, indeed, the economic situation of the EU has not returned to normal and Member States need to be able to react promptly when necessary. Acknowledging that the ECB has raised interest rates for the first time in eleven years, the EESC calls strongly for policy actions that ensure that the European bond spreads are moderate and prevent financial market turbulences, in order to not endanger private investment in the energy transition and to avoid a recession. While these targets may require making extensive use of the ECB’s toolbox, even so, monetary policy alone will not be able to curb current price dynamics in a sustainable way.

3.4.2.

The EESC welcomes the discretionary fiscal measures for dampening the effects of high energy prices, which are estimated at 0,6 % of EU GDP in 2022, for the most vulnerable and specifically exposed industries. However, the energy shortage and the impact on other commodity prices might be also relevant in the medium term, along with ongoing geopolitical tensions and further downward pressure on the EU economy. Moreover, the low growth prospects together with intensifying price pressures pose new dilemmas for the EU’s economic policy. Therefore, the EESC supports the Commission’s recommendation that the EU should stand ready to react to the evolving economic situation. The situation has to be observed carefully, so that new headwinds making a stabilising fiscal impulse necessary can be detected at an early stage, and the need to extend supportive measures anticipated.

3.4.3.

The EESC expresses reservations about limiting the growth of nationally-financed current expenditure below medium-term potential output in high-debt Member States, while highlighting that any control of primary current expenditure has to take into account the social impact and warning against cuts in social, healthcare and education spending. In contrast, divergences between Member States should be tackled in a prosperity-orientated way, for example by promoting research and development and furthering training. The EESC also has doubts about assessing the relevance of proposing to open excessive deficit procedures (EDPs) in spring 2023, and points to the fact that EU fiscal rules were barely implemented (21) and the sanctions of phase 2 of the excessive deficit procedure were never applied as in a time of economic hardship they would have made the situation even worse. Moreover, the EESC questions the possible application of EDPs while the escape clause is still active.

3.4.4.

The EESC reiterates its considerations regarding the deficiencies of the current fiscal framework and repeats its call for the framework to be modernised by — among other things — setting realistic and operational deficit and debt targets (22), incorporating a golden rule of investment and permitting greater flexibility and country-specific differentiation without jeopardising medium-term fiscal sustainability. A sound value of the Euro has to be safeguarded through a balanced monetary and fiscal approach in line with sound macroeconomic governance. The EESC has also called on the Commission to put forward guidelines for a transition period, during which the excessive deficit procedure should not be triggered, before the revised framework comes into force (23). Moreover, the EU Parliament stressed in its resolution of 8 July 2021, ‘the importance of having a clear pathway towards a reviewed fiscal framework, preferably prior to the deactivation of the general escape clause’, and highlighted that ‘the application of the current fiscal framework, in particular the adjustment paths, would lead to a high speed of debt reduction that could undermine the recovery path of the economies’. Finally, in order to avoid stability risks and to increase crisis preparedness and response capacity, the creation of appropriate EU funds should be considered.

3.4.5.

The EESC fully supports the recommendation that concerted efforts should continue to be made to step up the fight against aggressive tax planning and tax evasion, as well as the resulting spillover effects among Member States, and calls for coordinated action. The EESC welcomes the OECD agreement concerning the reform of corporate taxation and encourages the Member States to swiftly implement it. The EU should promote this agreement at international level, in particular with major trading partners. In addition, shifting the tax burden away from labour and — as long as the distributive impact is carefully considered — towards supporting the twin transitions are welcome strategies. For instance, property tax is less distortive and would allow for a tax shift away from labour. Moreover, the EESC draws attention to the fact that, in the context of ensuring prudent fiscal policy, only expenditure-related measures are addressed, not revenue-based measures. All in all, a fair revenue system is a precondition for fiscal sustainability and for the restoring sound public finances, in particular in heavily indebted countries.

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(1)  See EESC opinion on Annual Sustainable Growth Survey 2022 (OJ C 275, 18.7.2022, p. 50).

(2)  See European Economic Forecast. Spring 2020 (europa.eu), page 1.

(3)  COM(2022) 230 final.

(4)  European Commission Communication on Towards a green, digital and resilient economy: our European Growth Model.

(5)  2022 European Semester: Spring Package Communication — European Commission (europa.eu).

(6)  Summer 2022 Economic Forecast: Russia's war worsens the outlook (europa.eu).

(7)  Spring 2022 Economic Forecast: Russian invasion tests EU economic resilience — European Commission (europa.eu).

(8)  See EESC opinion on Annual Sustainable Growth Survey 2022 (OJ C 275, 18.7.2022, p. 50).

(9)  Speech of Commission President Ursula von der Leyen during the debate at the plenary session of the European Parliament (8.6.2022) on the conclusions of the special European Council meeting of 30 and 31 May 2022.

(10)  OJ C 155, 30.4.2021, p. 1.

(11)  See EESC Resolution on Involvement of Organised Civil Society in the National Recovery and Resilience Plans — How to improve it? (OJ C 323, 26.8.2022, p. 1).

(12)  Annual ESG Conference 2022 — European Economic and Social Committee (europa.eu).

(13)  2021/2251 (INI), point 88.

(14)  COM(2022) 383 final.

(15)  Up from EUR 683 billion per year invested over the last decade. In a middle scenario, additional annual investment needs were estimated at EUR 360 billion on average until 2030. See Bruegel Policy Contribution Issue No 18/21 — September 2021. Even more investment will be needed beyond 2030.

(16)  COM(2022) 231 final.

(17)  See EESC opinion on Climate Adjustment Fund financed by Cohesion and NGEU (OJ C 486, 21.12.2022, p. 23).

(18)  European Commission Communication Towards a green, digital and resilient economy (COM(2022) 83 final).

(19)  See EESC opinion on Fit for 55: Delivering the EU’s 2030 Climate Target on the way to climate neutrality (OJ C 275, 18.7.2022, p. 101).

(20)  See EESC opinion on Annual Sustainable Growth Survey 2022 |European Economic and Social Committee (europa.eu), OJ C 275, 18.7, 2022, p. 50, point 3.2.3.

(21)  According to the IMF’s October 2015 forecasts, the 1/20th debt reduction rule was not expected to be observed by nine Member States in the following three years. The second phase of the excessive deficit procedure was not implemented (Bruegel Policy Contribution, March 2016).

(22)  Klaus Regling, Director of the European Stability Mechanism, proposes to adjust the debt ratio from 60 % to 100 %, while keeping the deficit per year at 3 % of GDP.

(23)  OJ C 429, 11.12.2020, p. 227, and OJ C 105, 4.3.2022, p. 11.

Opinion of the European Economic and Social Committee — Additional considerations on Recommendation for a Council recommendation on the economic policy of the euro area

(COM(2021) 742 final)

(own-initiative opinion)

(2023/C 75/07)

Rapporteur:

Juraj SIPKO

Plenary Assembly decision	22.3.2022
Legal basis	Rule 52(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	Economic and Monetary Union and Economic and Social Cohesion
Adopted in section	6.10.2022
Adopted at plenary	27.10.2022
Plenary session No	573
Outcome of vote (for/against/abstentions)	170/1/2//

1.   Conclusions and recommendations

1.1.

The EESC notes that the current economic development of the euro area and the European Union is characterised by a particularly high level of economic, geo-economic and political uncertainty. This uncertainty stems from two ongoing systemic shocks, i.e. the continued prevalence of COVID-19 and Russia’s invasion of Ukraine. There is also a new risk associated with fragmentation across sectors of international trade, payments, capital and financial markets, including manufacturing, research and transport. The systemic risks have led to a huge build-up of public debt and growth in inflation. However, tackling climate change remains the biggest challenge facing the euro area and EU Member States.

1.2.

The EESC reiterates that the fight against the continued prevalence of COVID-19 is far from over. Therefore, all substantive and systemic measures should be taken to tackle the disease, while at the same time preparing for other potential epidemics and pandemics. The EESC stresses, as confirmed by the experience of the past two years, that the highest rate of return on investment is in the health sector.

1.3.

The EESC supports an end to the Russian aggression and the war in Ukraine and the restoration of Ukraine’s territorial integrity. This can create the conditions for resilient, inclusive and sustainable economic growth in the eurozone countries and in the Member States of the European Union.

1.4.

