Politics and Policy Making in The Eur

KA-30-09-619-EN-C
Politics and Policy-Making in the EU

in the Age of Globalisation
Conference organised by the
Bureau of European Policy Advisers of the European Commission
15 December 2008
Bibliothèque Solvay, Brussels
ISBN 978-92-79-11632-2
9 789279 116322 EUROPEAN COMMISSION

Cover photo: © Vaso European Commission
Politics and Policy-Making in the EU in the Age of Globalisation
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2009 — 44 pp. — 17,6 x 25 cm
ISBN 978-92-79-11632-2
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15 December 2008
Stefano Bertozzi, Martin Larch and Myriam Sochacki (editors)
Politics and Policy-Making in the EU in the Age of Globalisation 1

About the Bureau of European Policy Advisers (BEPA)
The mission of the Bureau of European Policy Advisers (BEPA) is to provide timely, informed, policy and
political advice to the President of the Commission and its Services on issues relevant to the President’s agenda
and the future of policies in the Union.
Due to its special position, working directly to the President, BEPA can lead inter-service groups on specific
policy issues and participates in horizontal work within the Commission. In order to achieve its mission, BEPA
aims to produce research and policy analysis up to high professional standards. It is on the basis of this strong
conceptual and empirical work that BEPA contributes to effective communication not only within the Commis-
sion and the EU Institutions but also with academia, markets and the public in general.
BEPA’s activity is complementary to that of other Commission Services since it concentrates on the early (strate-
gic) stage of the policy cycle, thereby contributing to shaping policy options in the medium and long run. BEPA
interacts with academia, research institutes and, in general, outside professionals in order to ensure that in mak-
ing policy the President and, through him, the Commission are informed by the best analysis available.
A BEPA Policy Advisers’ Conference
Bibliothèque Solvay, Brussels, Belgium, 15 December 2008
Editors
Stefano Bertozzi, Martin Larch and Myriam Sochacki

DISCLAIMER
On 15 December 2008 BEPA organised in Brussels, at the Bibliothèque Solvay, the second
annual joint conference of the three specialised groups of external advisers in BEPA – Politi-
cal Analysis (GPA), Societal Policy Analysis (GSPA) and Economic Policy Analysis (GEPA)
– enlarged to include the EU Advisory Group on Energy and Climate Change and prominent
academics and representatives of Brussels-based think tanks. The conference was entitled
“Politics and Policy-Making in the EU in the Age of Globalisation”.
The opinions expressed in the proceedings of the BEPA Policy Advisers’ Conference are
solely those of the participants and do not necessarily reflect the views of the European
Commission.
Contents
Remarks by José Manuel BarrosO, President of the European Commission.............. 9
INtroduction………………………………………………………….......................................................... 11
Executive Summary……………………………………………………...................................................... 15
Chapter One: jobs………………................................................................................................................... 17
Chapter Two: migration………………………....................................................................................... 23
Chapter Three: energy / environment………………………………….......................................... 31
chapter four: concluding session………………………………………………............................ 37
Programme................................................................................................................................................................... 41
List of Participants................................................................................................................................................... 42
REMARKS BY JOSE MANUEL BARROSO
PRESIDENT OF THE EUROPEAN COMMISSION
Thanks to the December European Council, we have created the right conditions to
push forward an agenda for globalisation where Europe will take a very important lead-
ing position. We now need to reach out to others in a spirit of partnership, in particular
the United States, if we are to achieve common solutions to the problems we share.
I am particularly satisfied with the agreement we achieved on the energy and climate
change package. Ever since Hampton Court, when we decided to make climate change
and energy a top priority for our political agenda, we have been working hard on
this. Now, we have reached a unanimous agreement on what was probably one of
the most difficult packages ever presented in the European integration process. It is a
particularly complex package because it links finance, science and politics – never an
easy mix. Clearly a lot remains to be done, but without this agreement we would not
have been able to proceed. Indeed, it was a better result than one could have expected
some months ago, particularly with the financial and economic crisis hitting us hard.
And for those who say that it is too modest, I can only ask: compared to what? I am
convinced that this is the best possible package we could achieve at this time. It also
provides a solid foundation for the future. It puts us on the right track for Copenhagen
in 2009.
We also agreed a general framework for the economic recovery of Europe. It is quite
difficult to establish a plan for 27 countries, some of them in the euro area, others not,
some with growth exceeding 4%, some in recession, and some with IMF programmes
to support their balance of payments. It is a major tour de force to bring some coher-
ence to what has to be by nature a very differentiated approach, with some common
principles but very different national circumstances.
From the beginning it was not easy from a political point of view to build acceptance
even of the idea of a European response, let alone the need for the European response
to be coordinated and agreement reached on its dimensions. But we succeeded. I be-
lieve that more efforts will have to be made in the year to come, but for the time being
I welcome what in the present cicumstances is a credible and realistic agreement. Our
plan is to combine a short-term response with medium-term investments that allow
structural reforms. This would lay the foundations for lasting prosperity in Europe,
making it more competitive and resilient in the age of globalisation. Flanking this are
measures to reduce the human cost of the crisis. This is also, more than ever, a time for
social action.
The challenge is how to implement this plan without putting at risk medium to long-
term stability and sustainability. As we are living in exceptional circumstances, ex-
ceptional measures are warranted, but it is important that they remain temporary. We
have been resisting strong pressures to simply suspend the stability and growth pact,
and the internal market rules, and I remain concerned by the possibility of a return to
protectionism. The role of the Commission is to defend the integrity of the internal
market, which has done so much to provide jobs and growth for all Member States.

