International Conference NEW SO CIO-E CONOMIC CHALLENGES O F D E V E L O P M E N T I N E U R O P E 2 0 0 8 L a b o u r M a r k e t I s s u e s O c t o b e r 2 – 4 , 2 0 0 8 , R ī g a , U n i v e r s i t y o f L a t v i a

NEW SOCIO-ECONOMIC CHALLENGES OF DEVELOPMENT IN EUROPE 2008

Iveta Šulca Head of Representation of the European Commission

In the academic world, economists are known for their remarkable ability to explain things in hindsight. As a person whose academic background also lies in the field of economics, I believe I am entitled to quote the old definition: “an economist is someone who tomorrow will provide a perfect explanation why the things that he predicted yesterday did not come true today”. Every rule has an exception though. I am pleased to applaud the amazing foresight of the Economics and Management Faculty of the University of Latvia, who have picked such a perfect time to organise a conference on Europe's socio-economic challenges. Although the economic implications of socio-demographic change will only become fully visible as time goes by, some effects of the changing demographic and skills structure of the working-age population are already noticeable. In particular, while difficult to measure and to monitor, labour shortages have increasingly been reported over the recent economic cycle and tend to aggravate in the current economic climate. To respond to these challenges and fulfil the objectives set in the Lisbon Strategy for Growth and Jobs, the EU must first and foremost mobilise its current human resources. However, as the problem of labour shortages will rise, EU will be increasingly forced to look to skilled labour from third countries to meet the needs of the labour demand. Today, the challenges facing the global financial system are on everyone's lips. They have proved that financial markets don't operate in an ivory tower. Over the past decades, all too often we have heard “Main Street” and “Wall Street”, or City of London for that matter, referred to as two different worlds. They are not. Financial markets are a part of the larger socio-economic nexus and need to be aware of the responsibilities that it entails. We all must learn lessons from the current turmoil. Citizens and businesses rely on financial markets that work properly. Citizens need affordable home loans. They need secure pensions. Businesses need capital to expand. Markets must not turn around themselves. Financial markets must serve as a reliable engine for growth and jobs. As shown by the Social Reality Stocktaking carried out by the European Commission, European societies are changing. It is a multi-faceted process involving demographic changes and family life, deposition of women and men in the society, social and geographic mobility. New patterns of poverty and inequality are emerging, values are changing and societies are becoming increasingly multicultural. The challenge is to balance flexibility with better social protection in order to create environment capable to use best opportunities offered by the globalization. We are used to talking about globalisation in terms of global competition, the need to protect our social model against the risk of social dumping. That is a legitimate discussion. However, today's situation has acutely exposed the other side of globalisation: inter- dependence. Financial markets are global. So we need close cooperation internationally, not just in the short-term to deal with the current turmoil, but also to ensure that we have open and dynamic financial markets in the longer term. Financial markets that are subject to clear and effective rules to ensure transparency and prevent excessive risk taking. What is the role of the European Union in tackling the current challenges? We have a division of labour in the EU. All actors – the supervisory authorities at the Member State level, the European Central Bank and central banks of Member States, and the

Plenary Session, Iveta Šulca 1 International Conference NEW SO CIO-E CONOMIC CHALLENGES O F D E V E L O P M E N T I N E U R O P E 2 0 0 8 L a b o u r M a r k e t I s s u e s O c t o b e r 2 – 4 , 2 0 0 8 , R ī g a , U n i v e r s i t y o f L a t v i a

Commission as the enforcer of EU legislation – are playing their part. The Commission commends the supervisory authorities and the central banks for their action to ensure financial stability. Regarding the role of the European Commission as the enforcer of EU legislation in favour of stable financial markets, our Financial Services Action Plan, whose implementation is currently being finalised, integrates Europe's capital markets while placing a strong emphasis on transparency, prudential rules and tackling abusive behaviour. In addition to that and in response to the turmoil that began in summer 2007, the EU roadmap agreed by Finance Ministers last October aims to further improve transparency and disclosure and gives a high priority to international action. As part of the road map, the Commission has proposed modified rules on capital requirements, and similar proposals on credit rating agencies will follow. Swift implementation of the European Union's road map is a common commitment on which the Commission and the Presidency cooperate very closely. It is very important that the Council, European Parliament and the Commission make a common commitment to accelerate work on the necessary legislation included in the road map. Karl Marx might disagree, but markets are still the best way to organise an economy efficiently, so as to satisfy the needs of citizens and businesses. However, they will only work properly if they are subject to clear rules underpinned by ethical commitment. To sum it up, the response of the EU to the current challenges is not to reinvent the bicycle, but to focus on the very principles at the heart of European social model. Socially responsible market economy, characterised by clear rules and ethical commitment are the best way to preserve confidence in the market. The Commission is working with all other actors to ensure financial stability, to contain inflation, put Europe back on the growth path, and to learn lessons for the future. This is a difficult situation. But Europe's economies are more resilient than in the past and through the concerted action of all we can weather the storm.

2 Plenary Session, Iveta Šulca