The EESC is closely following the very unfavourable inflationary trends, which stem mainly from rising commodity, food and energy prices, including supply chain disruption. In this situation, raising interest rates is not a particularly effective tool. A monetary policy that is too tight may also increase recessionary risks and may delay private investments in the energy transition that are so urgently needed. Therefore, the EESC recommends that the ECB conduct an adequate proportionality assessment, carefully analysing the side-effects of a tightened monetary policy and its consequences for long-term price stability targets. However, the EESC encourages the European Central Bank to lower core inflation without compromising the economic recovery of the EU. Because of the aforementioned risks, the ECB should proceed cautiously in normalising monetary policy.

1.5.

In view of sharply rising energy and food prices, the EESC recommends that national economic policy-makers set up a functioning and effective social safety net for the most vulnerable population groups, including the most affected segments of the middle class, where nobody is left behind.

1.6.

The EESC is concerned about the ongoing build-up in public debt. It therefore recommends that steps be taken towards medium-term fiscal consolidation. With a view to replenishing national budgets, the EESC sees scope for equitable taxation and with it the effective use of public funds.

1.7.

The EESC points out that the activation of the general escape clause as a result of COVID-19 was the right decision. Although it has been extended until 2023, a further extension will need to be considered should the systemic risks persist. The EESC therefore expects the European Commission to prepare, without delay, concrete steps to reform the Stability and Growth Pact.

1.8.

Despite the progress made towards establishing a financial union, all substantive and systemic measures to complete the Banking Union and the Capital Markets Union need to be adopted and implemented. In this regard, the EESC calls on the organisations responsible and the competent institutions to join forces to create a financial union.

1.9.

The EESC highlights the negative impact of fragmentation. It points to the instability of the sovereign bond market in euro area markets. The EESC therefore welcomes the European Central Bank’s announcement of 15 June 2022 on the preparation of measures to tackle fragmentation in the euro area.

1.10.

The EESC supports the transformation of the euro area economies. At the same time, it points to the existential risk associated with climate change. In light of this, and despite the unforeseen complex geo-economic developments, it recommends a shift to renewable energy sources and the use of financial resources available under the recovery plan as well as other financial resources, including the support of private sector financing.

1.11.

Like other EU countries, euro area countries are currently faced with systemic shocks, risks and threats. Therefore, given the critical period in which humanity finds itself, the EESC calls on all countries and competent international institutions to work together to address all historically unprecedented systemic shocks, risks and threats that the world is currently facing. Delaying the adoption and implementation of measures may have far-reaching consequences, not only in terms of material loss, but also — and above all — in terms of human life.

2.   Background and context

2.1.

There are currently two systemic real shocks — COVID-19 and Russia’s invasion of Ukraine — which, alongside the subsequent geo-economic fragmentation, have resulted in a high degree of uncertainty. What is more, rising commodity and food prices have led to significant socioeconomic risks in both the euro area and the EU. In light of the existential threat posed by climate change, one of the greatest challenges for the euro area and EU Member States is the transition to a green economy.

2.2.

Today’s economic developments are being accompanied by unprecedented real external shocks in euro area countries. Therefore, from the point of view of the underlying macroeconomic indicators, these developments cannot be viewed as stable. In addition, some specific euro area Member States face long-standing structural challenges on their path towards building sustainable, resilient and inclusive economies.

2.3.

Prior to these two systemic shocks, inflation was relatively low in almost all euro area Member States. Relatively lower inflation rates were recorded even before the onset of the climate crisis, and some euro area countries even experienced deflation. Today’s inflation dynamics require making extensive use of the ECB’s toolbox. Currently, inflation is one of the greatest risks to sustainable, resilient and inclusive economic growth in the euro area. Reducing and stabilising inflation and keeping it within the inflation target, i.e. below 2 %, cannot be achieved without appropriate changes to the European Central Bank’s monetary policy. In this context, the Governing Council have taken the action needed to fulfil the ECB’s mandate to pursue price stability and to safeguard financial stability. In the near future, it is important that the ECB proceeds cautiously in normalising monetary policy.

2.4.

Inflation is the highest it has been since the creation of the European monetary union. It stems from a whole series of factors that led to gradually rising inflation rates even during the deepening global COVID-19 crisis. The economic recovery in the euro area now under way has further exacerbated this negative trend as a result of reduced supply. Russia’s invasion of Ukraine has also contributed to higher prices. It is legitimate to ask to what extent the European Central Bank’s monetary policy, using all available instruments at its disposal, can slow inflation growth and gradually return it to, and keep it within, the declared inflation target, without jeopardising the single currency’s stability and the economic recovery from the COVID-19 crisis.

2.5.

Current inflation trends are neither temporary nor short-term (as noted in autumn 2021), but reveal a high degree of uncertainty. In the second half of last year, price increases were mainly driven by energy prices, disruption of supply chains, an unusually steep rise in commodity prices and higher transport costs. Given that the reasons for current price dynamics are complex, monetary policy alone will not manage to curtail inflation. What is needed is a diversification of energy imports and thus reduced dependence on supplies from Russia. Diversification also offers euro area Member States an historic opportunity to embark on urgent structural reforms (e.g. administrative reforms, judicial reforms, reforms to strengthen the rule of law) and reduce dependence on imports of traditional energy inputs. In addition to this, market intervention to control current volatile prices dynamics in the energy market is needed. In this respect, the EESC welcomes the Commission proposal for an emergency intervention to address high energy prices.

2.6.

At the same time, there is evidence that many companies have been able to expand their unit profits despite rising energy prices. ECB analysis shows that profits have been a key contributor to overall domestic inflation as companies passed on higher costs and shielded off and expanded profit margins. Market interventions in the energy sector might also curtail price dynamics.

2.7.

Current price increases are mainly linked to supply. This trend is adversely affecting euro area competitiveness, leading to higher costs and putting upward pressure on wages and salaries at a time of economic downturn. Should this adverse pattern continue, it could potentially lead to stagflation (although currently not present in the euro area countries as a whole). In historical terms, stagflation was recorded almost 40 years ago. It cannot be ruled out that if external systemic shocks continue, it might result in undesirable stagflation. On the other hand, the EESC points to possible adverse effects on demand if low and middle-income earners are impacted by real wages losses.

2.8.

In 2021, there was a relatively favourable trend in economic growth across euro area Member States, with no expectation of a sharp slowdown in investment and trade flows as a result of high levels of economic uncertainty. The global COVID-19 crisis may deepen the divide in economic growth in the euro area if structural reforms are not adopted and implemented. This trend towards divergence may have a major impact on convergence and exacerbate this adverse development across euro area Member States.

2.9.

In the short term, the outlook for potential investment growth is not encouraging. The instruments adopted for the post-COVID recovery (Recovery and Resilience Facility) have started to become somewhat subdued as a result of the investment uncertainty caused by the war in Ukraine. It is therefore important that individual economies are able to cope with the continued disruption of trade and investment flows and with the continued uncertainty of the global economy, but mainly the high level of uncertainty in the euro area Member States.

2.10.

The economic slowdown also stems from the significant energy price rises facing households. Some Member States have taken measures to tackle price growth in the form of subsidies, changes to VAT, including additional social contributions, and social energy tariffs for households on the lowest incomes. There is therefore a need to rethink the efficient use of energy in households and to change energy consumption habits. Rising energy prices have led to a gradual displacement of other items from the consumer basket, for which there has now been a fall in demand. What is more, higher energy prices for households are leading to a change in the pattern of household consumption and a significant drop in the consumption of certain consumer items. However, energy is a basic good and can only be reduced to a limited extent, meaning that poorer households in particular will suffer from these price hikes.

2.11.

COVID-19 has had a very negative impact on public finances in euro area Member States. The general escape clause of the Stability and Growth Pact was activated in March 2020 to tackle the COVID-19 crisis. The State Aid Temporary Framework was also set up, allowing large-scale use of fiscal stimulus to support the business sector but also to maintain social stability.

2.12.

The fiscal response and the contraction in output have resulted in a significant increase in government debt ratios, particularly in some high-debt Member States. Continuing to ensure public debt sustainability through a gradual reduction of public debt is of paramount importance. Given that energy prices will continue to remain at a high level in the medium-term, a review of market and price-building mechanisms, together with further fiscal support measures, will be necessary in order to support households and companies particularly affected by energy price increases.

2.13.

Increased spending on security and other critical priorities may lead to a temporary decline in the euro area’s economic position in the world economy. Against this backdrop, euro area Member States are facing the major challenge of moving towards sustainable economic growth and maintaining the share of the euro area economy vis-à-vis other global competitors, using all available tools coupled with effective individual policies, including diplomatic tools.