One thing that this crisis has shown is that we are more interdependent than ever,
financially and economically. That is the reason why we need to make a global effort
to find solutions. That global effort started at the G20 meeting in Washington. I per-
sonnally believe that, with some adaptations, the G20 can become a major forum for
addressing the issue of global governance.
The global level was at the core of the European Council discussions. It is important
now to apply pressure where it should be applied. We need others to move forward.
We need a common response to climate change, to economic and energy matters, to
development aid and to global governance. We need to have the United States on board,
and it is already moving closer to Europe on climate change. We need to work together
with the Americans and with others for a coordinated response globally. This is what
was agreed in the G20.
We should not underestimate what we Europeans have achieved so far. We should not
fall into the trap of pessimism. A large part of today’s problem is about a lack of confi-
dence, a lack of trust. It is important to be honest, to look at the situation as it is, at the
challenges ahead but also at what has been done so far. The results of the December
European Council have shown that we have reason to be confident in Europe’s capacity
to respond to difficult challenges.
10
INTRODUCTION
On 15 December 2008 the Bureau of European Policy

Advisers (BEPA) organised in Brussels, at the Bibli-
othèque Solvay, a joint conference of the three spe-
cialised groups of external advisers in BEPA – Political
Analysis (GPA), Societal Policy Analysis (GSPA) and
Economic Policy Analysis (GEPA) – enlarged to in-
clude the EU Advisory Group on Energy and Climate
Change and prominent academics and representatives
of Brussels-based think tanks. This Conference was en-
titled “Politics and Policy-Making in the EU in the Age
of Globalisation.”
The EU is confronted with new and evolving challenges

(e.g. increased competition from emerging economies,
international financial turbulence, energy / climate
nexus) which are in the forefront of the public debate and whose implications are not
yet fully apparent or understood. The EU is equally faced with new opportunities that
it must seize (e.g. economic opportunities stemming from emerging markets and also
from the European response to the challenge of climate change).
The future of the European project will ultimately depend on the EU’s ability to flour-
ish in an ever-changing world by adapting and/or upgrading its policy tools - including
governance – while continuing to be a fully committed partner in globalisation itself.
The support of the EU’s citizens for the European project is more crucial than ever for
the future. It is not enough to say that we are better off together than separately and ex-
plain that as a Union we represent a critical mass that counts on the international stage.
The EU has to demonstrate to its citizens how it intends to adapt to a demanding global
environment whilst at the same time respecting its core values.
To underline the ultimate objective of EU policy-making, the work of the participants