2.14.

More recently, the euro exchange rate has fallen against the US dollar as a result of adverse geopolitical developments, a decline that started in May 2021. The depreciation of the euro, the second largest reserve currency, stems mainly from the different monetary policies pursued by the European Central Bank and the Federal Reserve System (FED).

2.15.

Drawing on the above analyses, the European Commission has presented its economic outlook (July 2022), which is chiefly determined by developments in Ukraine. This outlook assumes that, this year, economic growth will be 2,7 % in the EU Member States and 2,6 % in the euro area, falling to 1,5 % and 1,4 % next year, according to Commission forecasts. The average inflation rate is projected to reach 7,6 % in the EU and 7,6 % in the euro area this year whereas, next year, inflation is expected to fall to 4,6 % and 4 % respectively.

2.   General comments

3.1.

The EESC stresses that the short- but also medium-term economic development of the euro area countries is, and has the potential to be, strongly influenced by the impact of Russia’s invasion of Ukraine. This adverse development is systemic and there is no parallel in post-war history. It is therefore very difficult to compare it with other shocks that have historically had a negative impact on economic developments in the euro area. In any case, there is a very high degree of uncertainty which makes it harder to determine the outlook for future developments.

3.2.

The EESC points out that the trajectory of the underlying macroeconomic and microeconomic indicators in the euro area countries is not encouraging. The level of uncertainty is especially high. In particular, there are a number of unknown variables that may affect the already extremely high levels of uncertainty, mainly of a geopolitical and economic nature.

3.3.

The EESC views the inflation trend as posing a high risk to socioeconomic progress in the euro area countries. The current inflation risk is mainly linked to supply and disruption of value chains. Developments in Ukraine, particularly in the area of energy inputs, including commodity prices, together with measures to contain the spread of COVID-19, have led to changes on the supply side.

3.4.

Today’s inflation dynamics require making extensive use of the ECB’s toolbox to achieve price stability using accommodative monetary policy. The ECB should proceed cautiously in normalising monetary policy. What is more, it is expected that monetary policy will continue to support economic policy in the euro area member countries.

3.5.

The EESC stresses that the inflation risk has not been contained in the Member States and attempts to eliminate it are only partial. Given the ongoing unfavourable trend in inflation and its impact on households, coupled with developments in competitiveness, the EESC calls on all competent and responsible institutions to adopt and implement all urgent measures to offset the negative price shocks. At the same time, turbulence in the sovereign bonds market in the euro area must be prevented (1).

3.6.

The EESC welcomes the publication of the REPowerEU programme. It expects this programme to contribute to a gradual reduction of dependence on energy inputs from the Russian Federation. It also offers the possibility to gradually eliminate the greatest cost risks which are a major threat to price stability in euro area countries.

3.7.

The EESC expects REPowerEU to make two further key contributions: (i) REPowerEU could stimulate a major increase in investment in selected sectors and areas, thus realising an idea that pre-dates Russia’s invasion of Ukraine. The basic idea is that this year will be significant in terms of growth in investment, especially in selected areas of public interest; (ii) REPowerEU should also make a substantial contribution to the most important structural changes facing the current generation and thus meet the key objectives of making euro area economies more competitive, sustainable and resilient, in pursuit of the headline targets set out in the Green Deal.

3.8.

The EESC is closely monitoring how investment is being fundamentally re-allocated, compared to original investment plans. Investment growth can be expected to be lower in sectors linked to energy restructuring and the implementation of the Green Deal priorities for EU countries. It is unclear what the outlook will be in sectors and areas that are not directly linked. Against this backdrop, it will be important to see the development of small and medium-sized enterprises in traditional economic sectors (not strategically necessary or seeking world class excellence), using potential opportunities in individual regions.

3.9.

The EESC strongly supports giving due consideration not only to meeting current critical priorities but also to ensuring uniform innovation performance across regions, the euro area and the EU as a whole. Underestimating this goal may exacerbate divergent trends between regions in the euro area and the EU Member States.

3.10.

The EESC welcomes the possibility of stronger convergence thanks to growth in the formerly less developed euro area Member States, which over the long term have been growing at a higher rate than the euro area average. In this context, it should be noted that COVID-19 and the current war in Ukraine may lead to a deepening and divergent process in the euro area Member States, which is not conducive to achieving the basic ideas set out in the Maastricht Treaty.

3.11.

The EESC welcomes and supports the ongoing debate on the design of the new institutional framework for public finances in the EU Member States. In this context, the Committee points out that updating the Stability and Growth Pact’s fiscal rules is associated above all with the challenge of reconciling financial sustainability with clear public investment needs.

3.12.

The EESC sees scope for mutual coordination and links between different types of policies aimed at ensuring sustainable public debt. Furthermore, in justified cases there is a need to support fiscal strategies in line with a medium-term approach to fiscal correction that is geared towards recovery and resilience. The Committee expects realistic and workable solutions to be reached, resulting in a platform on public finances which should be implemented without delay.

3.13.

Given that public budgets are under strain following the COVID-19 crisis, further compensatory measures to support households and companies to cope with the energy crisis must be targeted and effective. The EESC rightly understands and respects the current reasons for safeguarding security, humanitarian and social needs and their impact on national budgets in the euro area. In this context, the EESC welcomes the Commission’s decision to prolong the activation of the escape clause of the Stability and Growth Pact, and calls on the Commission to put forward concrete reform proposals for the Stability and Growth Pact as soon as possible.

3.14.

The EESC has repeatedly stated that, as in the past, and even more so today, greater efforts are needed to strengthen the euro area’s position in the international context. Currently, euro area economies are facing new challenges linked to the overall security risk and structural changes. In addition, economic and political developments may affect the position of the euro in the international monetary and payment system. Ending the Russian aggression and the war in Ukraine and restoring Ukraine’s territorial integrity may lead to a revival of the world economy and to a stronger euro area economy within it.

3.   Specific comments

4.1.

The EESC is convinced that, in order to ensure relative socioeconomic stability in the euro area Member States, against the prevailing backdrop of high levels of geopolitical and economic uncertainty, linked to the risks of rising inflation and growing public debt, it will be important to focus on the right priorities when drawing on Recovery and Resilience Facility (RRF) funds. This instrument enables EU Member States to jointly issue bonds on the capital markets, and has so far been very effective. The EESC would therefore very much welcome its practical use in future too. In this connection, the EESC sees scope for using the RRF beyond 2026.

4.2.

The EESC stresses that Russia’s ongoing invasion of Ukraine may lead to an unwanted recession and even stagflation in certain euro area countries. Therefore, careful monitoring of these adverse developments, and pre-emptive action to deal with them, is needed now more than ever.

4.3.

The EESC notes that unemployment and labour market trends point to relative stability. At the same time, the Committee highlights relatively large discrepancies between national unemployment rates compared to the pre-2008 period. Structural unemployment is prevalent in some euro area Member States, coupled with a shortage of skilled labour. It is this relative shortage of highly skilled labour that does not allow sufficient scope to increase competitiveness in selected sectors and areas. In this context, the EESC notes that there is still sufficient, and as yet untapped, scope for upskilling and reskilling within the euro area Member States and the EU.

4.4.

The EESC is very concerned about the negative trends in inequality and about rising poverty in the euro area Member States and across the EU. Inequality in the broadest sense of the term is, to a large extent, also the legacy of the global financial crisis. COVID-19 has further exacerbated this adverse trend. Rising energy and food prices are currently affecting the most vulnerable population groups, as well as low- and middle-income households. For this reason, the EESC urgently calls on all competent institutions to set up a social safety net that works effectively and where nobody is left behind.

4.5.

The EESC draws attention once again to the possible and unforeseen development of further mutations, pandemics and epidemics. The emergence and rapid spread of COVID-19 revealed that the health sector was highly unprepared for the pandemic. More in-depth preparation, but above all a more responsible policy by all competent bodies and institutions in this area, is therefore imperative. The EESC notes that, as developments over the past two years have shown, the greatest return on investment comes from investment in health and prevention.

4.6.

The EESC stresses that supporting the provision of additional liquidity since the outbreak of COVID-19 has been the right decision. However, given that some particular operations were suspended, it will now be necessary to focus on ensuring the solvency of certain businesses. Additional liquidity will also be needed to support post-pandemic growth. The EESC therefore considers it crucial to push ahead with the establishment of the Capital Markets Union and the Banking Union.

4.7.

The EESC points out that a process of fragmentation in the world economy is under way. Russia’s invasion of Ukraine has led to fragmentation in international trade, international payments, international currency-financial relations, international transport, international science and research, global value chains, and in other areas too. This process has had a very negative impact on socioeconomic developments in the euro area countries.

4.8.

The EESC notes that the current high level of economic and geo-economic uncertainty, accompanied by high risks, is the most complex situation in the entire history of the European integration project. Given the unpredictability of future socioeconomic developments, there is a strong need for the competent institutions to adopt and implement a whole host of measures to reduce and eliminate external shocks to the economies of the euro area Member States.

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(1)  The EESC therefore welcomes the ECB’s announcement of 15 June 2022 that it intends to work on an instrument to combat fragmentation in the euro area.

Opinion of the European Economic and Social Committee on ‘Enhancing labour mobility to support economic recovery’

(own-initiative opinion)

(2023/C 75/08)

Rapporteur:

Philip VON BROCKDORFF

Plenary Assembly decision	20.1.2022
Legal basis	Rule 52(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	Employment, Social Affairs and Citizenship
Adopted in section	29.9.2022
Adopted at plenary	26.10.2022
Plenary session No	573
Outcome of vote (for/against/abstentions)	101/0/0

1.   Conclusions and recommendations

1.1.

The EESC has in a number of its opinions referred to the importance of labour mobility and has noted that over the years, intra-EU labour mobility has increased but only at moderate pace.

1.2.

The EESC believes that a more in-depth analysis is needed as to why — other than the restrictions caused by the pandemic — the stock of EU movers of working age is growing by a smaller percentage increase than in previous years. The EESC also calls for a study to determine the economic cost of the current state of the labour market.

1.3.

The EESC recommends more effective national measures with an emphasis on active labour market policies, such as in-work benefits for EU and third-country workers.

1.4.

The EESC calls on the European Commission to include in the European Semester indicators as part of country-specific recommendations to monitor national policies that in one way or another restrict the mobility of workers across the EU.

1.5.

The EESC also calls on the European Commission to analyse negative developments related to labour mobility, particularly the brain drain in certain sectors and regions. At the same time, measures to counter the brain drain must go hand in hand with those to promote upward social and economic convergence.

1.6.

The EESC also recommends that Member States further improve their relevant portals with the inclusion of the minimum working conditions required by national legislation to avoid abuse. The EESC also calls for further efforts in improving language skills.

1.7.

The EESC calls on Member States to facilitate the mobility of persons with disabilities.

1.8.

The EESC also considers gender equality to be an important factor in enhancing labour mobility in the EU as stated in SOC/731 (1).

1.9.

The EESC calls on the European Commission to continuously monitor social security coordination and ensure common solutions to new arising situations such as teleworking from abroad. Moreover, the EESC calls for efforts to be stepped up to create a European social security number as a possibility to overcome obstacles in access to social security in cross-border situations.

1.10.

The EESC notes that good working and employment conditions, as well as quality–of-life aspects such as the availability of good schools and recreational facilities, are necessary for businesses to maintain a competitive advantage and to attract skilled workers.

1.11.

The EESC also notes that the COVID-19-pandemic clearly enhanced opportunities for teleworking. More and more workers are interested in working remotely from abroad for a short period or temporarily. The EESC looks forward to upcoming social partner negotiations on a directive on the matter.

1.12.

The EESC calls for an EU-wide network of information points, including online but also physical and telephone services, aimed at helping workers and employers in dealing with enquiries in areas such as banking and insurance services.

1.13.

Finally, the EESC highlights the importance of the ongoing statistical analysis of labour mobility flows to help address skills mismatches in EU labour markets and to assess the impact of developments such as the war in Ukraine and the movements of working-age persons within and between EU Member States.

2.   General comments

2.1.

At a time of great economic uncertainty, with economic forecasts being revised downwards and with a likely increase in the euro area interest rate to counter high rates of inflation just around the corner, labour mobility in the EU could play a crucial role in the EU’s economic recovery and growth prospects. It is generally recognised that the free movement of workers and services contributes to economic growth and cohesion in the Union and creates job opportunities in the Single Market. The effect is clear: an increase in mobility to fill existing vacancies improves the allocation of labour resources, increases economic output and welfare, particularly if the working conditions on offer are fair. The EU’s labour market is also based on the principle of equal treatment as enshrined in Article 45 TFEU and specified in a number of pieces of secondary legislation. Overall, the EU economy stands to gain from increased labour mobility. However, for individual Member States, there may be gains and losses, depending on the long-term effects of the direction of mobility flows. In the short-term, labour mobility would be beneficial for sending countries characterised by structural unemployment. However, the net effects for receiving countries would largely depend, inter alia, on the working conditions provided to workers.

2.2.

The EESC has in a number of its opinions referred to the importance of labour mobility and has noted that intra-EU labour mobility has increased over the years but at moderate pace and, in percentage terms, still lags behind labour mobility with the US. According to a study conducted by the Directorate-General for Regional Policy of the European Commission, the US population who have moved to another state make up around 2,8 % of the total working age population, whereas in the EU the share is around 1,2 per cent (2).

2.3.

According to the Eurostat population statistics for 2019, there were 13 million EU persons of working age (20–64) who moved from one Member State to another. However, the stock of EU movers of working age grew by a smaller percentage increase than in previous years, and the pandemic has not helped increase these numbers.

2.4.

The EU 2019 Labour Force Survey indicated a figure of 11,9 million EU movers of working age (defined as EU citizens who reside in a Member State other than their country of citizenship), of whom 9,9 million were active movers (defined as EU citizens who take up employment in a different Member State without the need to obtain a work permit). This represents 4,2 % of the total labour force in the then 28 Member States. The UK leaving the EU has obviously reduced work opportunities for EU citizens and the main destination countries now are Germany, France, Italy and Spain.

2.5.

Romania and Poland are the most important countries of origin of active movers, with the main sectors of economic activity for EU movers being manufacturing and wholesale and retail trade. Other relatively important sectors are construction and transport, social care and domestic services, tourism and agriculture.

2.6.

The number of cross-border workers in the EU-28 was 1,5 million and, again, with UK exiting the EU, the number has fallen, with the main countries of residence of cross-border workers being France, Germany and Poland, with other notable flows occurring between Slovakia, Hungary and Austria. The EESC notes that labour mobility within the EU is motivated by a variety of reasons, depending on one’s personal situation including pay differences between the host country and the cross-border worker’s country of residence. The decision to move abroad to take up work can indeed be based on a combination of several reasons including employment offered on a seasonal basis in sectors such as agriculture and tourism. More recently, the worsening purchasing power impacting citizens across the EU may actually discourage labour mobility, especially if rising prices also have an impact on the cost of rented accommodation.

2.7.

In recent years, there has been increased mobility among highly educated movers, with more than a third of EU movers falling into this category. Conversely, the share of low-skilled movers has fallen by the same percentage as the increase in highly educated movers. It is relevant to note that the mobility of highly skilled movers is an important developer of the knowledge-based economy. The most important EU destination countries for highly skilled movers are Germany, Spain, France, Belgium and Austria. Whereas highly skilled movers work most commonly as professionals in business, teaching, science and engineering, over-qualification appears to be quite prevalent. It is estimated that 55 % of highly skilled movers are women.

2.8.

According to Eurostat’s demographic projections, the mean age of EU citizens is expected to increase. Significantly also, the working age population is expected to fall as a proportion of the entire population, particularly those between the age of 20 and 39 years. Conversely, older age groups will have large proportional increases. These demographic developments will have a considerable impact on the potential number of EU movers in the years ahead, since people are most likely to move at the beginning of their working lives and, as they grow older, are less likely to move. This is corroborated by evidence, with persons aged from 20 to 29 and from 30 to 39 registering higher annual outflow numbers than other age groups.

2.9.

Since the number of persons in younger age cohorts is also falling in sending countries, this is expected to result in falling numbers of mobility workers across the EU. However, this expected decrease in mobility flows may be counteracted by the EU’s ageing population, with an increased demand for specialised health and social care, requiring an increase in the recruitment of mobile workers.

2.10.

It is evident from the above that mobility flows across the EU remain a challenge that limits supply and causes mismatches in most sectors, including IT and high-tech industry. This situation has not been helped by the pandemic, with intra-EU mobility being constrained by lockdowns and other restrictive measures such as border closures and travel bans. Prior to the pandemic, East-West labour mobility had dominated South-North flows, and this is expected to continue with the influx of refugees from war-ravaged Ukraine. In any event, the sooner mobility among EU citizens returns to pre-pandemic levels, the better. The number of active labour market movers fell by 4 per cent between 2019 and 2020 (3).