in the BEPA joint conference focused on three areas/concerns that figure prominently
both in the minds of EU citizens and in the public debate.
ß Jobs: In the 1990s, thanks to a series of labour reforms, the high rates of unemploy-
ment in the EU started to fall, but they have been climbing again more recently. The
new rise in unemployment is increasingly linked to the effect of new types of economic
shocks, notably rapid technological change and mounting competition from emerging
economies. Globalisation, meaning the increasing internationalisation of economic re-
lationships, has become a particularly burning issue, especially with EU citizens, who
perceive the ‘European social’ model as becoming increasingly vulnerable.
ß Migration: Making a success of migration management will certainly not be easy, as

international migration has grown in scope and complexity, and has a serious impact
on the EU and its Member States. The EU therefore needs to take action to respond to
the opportunities and the challenges thrown up by international migration. Effective
migration management means that this phenomenon has to be understood and ac-
companied by a comprehensive set of measures. The underlying rationale for Europe
should be that immigration is an inescapable fact of today’s world, not a threat. For

example, as part of Europe’s Global Approach, managing migration means developing
the right tools to cope with regular migration flows, to clamp down on criminal gangs
engaged in human smuggling, to cultivate dialogue and close cooperation with third
countries, and to make regular entry easier for bona fide travellers, including students,
business persons and government officials, at Europe’s external borders.
ß Energy/environment: The EU has adopted an ambitious and forward-looking po-

litical agenda to achieve its core energy objectives of sustainability, competitiveness
and security of supply, by reducing greenhouse gas emissions by 20%, increasing the
share of renewables in energy consumption to 20% and improving energy efficiency by
20%, all of it by 2020. This agenda means a very substantial change in Europe’s energy
system over the coming years, with public authorities, energy regulators, infrastructure
operators, the energy industry and citizens all actively involved. It means choices and
investments during a time of much change in global energy markets and international
relations. EU countries must support each other in facing these tough challenges and
work together in pushing for change internationally. Thus strategies to share and spread
risk, and to make the best use of the combined weight of the EU in world affairs can be
more effective than dispersed national actions.
All these topics fitted very well with the December European Council of 11-12 Decem-
ber. The President of the European Commission, José Manuel Barroso, presented his
assessment of its main outcomes to the BEPA conference participants.
12
EXECUTIVE SUMMARY
The BEPA Policy Advisers’ conference allowed for lively and interesting debates, which
helped to identify some key topics that seem to be of great concern to people.
In the first session on jobs, Guiseppe Bertola, Professor at the University of Turin, made
a very telling point. He asked the question “Why do we care about jobs?”, and he an-
swered “We care about jobs because we care about people.” This observation is particu-
larly important in the current situation because of the global crisis and the attendant
significant increase in unemployment, which will necessarily have important social and
political consequences that are relevant for the context in which structural reforms may
or may not be enacted.
The second strong topic which emerged from this first session was the interaction be-
tween globalisation and our European social models. The TINA concept – There Is No
Alternative – was put forward, and questions were raised about whether the TINA ap-
proach is something which has political and social viability.
On migration, the discussion introduced by Demetri Papademetriou, President of the

Migration Policy Institute in Washington D.C., led to the identification of three issues.
The first is that when you look at the empirical evidence reported in the literature it is
very hard to document detrimental effects from migration on segments of our popula-
tion. And yet the perception of migration is quite different, and it is often perceived as
a threat. Thus, there is a gap of communication, and political leadership is particularly
important in this regard.
The second factor is that the impact of migration is very heterogeneous across the seg-
ments of our population and across the segments of the population of migrants as well.
So the distributional effects of migration policies are not trivial at all; there are always
losers and winners. Those distributional effects should not be hidden by a focus on ag-
gregate results.
Finally, the external dimension of our migration policies was discussed with particular
reference to the EU’s neighbouring countries.
One crucial theme identified in the session on energy and the environment presented
by Claude Mandil, former Executive Director of the International Energy Agency, was
the importance of investment. We need sizeable investments to modernise our energy
infrastructure in the areas of production, transmission and distribution. This calls for
security and stability of the regulatory framework. Another challenge is the difficulty in
providing clear signals on the evolution of prices, for carbon for example. In addition,
investments are certainly being made more problematic by the current situation, where
the availability of financing is being squeezed.
The last subject discussed was the external dimension of the EU’s energy and climate
change package. The approval of this package by the December European Council was
saluted as a very important signal from Europe to the rest of the world. The expression
“to lead by example” was used. However, there are still a lot of challenges ahead having
to do with the participation of our external partners, in particular the United States and
the emerging economies. Our approach to energy and climate change can be truly ef-
fective only with the involvement of our external partners. This is the key to success.