2.11.

The mutual recognition of diplomas and qualifications is essential to fill in vacancies where labour shortages persist and to facilitate mobility. However, the recognition system needs to be reinforced to work effectively and to support labour mobility. The problem mainly arises in the mutual recognition of vocational qualifications rather than at academic or professional level. That said, it is relevant to acknowledge that there is a different approach to the mutual recognition between academic and vocational qualifications. One should also keep in mind that according to Article 166 TFEU, the EU shall fully respect the responsibility of the Member States for the content and organisation of vocational training, while supporting and supplementing the action of the Member States.

3.   Specific comments

3.1.

The EESC believes that a more in-depth analysis is needed as to why — other than the restrictions caused by the pandemic — the stock of EU movers of working age is growing by a smaller percentage increase than in previous years. The EESC also calls for a study to determine the economic cost of the current state of the labour market, characterised by fragmentation along the lines of Member States: ‘the cost of a non-unified EU labour market’.

3.2.

The EESC recommends more effective national policy measures such as mobility incentives including circular mobility (by investing in countries of origin through exchange and mutual learning programmes), with an emphasis on active labour market national policy measures, such as in-work benefits for EU and third-country workers. In this connection, the EESC believes that offering jobseekers financial support, such as covering costs of relocation to take up a job in another Member State or region, would further encourage mobility. In addition, further efforts are needed to improve information regarding jobs in other EU countries, as well as relocation assistance to support the logistics of moving country — e.g. finding accommodation, registering for tax purposes, finding a school for your children, possibly assistance in finding a job for partners, etc. The EESC recommends making use of AI tools in a common EU-wide web that centralises all the job offerings across EU Member States, to better match profiles and job requirements. In the same vein, more targeted incentives should be provided to encourage unemployed workers to move to Member States with low levels of unemployment. The lack of skilled labour is the most pressing issue for European firms, as stated by the SAFE report issued by the ECB on 1 June 2022.

3.3.

The EESC regrets that the EU labour market remains fragmented. Labour mobility has been the victim of the piecemeal approach adopted so far. Further disjointed policies, particularly at national level, need to be avoided. Whereas it is necessary to safeguard equal treatment between local and mobile workers, the EESC calls on the European Commission to include in the European Semester indicators as part of country-specific recommendations to monitor national policies that in one way or another restrict the mobility of workers across the EU.

3.4.

Increasing the mobility of EU workers and professionals can only happen if there is better enforcement of existing provisions, access to information and cooperation between Member States. The EESC believes that the role of the European Commission in all this is critical. The EESC notes that individual Member States may be reluctant to adopt more Single Market reforms out of fear this might lead to short-term job losses, particularly in those countries that are already lagging behind, and in low-productivity countries/sectors. In theory, the free movement of labour would help address this issue, but from a national perspective, this could lead to a loss of resources and potential brain/skills drain in the interim. It may be necessary, therefore, for the European Commission to analyse negative developments related to labour mobility, particularly the brain drain in certain sectors and regions. At the same time, measures to counter the brain drain must go hand in hand with those to promote upward social and economic convergence. The EESC acknowledges that there could be a number of variables at play, including the demographic outlook and its effect on the size and composition of the working-age population in both sending and receiving countries.

3.5.

Whereas educational and validation standards need to be maintained at all times, the EESC calls on Member States to reduce bureaucracy and adhere to the fundamental principle of equal treatment. In this connection, further improvements in the mutual recognition mechanisms and job mobility portals are deemed necessary. The EESC notes important improvements to the EURES job mobility portal, the Europass online platform and the European skills, competences, qualifications and occupations classification system (ESCO) and calls on Member States to further improve their relevant portals with the inclusion of the minimum working conditions required by national legislation. The latter is considered particularly relevant to avoid abuses in working conditions for mobile workers in cross-border regions and for third-country workers. The EESC also calls for further efforts to improve language skills, since lack of language skills poses a major barrier to free movement in the EU.

3.6.

The EESC calls on Member States to facilitate the mobility of persons with disabilities. Relevant to this is the adoption of a common European definition of disability status, in line with the UN Convention on the Rights of Persons with Disabilities, and the mutual recognition of disability status among Member States.

3.7.

The EESC considers gender equality to be an important factor in enhancing labour mobility in the EU, as stated in SOC/731. This should be part of a wider commitment to abide by the standards of democracy and equality for all as a means to increasing labour mobility.

3.8.

The EESC recommends that host Member States provide persons working in the host country with access to training, such as language programmes, at the start of their professional experience and retraining, if required at a later stage, in order to address the shortage of labour in certain sectors and to support digital transitions and measures towards a climate-neutral economy.

3.9.

The EESC also notes that Erasmus+ could enhance labour mobility across the EU and points to a study carried out in 2011 (4) which analyses how studying abroad affects labour market mobility later in life using the exposure to Erasmus as an independent source of variation in studying abroad. The study found that studying abroad significantly increases the likelihood of working abroad after obtaining an academic qualification. Graduates who have studied abroad are about 15 percentage points more likely to work abroad after graduation.

3.10.

The EESC welcomes the improved social security coordination in the EU but notes with some concern that difficulties still exist for mobile workers, and especially cross-border and frontier workers, in accessing social protection systems. The EESC therefore calls on the European Commission to continuously monitor social security coordination and ensure common solutions to new arising situations such as teleworking from abroad. The importance of coordinated action at Union level cannot be stressed enough. Member States must ensure the social rights of mobile workers at all times, including during crisis situations. Whilst acknowledging existing differences in pension schemes across the EU, the EESC also calls for increased efforts to better coordinate and enforce pensions rights of mobile workers across the EU, possibly through targeted country-specific recommendations within the European Semester. Moreover, the EESC calls for efforts to be stepped up to create a European social security number as a possibility to overcome obstacles in access to social security in cross-border situations.

3.10.1.

It has to be noted that the pan-European Personal Pension Product (PEPP) (5) is supposed to be particularly appealing to self-employed individuals and to mobile workers who work in different countries throughout their working life. The ability to switch providers of PEPPs across borders will undoubtedly contribute to labour mobility, although quite how far it will do so is not clear, as no PEPPs are available yet.

3.10.2.

When it was introduced, the EESC welcomed the PEPP concept as a crucial step in encouraging EU citizens to make adequate provision for their retirement years and as an essential building block in the Capital Markets Union (CMU). However, as the supply of PEPPs still has to materialise, the EESC sees the need to make an additional effort in the context of the CMU’s Action Plan (6), under Action 9, with a view to stimulating participation in occupational pension schemes.

3.11.

The EESC notes that the COVID-19-pandemic clearly enhanced opportunities for teleworking (7). More and more workers have an interest in working remotely from abroad for a short period or temporarily. The EESC looks forward to upcoming social partner negotiations on the review and update of the 2002 Autonomous Agreement on Telework, to be put forward for adoption in the form of a legally binding agreement implemented via a directive.

3.12.

The EESC notes that good working and employment conditions, as well as quality of life aspects such as the availability of good schools, and facilities of a high and sustainable standard, are necessary for businesses to maintain a competitive advantage and to attract skilled workers. The EESC also highlights the relevance of ongoing investment in formal and informal training and life-long learning, in order to support the transition towards the digital and carbon-neutral economy. In a dynamic and rapidly changing environment, adapting quickly and effectively to the changing needs of the labour market, while recognising the impact of labour supply shortages on the existing workforce, is crucial. Relevant to this is the European social partners’ framework agreement on digitalisation, which states that both parties commit to upskill or reskill to meet the digital challenges of enterprises.

3.13.

The EESC stresses the need for the digitalisation of procedures for labour mobility and the posting of workers in order to improve the exchange of information between national authorities and remove barriers that are not proportionate. This will also help to monitor and enforce rules correctly. The EESC agrees with the proposal contained in the European Parliament resolution of 20 May 2021 — Impacts of EU rules on the free movements of workers and services: intra-EU labour mobility as a tool to match labour market needs and skills (2020/2007(INI)) (8) — which recommends setting up a one-stop helpdesk for workers and future employers on applicable EU rules, based both digitally and physically within the European Labour Authority (ELA). As laid down in Article 5 of the ELA Regulation, the ELA shall improve the availability, quality and accessibility of information on labour mobility, including through a single Union-wide website acting as a single portal for accessing information sources and services at Union and national level in all languages of the EU. Furthermore, the ELA should support Member States in updating their national websites.