President Barroso, in his address to the conference, talked about the main issues raised
at the December European Council - namely the energy and climate change package,
the European economic recovery plan and the global effort. He stressed that in the cur-
rent circumstances the main outcomes, which emerged from a series of delicate com-
promises among 27 countries in a very demanding and testing global environment,
are credible and realistic achievements. He emphasised that a positive momentum has
been created for the future. Now, we have the conditions to push forward an agenda for
globalisation where Europe will take an important leading position.
Vítor Gaspar
Bureau of European Policy Advisers
16
Chapter One
1 JOBS
Presentation
Guiseppe Bertola
Professor, University of Turin
Discussants
Helen Wallace
Professor, London School of Economics;
Member of the Group of Political Analysis (GPA)
Klaus F. Zimmermann
President, DIW, Berlin; Professor of economics,
University of Bonn; Member of the Group of Societal
Policy Analysis (GSPA)
The session on jobs started with a presentation by Giuseppe Bertola, Profes-
sor at the University of Turin and renowned labour market expert. His talk
centred on the linkages between increasing economic internationalisation on
the one hand and labour market developments on the other. The broader
context of Bertola’s presentation was the ongoing debate about the pros and
cons of economic globalisation from an employment point of view. In recent
years the arguments for and against globalisation have received increasing at-
tention in the public domain where the views of its opponents seem to over-
lap with the fears and preoccupations of a growing number of EU citizens for
whom globalisation is seen to carry more risks than opportunities.
In the main, Bertola’s presentation tried to dispel such concerns, not least
by showing that economic integration in the EU goes hand in hand with
better labour market performance. However, he also made the point that
economic integration makes it harder for national policy-makers to imple-
ment certain labour market policies that favour protection over economic
efficiency. Moreover, his empirical work suggests that EMU was associated
with somewhat higher personal income inequality.
Bertola’s talk was organised in three parts. The first part briefly reviewed the main in-
sights and predictions of economic theory concerning the impact of economic integra-
tion on employment and labour market policies. The second part examined in detail
the empirical evidence on labour market developments in the Economic and Monetary
Union (EMU). The third and final part looked at implications for labour market poli-
cies.
Economic integration and labour market policies: What does theory say?
In the first part of his talk Bertola outlined a few basic ideas underlying labour market
policies. He reflected that labour market policies were essentially designed to reduce
risks to labour income, in particular risks arising from unemployment, for which pri-
vate markets do not/cannot supply insurance. At the same time, he pointed out that
while government policies were able to reduce income risks, for instance by introduc-
ing unemployment benefits or employment protection legislation (EPL), such policies
had an economic cost as they impact on the overall efficiency of the economic system.
In plain terms, economic theory has it that workers will not work as hard to avoid job
loss and to find new jobs when the possibility of laying off people is limited by law or
when unemployment benefits are high. As a result, unemployment will be higher, the
reallocation of labour towards more productive activities reduced and overall produc-
tivity and profitability lower.
Turning to international economic integration, such as within EMU as well as globali-