3.14.

Concurrently, the EESC calls on Member States to digitalise public services, in particular the relevant social security services, to facilitate European worker mobility across the EU, while at the same time guaranteeing the portability of rights and compliance with obligations with regard to the mobility of workers and professionals.

3.15.

At the same time, the EESC calls for an EU-wide network of information points, including online but also physical and telephone services, aimed at helping workers and employers in dealing with enquiries in areas such as banking and insurance services.

3.16.

The EESC highlights the importance of the ongoing statistical analysis of labour mobility flows to help address skills mismatches in EU labour markets and to assess the impact of developments such as the war in Ukraine and the movements of working-age persons within and between EU Member States. The EESC acknowledges that matching at the European level is far more difficult than at the national or regional level. Nonetheless, the EESC believes that the role of EURES advisors in providing informed support to mobile workers is crucial.

3.17.

Also relevant is research on the mobility of third-country workers and their working conditions. The EESC is concerned at the occurrence of precarious working conditions for third-country workers in Member States and calls for stronger enforcement of rules. The EESC also notes that labour mobility from EU Member States will not be enough to meet skills shortages. Labour migration from third countries will also need to be facilitated and enhanced. In this respect, the EESC welcomes the recent package on migration policy, but reiterates its viewpoint that effective steps need to be taken to enable unemployed EU citizens to enter the labour market.

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(1)  OJ C 443, 22.11.2022, p. 63.

(2)  https://epc2010.princeton.edu/papers/100976.

(3)  Annual Report on Intra-EU Labour Mobility (2021).

(4)  Parey and Waldinger (2011) Studying abroad and the effect on international labour market mobility; evidence from the introduction of Erasmus.

(5)  EESC opinion: Pan-European Personal Pension Product (OJ C 81, 2.3.2018, p. 139).

(6)  See EESC opinion: A Capital Markets Union for people and businesses — new action plan (OJ C 155, 30.4.2021, p. 20).

(7)  OJ C 220, 9.6.2021, p. 13, OJ C 220, 9.6.2021, p. 106.

(8)  OJ C 15, 12.1.2022, p. 137.

Opinion of the European Economic and Social Committee on Improving equality in the EU

(own-initiative opinion)

(2023/C 75/09)

Rapporteur:	Ozlem YILDIRIM
Co-rapporteur:	Cristian PÎRVULESCU

Plenary Assembly decision	20.1.2022
Legal basis	Rule 52(2) of the Rules of Procedure
	Own-initiative opinion
Section responsible	Employment, Social Affairs and Citizenship
Adopted in section	29.9.2022
Adopted at plenary	26.10.2022
Plenary session No	573
Outcome of vote (for/against/abstentions)	140/13/31

1.   Conclusions and recommendations

1.1.

The EESC refers to the preamble of the Charter of Fundamental Rights of the European Union, which states that ‘the Union is founded on the indivisible, universal values of human dignity, freedom, equality and solidarity’. It also stresses the importance of Article 20 of the Charter, which enshrines the principle of equality before the law for all.

1.2.

Furthermore the EESC points out that the application of the principle of equality not only prohibits discrimination, but also promotes the consistent application of the rule of law.

1.3.

The EESC strongly urges the Council, the Parliament and the Commission to further develop protection against discrimination in access to goods and services, notably by adopting the proposal for a directive on implementing the principle of equal treatment between persons irrespective of religion or belief, disability, age or sexual orientation (1).

1.4.

The EESC believes that the Charter of Fundamental Rights of the European Union provides a solid basis, and that the instruments for the protection of fundamental rights must be developed in a uniform way throughout the Union. Furthermore, it is essential that all interactions, environments and situations in which discrimination may occur be included. Differences in legal protection produce unacceptable rights hierarchies and leave entire groups of people unprotected.

1.5.

The current European protection system is essentially based on victims’ individual recourse to judicial redress and to the law. However, numerous studies show that reporting and procedures do not address the structural, intersectional and systemic dimensions of inequalities, and that victims’ recourse to the law is insignificant, statistically exceptional, and used only as a last resort (2).

1.6.

The EESC stresses that inequalities and complex discrimination created by social structures can only be addressed through consistent and complex policies, real resources and long-term engagement. Awareness-raising, visibility and training are key levers that should be incorporated into all areas of society.

1.7.

The EESC believes that promoting equality and protecting fundamental rights must be integrated into a broader social vision that multiplies and strengthens the tools through which the Member States and the European Institutions give support to individuals and public and private actors.

1.8.

The EESC believes that the EU must actively promote recognition of the general principle of equality and positive obligations to enforce this principle. Furthermore, in order to achieve this, the institutions must begin developing the next generation of measures to promote equality in Europe.

1.9.

While the EESC recognises that technological developments help facilitate access to rights for many citizens, it stresses that they can also create new inequalities, and that they therefore give rise to a new need to intervene in order to ensure the principle of equal treatment is monitored and applied.

1.10.

To overcome the burden of litigation on individuals, to give legal action a weight commensurate with the practices it denounces, and to make the legal framework an effective deterrent in regulating discrimination, the EESC is in favour of EU legislation to adopt standards that facilitate the implementation of collective action in the Member States that improve both access to judicial redress and its impact on combating discrimination and upholding equal treatment.

1.11.

The EESC believes that the Union must ensure security, equal treatment, and protection by Member State authorities for political, trade union and community actors as a corollary of its values of democracy, the rule of law, and non-discrimination based on political opinions.

1.12.

The ability of all civic actors to work with existing legal instruments and to work with public institutions (in particular those involved in the protection of human rights) must also be improved.

2.   General comments

2.1.

The EESC refers to the preamble of the Charter of Fundamental Rights of the European Union, which states that ‘the Union is founded on the indivisible, universal values of human dignity, freedom, equality and solidarity’. It also stresses the importance of Article 20 of the Charter, which enshrines the principle of equality before the law for all.

2.2.

Furthermore the EESC points out that the application of the principle of equality not only prohibits discrimination, but also promotes the consistent application of the rule of law.

2.3.

Today, the European Union recognises the multiple forms of inequalities and their intersectional dimensions (including gender, ethnic, social and generational inequalities, among others).

2.4.

More than 20 years after the adoption of the Treaty of Amsterdam, all European and national indicators reveal the persistence of discrimination based on ethnic origin, race, sex, sexual orientation, opinions and beliefs, disability and age, in areas such as employment, access to goods, education, and also public services and social protection.

2.5.

This persistent discrimination stems in particular from complex processes which often overlap, and are the result of in-built processes and of systems and rules that produce and reproduce direct or indirect discrimination. This patchwork of sources of inequality produces situations that are therefore systemic in nature and that constitute real obstacles to promoting equality (3).

2.6.

Through its members and also through activities carried out directly in the Member States, the EESC also notes a worsening general social climate, and an increase in discriminatory behaviour towards vulnerable people. From this point of view, there is a clear need for swift and concerted action at national and European level.

2.7.

Additionally, following nearly two years of crisis related to COVID-19, several UN agencies, including the International Labour Organization (4), have noted worrying signs of rising social and regional inequalities. The COVID-19 crisis has exacerbated social and economic inequalities and significantly affected European businesses by making it harder for them to maintain and create jobs.

2.8.

Consequently, social groups facing poverty or in precarious situations are more vulnerable to discrimination, which is then compounded by other factors leading to vulnerability. The EESC stresses the need to target the specific nature of this discrimination and develop a strong policy to combat discrimination against economically and socially disadvantaged groups within the EU.

2.9.

The EESC stresses that inequalities and complex discrimination created by social structures can only be curbed through strong policies, real resources and long-term engagement. Greater and more significant support for national equality and human rights bodies is needed, especially as regards improving their independence and increasing their staffing and financial resources. Awareness-raising, visibility and training are key levers that should be incorporated into all areas of society and public policy.

2.10.

The EESC believes that promoting equality and protecting fundamental rights must be integrated into a broader social vision that multiplies and strengthens the tools through which the Member States and the European Institutions give support to individuals and public and private actors.

2.11.

The EESC reiterates its full support for the new European Pillar of Social Rights action plan, believing that it contains several aspects that are consistent with the promotion of equality, the protection of fundamental rights, and the fight against discrimination (5). More attention to their implementation is essential for achieving the action plan’s objectives.

2.12.

In line with its previous opinions (6), the EESC recognises the EU’s efforts in the fields of gender equality; protection against discrimination on the grounds of ethnic origin, race or age, religion, and opinion or belief; the protection of LGBTQIA+ rights and the rights of persons with disabilities; as well as its work on Roma integration and upholding migrants’ rights.

2.13.

As the Committee has already stated, the Charter holds potential that neither human rights institutions, civil society organisations nor the social partners have exploited. Improvements are needed to further develop the EU’s impact on protection and prevention and on promoting, implementing and applying the principle of equality (7).

2.14.

The current European protection system is essentially based on victims’ individual recourse to judicial redress and to the law. However, all studies show that reporting and procedures do not address the structural, intersectional and systemic dimensions of inequalities, and that victims’ recourse to the law is insignificant, statistically exceptional, and used only as a last resort (8).

2.15.

Today in terms of employment, the fight against discrimination is limited to situations that correspond to the forms of discrimination referred to in Article 19 of the Treaty on the Functioning of the European Union (sex, race or ethnic origin, religion or belief, disability, age or sexual orientation).

2.16.

Moreover, the protection conferred by Union law on access to goods and public services only covers race or ethnic origin, and gender equality. No other form of inequality is treated as such, and protection against discrimination varies from one form to another.

2.17.

Today, there are considerable differences in the protection against discrimination offered by Member States. Some Member States grant protection in access to goods and services against all forms of discrimination laid down in Article 19, while others grant protection beyond these. Consequently, protection against discrimination (and thus equality) varies between Member States.

2.18.

It is in the light of these findings that subsequent steps need to be taken to overcome the current limits of the implementation of the EU’s equality protection mechanism with an approach based on inclusion.

3.   Specific comments

3.1.   Promoting affirmation of a general principle of equality in the Member States

3.1.1.

The current situation in Europe highlights the fact that the principle of equality is an aspiration which is still subject to considerable uncertainty. For example, the Commission itself confirms that during the COVID-19 period, equal access to healthcare became a considerable challenge in Europe (9).

3.1.2.

While some European countries incorporate the general principle of equality into their legal frameworks by enshrining a right to equal treatment in civil society, in economic relations, and with the State, others only crack down on discrimination expressly prohibited by law, with no positive obligation to implement the principle of equality (10).

3.1.3.

This difference creates a significant gap between European citizens and residents as regards the scope of the principle of equality and its protection under law, and of the requirements in place for its effective implementation.

3.1.4.

The EESC urges the Commission to recognise the structural difficulties that prevent fully achieving equality, and that also reveal both the limits of what has been achieved and the scale of inequalities in Europe today. National equality and human rights organisations should be actively involved in this continuous evaluation process.

3.1.5.

The EESC considers it absolutely essential that the Union adopt an ambitious policy to promote the principle of equality and equal opportunities, commensurate with the values enshrined in the Treaty on European Union and in the Charter of Fundamental Rights, by engaging with all areas within its competence. In this regard, the EESC supports the European Commission’s new initiative, based on Articles 157 and 19 of the Treaty, on the effectiveness of national equality bodies and developing their potential, their multiple roles and their capacities.

3.1.6.

The EU must give itself the practical means to translate the general principle of equality into a legal principle applicable to all Member States, which would provide protection beyond unequal treatment linked to the seven forms of discrimination protected by Article 19 of the Treaty on the Functioning of the European Union. The use of structural funds would, for example, be an efficient way to effectively implement anti-discrimination measures.

3.1.7.

Recognising a general principal of equal treatment and creating positive obligations, as well as recognising their systemic dimension, would be ways to improve the fight against economic and social inequalities.

3.2.   Tackling digital inequalities and discrimination

3.2.1.

While the EESC recognises that technological developments help facilitate access to rights for many citizens, it believes that they also lead to new inequalities in access to rights and services, and a new need to intervene in order to uphold the principle of equal treatment.

3.2.2.

The digitalisation of government services and of access to goods and services (particularly essential services) has led to a profound change in the relationship with the user, removing physical barriers but also creating new digital barriers. It prevents access to rights and services for certain citizens, especially the most disadvantaged, the vulnerable and those with disabilities, as well as the majority of older people in Europe (11).

3.2.3.

These shortcomings call for developing and implementing new public policies for digital inclusion, as well as for creating positive obligations for both public and private operators with regard to users, including free and easy access.

3.2.4.

In addition to the technical difficulties of digital access, and in connection with the tools derived from algorithms (12) and biometric technologies (13), the EESC notes that we are facing new rights violations and forms of discrimination.

3.2.5.

As highlighted by the work of the Council of Europe (14) and the Fundamental Rights Agency (15), algorithmic decisions lead to decision-making tools with discriminatory biases based on the search for automated results. The most relevant legal instruments to mitigate the risks of AI driven discrimination are non-discrimination law and data protection law. If effectively enforced, both legal instruments could help to fight illegal discrimination.

3.2.6.

The EESC believes that controlling these effects would require commitment to strong public policy that applies to the entire European internal market, as well as to economic operators outside Europe. This would require (in line with the Digital Services Act currently being adopted) the introduction of processes for monitoring automated decision-making, as well as for data verification, evaluation, impact studies and for correction processes in the development and implementation of these technologies. The adoption of the directive on digital services could also help to provide solutions.

3.3.   Developing the protection of equal treatment and the fight against discrimination in the professional world

3.3.1.

The EESC stresses the importance of employment for integration and for making the promise of equality for all a reality.

3.3.2.

Despite the EU’s historic commitment to gender equality in employment, the current situation reminds us that, historically, women are the first to suffer the consequences of crises, be they economic, social, health or others. Gender equality in the workplace remains one of the major challenges faced by European countries. The COVID-19 crisis saw female employment rates drop across all ages in all occupational groups, falling globally to 61,8 % (16).

3.3.3.

These gender-related inequalities simply add to the other forms of inequality. Eurostat’s 2019 survey shows that 68 % of people with disabilities were at risk of poverty or social exclusion, compared to 28,4 % of the general population (17). Of those who considered themselves LGBT, 21 % felt discriminated against at work, as did 25 % of people with Maghreb, African or Roma origins (18).

3.3.4.

The 2020 Eurobarometer on discrimination showed that 59 % of Europeans believe that the primary cause of discrimination is ethnic origin or skin colour, with studies showing that it is particularly significant in the area of employment, where it has a considerable impact on equal opportunities and social integration. Efficient methods should be put in place to determine such discrimination before the courts, such as the Clerc method, recognised by the French supreme courts, which makes it possible to compare the career developments of people hired at the same level (19).

3.3.5.

Today, European policy on combating discrimination in employment is limited to a legal framework that allows reports of situations of discrimination to be brought before the courts, imposing on the potential victim the very heavy burden of fighting discrimination by bringing one or more cases against their employer, service provider or the State.

3.3.6.

The Commission has long acknowledged that discrimination is the product of collective phenomena. Litigation on a case-by-case basis is a heavy weight for victims to bear. Refusal to take legal action in cases of discrimination is well documented and widespread (20). Discrimination in employment makes up a fraction of litigation cases, while legal action in cases of discrimination in access to goods and services is almost non-existent. Non-judicial mechanisms and processes for promoting equality could be strengthened, as could support for pro bono legal work and litigation in the public interest.

3.3.7.

To overcome the burden of litigation on individuals, to give legal action a weight commensurate with the practices it denounces, and to make the legal framework an effective deterrent in regulating discrimination, the EESC is in favour of EU legislation to adopt procedural tools that facilitate access to rights in the Member States, for example by using collective action mechanisms that improve both access to judicial redress and its impact on combating discrimination and upholding equal treatment.

3.3.8.

Furthermore, if the European Union intends to combat workplace discrimination efficiently, legal proceedings cannot be the only form of intervention in the face of collective and systemic discrimination.

3.3.9.

The European Union should broaden its range of actions against discrimination beyond simple judicial redress by requiring forecasting tools to be implemented, allowing for proactive intervention, correcting practices and preventing discrimination.

3.3.10.

The EESC believes that comparable policies on discrimination must be implemented, based on all the criteria set out in Article 19 of the Treaty on the Functioning of the European Union. It therefore calls on the European Commission to: i. commit to efficient enforcement of the existing measures or adopting new measures to promote equality in employment and ensure the effective implementation of existing legislation within the framework of its employment and anti-discrimination policy; ii. ensure that measures are adopted to broaden the definition of discrimination in the workplace and to strengthen employer assessment, reporting and monitoring obligations; iii. support businesses in developing anti-discrimination and inclusion practices.

3.4.   Broadening and unifying the scope of protection against discrimination within the Union

3.4.1.

The EESC strongly urges the European Union to further develop protection against discrimination in access to goods and services, notably by adopting the proposal for a directive on implementing the principle of equal treatment between persons irrespective of religion or belief, disability, age or sexual orientation.

3.4.2.

The EESC notes that current protection against discrimination in access to goods and services creates a protection hierarchy based on the recognised forms of discrimination, and therefore creates situations of unequal protection for those covered by these criteria for discrimination.

3.4.3.

While the principle of non-discrimination is an important part of safeguarding fundamental rights within the Union, as long as adoption of the draft directive is suspended, the European Union will not be able to fulfil its mission to ensure equal enjoyment of rights in the European public space.

3.4.4.

The EESC calls on the Council, the Parliament and the Commission to ensure that measures are taken to adopt this draft directive in a version that incorporates its overarching proposals on improving access to rights and redress including, in particular, mechanisms to facilitate access to rights through the adoption of collective action procedures to ensure the effectiveness and recognition of the competences of national anti-discrimination bodies.

3.4.5.

The EU should step up its efforts and cooperation on the ground to ensure that the dignity and fundamental rights of LGBTQIA+ people are respected without exception, that they are nowhere subject to prosecution, and that their participation in public life is strengthened.

3.5.

The EESC believes that the EU must actively promote the recognition of a general principle of equal opportunities and positive obligations. The EU institutions should also support national equality and human rights organisations by adopting binding standards so that they are able to exploit their full potential and ensure the effective application of existing legislation.

3.6.   Safeguarding protection against political, trade union and civic discrimination

3.6.1.

The EESC notes that in recent years, political and trade union or workers’ association activists, as well as civic activists across Europe have faced difficulties in exercising their freedom of expression and action, for example in exercising their right to protest, in order to voice their demands or to negotiate.

3.6.2.

The EESC believes that both the Union and the Member States must in accordance with their legislation and applicable international instruments effectively ensure security, equal treatment, and protection by Member State authorities for political actors, social partners and community actors as a corollary of its values of democracy, the rule of law, and non-discrimination based on political opinions.

3.6.3.

All Member States have ratified ILO C087 Freedom of Association and Protection of the Right to Organise Convention and ILO C098 Right to Organise and Collective Bargaining Convention. Freedom of association and the right to organise must also be respected and promoted. It is important that discussions take place at national and EU level on how to ensure workers can have access to trade union representation, and exercise rights to collectively organise and take collective action (21). In line with the International Labour Organization’s internationally recognised standards, the EESC strongly encourages Member States and the Commission to ensure in accordance with their legislation, industrial relations systems and applicable international instruments, that they effectively protect freedom of association and right to organise and collective bargaining.

3.7.   Effective national institutions to promote equality, protect fundamental rights and combat discrimination

3.7.1.

Too often, the application of European and national regulations in this area comes with significant limitations linked to the legal, institutional, organisational and financial aspects that characterise each Member State.

3.7.2.

The Committee believes that concrete plans should be established, including financial support, to improve the capacity of the relevant national institutions.

3.7.3.

The Committee encourages the Commission to develop assistance programmes for national institutions with human rights responsibilities in order to improve, strengthen and streamline their capacities (through the creation and accreditation of and compliance with international standards) by including awareness raising and knowledge, and by catering to the specific needs of all groups.

3.7.4.

The ability of all civic and social actors to work with existing legal instruments and to work with public institutions (in particular those involved in the protection of human rights) must also be improved. Better support is needed for social actors and civil society organisations to ensure access to the law for victims of discrimination. This support could take the form of training, awareness-raising, knowledge and best practice sharing, financial and organisational support, and protection against attacks and smear campaigns.

3.7.5.

As previously suggested, the Committee reiterates the need to create an effective and accessible mechanism for identifying and reporting physical and verbal attacks, intimidation and harassment (including through abusive legal proceedings), and hate speech against civil society organisations, including those that protect human rights (22). When these attacks are launched in the digital sphere, they must be quickly identified, and the corresponding publications removed.

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(1)  COM(2008) 426.

(2)  Agency for Fundamental Rights, Equality in the EU 20 years on from the initial implementation of the equality directives, April 2021.

(3)  Mulder, J., Indirect sex discrimination in employment, European network of legal experts in gender equality and non-discrimination, European Commission, 2020.

(4)  See in particular the 8th ILO report on the employment impact of the ongoing crisis, October 2021: International Labour Organization, COVID-19: ILO Monitor — 8th edition, 27 October 2021.

(5)  The European Pillar of Social Rights action plan, COM(2021) 38 (OJ C 374, 16.9.2021, p. 38).

(6)  See opinions on: The situation of women with disabilities (SOC/579) (OJ C 367, 10.10.2018, p. 20); The situation of Roma women (SOC/585) (OJ C 110, 22.3.2019, p. 20); Shaping the EU agenda for disability rights 2020-2030 (SOC/616) (OJ C 97, 24.3.2020, p. 41); Diversity management in the EU Member States (SOC/642) (OJ C 10, 11.1.2021, p. 7); the LGBTIQ Equality Strategy 2020-2025 (SOC/667) (OJ C 286, 16.7.2021, p. 128), the Action plan on integration and inclusion 2021-2027 (SOC/668) (OJ C 286, 16.7.2021, p. 134); the Strategy for the rights of persons with disabilities (SOC/680) (OJ C 374, 16.9.2021, p. 50); and The new EU Roma strategic framework for equality, inclusion and participation post-2020.

(7)  Opinion on the new strategy for the Implementation of the Charter of Fundamental Rights of the European Union (SOC/671) (OJ C 341, 24.8.2021, p. 50).

(8)  European Union Agency for Fundamental Rights, Equality in the EU 20 years on from the initial implementation of the equality directives, op. cit.

(9)  European Commission, Solidarity in Health: Reducing health inequalities in the EU (COM(2009) 567 final).

(10)  Crowley, N., Making Europe More Equal: A legal duty?, Equinet, 2016.

(11)  Défenseur des droits (Defender of Rights): Dématérialisation et inégalités d’accès aux services publics (Dematerialisation and inequalities in access to public services), 2019; and Dématérialisation des services publics: trois ans après, où en est-on? (Dematerialisation of public services: three years on, where are we now?), 2022.

(12)  Gerards, J., Xenidis, R., Algorithmic discrimination in Europe, European network of legal experts in gender equality and non-discrimination, European Commission, 2020.

(13)  Défenseur des droits (Defender of Rights), Technologies biométriques: l’impératif respect des droits fondamentaux (Biometric Technologies: the imperative respect for fundamental rights), 2021.

(14)  Council of Europe, Zuiderveen Borgesius, F., Discrimination, Artificial Intelligence and algorithmic decision-making, 2018.

(15)  European Union Agency for Fundamental Rights, Getting the Future Right: Artificial intelligence and fundamental rights, 2021.

(16)  European Institute for Gender Equality (EIGE), Gender equality and the socio-economic impact of the COVID-19 pandemic.

(17)  Eurostat, Income inequalities, 2019.

(18)  European Union Agency for Fundamental Rights, Equality in the EU 20 years on from the initial implementation of the equality directives, op. cit.

(19)  Chappe. V.A., ‘La preuve par comparaison: méthode des panels et droit de la non-discrimination’ [Proof by comparison: Panel methods and the right to non-discrimination], Sociologies pratiques, 2011/2 No 23, p. 45 to 55; Framework Decision of the Défenseur des droits (Defender of Rights) No 2022, 139 of 31 August 2022; Court of Cassation: Social Chamber 10/7/1998 No 90-41231; Social Chamber 4/7/2000, No 98-43285; Social Chamber 28/6/2006 No 04-46419.

(20)  European Union Agency for Fundamental Rights, Equality in the EU 20 years on from the initial implementation of the equality directives, op. cit.

(21)  See also the Opinion on Decent minimum wages across Europe (SOC/632), point 4.5.3 and point 4.5.6, OJ C 429, 11.12.2020, p. 159.

(22)  Opinion on the new strategy to strengthen the application of the Charter of Fundamental Rights in the EU (SOC/671) (OJ C 341, 24.8.2021, p. 50).