sation in general, Bertola highlighted the fact that it was generally expected to have a
positive impact on economic activity. More trade and higher factor mobility improve
economic efficiency and should ultimately be beneficial for the overall level of eco-
nomic activity and in turn for employment.
However, as regards labour market policies Bertola also underlined the potential price
to be paid for economic integration, notably that more trade and higher factor mobil-
ity go hand in hand with increased sensitivity of employment to changes in the cost of
labour, including policy-induced changes. Stronger competition and higher mobility
of capital increase the responsiveness with which firms react to changes in prices. In
18
other words, economic integration makes labour market policies and regulations more
costly and less effective. A given policy intervention such as unemployment benefits or
tight EPL is likely to have a larger negative impact on employment and a lower impact
on the actual distribution of income when economic integration is high. One possible
implication of such higher economic costs of labour market policies is that stronger in-
ternationalisation of economic activities may prompt or at least favour a reform process
aimed at removing ‘bad’ policies and overhauling labour market institutions.
Economic integration and labour market policies: What has changed

in EMU?
In the second part of his presentation, Bertola tried to establish whether economic in-
tegration had actually produced the results predicted by economic theory. In particular,
he addressed the following two questions: (i) Have labour market policies/regulation
produced more pronounced side effects with increasing economic integration in EMU?
and (ii) given such side effects, have they been conducive to labour market reforms?
The empirical strategy followed by Bertola was to compare the performance of EMU
countries with those EU Member States that do not take part in the full process of eco-
nomic and monetary integration in Europe.
As regards the first question Bertola provided supportive evidence. The theoretical in-
sight according to which labour market policies are more costly with stronger eco-
nomic integration is corroborated by the data. More specifically, Bertola showed that a
given tax wedge or a given degree of EPL is associated with higher unemployment or
lower employment in EMU compared to non-EMU countries.
Turning to the second question, Bertola’s findings were also supportive of the predic-
tions of economic theory. Available data show that both tax rates and EPL appear to
have declined in EMU vis-à-vis non-EMU countries suggesting that, confronted with
the implications of economic integration, policy-makers in EMU countries engage in
a deregulation process to avoid worse disemployment in more tightly integrated mar-
kets.
As a final point, Bertola also examined the trade-offs between labour market perform-
ance and income inequality. His findings suggest that less rigid labour markets and
lower rates of unemployment in EMU come at the expense of somewhat higher income
inequality.
Economic integration and labour market policies: what are the policy
implications?
Taken together the individual pieces of empirical evidence presented by Bertola gave
rise to two important policy issues. First, while economic integration in EMU seems to
have led to improved performance of labour markets via increasing flexibility of insti-
tutional arrangements, it also seems to have been accompanied by negative effects in
terms of income distribution. In order to make this package sustainable over the long
term, economic gains need to be distributed across the electorate. According to Ber-
tola, one useful way to achieve long-term sustainability would be to further financial
market integration, a process which is generally thought to help households smooth
consumption in the face of higher labour income inequality or volatility. In particular,
Bertola argued that welfare policies aimed at addressing welfare implications of income

volatility are less necessary when private financial and insurance markets are accessible
and efficient. In this context he also stressed that financial exclusion is increasingly
recognised as an important dimension of poverty.
The second key policy issue touched upon by Bertola referred to the benefits and
risks of cross-country coordination of labour market policies in economically in-
tegrated systems of states. He argued that while, generally speaking, uncoordinated
labour market and welfare policies were inconsistent with economic integration, like
uncoordinated macroeconomic policies are inconsistent with a single currency, full
harmonisation was also problematic because of significant cross-country differences
which may require specific responses. To the extent that progressive economic inte-
gration continued to be accompanied by lighter regulation and labour market poli-
cies, the problem of non-coordination of national policies would become less of a
burden. However, if national labour market and welfare policies were to remain a
national prerogative insuring across-country consistency will continue to be an im-
portant challenge.
Bertola also briefly touched upon the implications of the current financial and eco-
nomic crisis for labour market developments and policies. He stressed that measures
taken during particularly difficult times were generally not meant to be a framework
for the medium to long term but were intended to fill a gap. Specifically, he argued that
in the short term policies would need to pay more attention to the distributive effects of
the crisis in order to preserve the perception that, after all, the sharing of income flows
in the labour market is broadly fair. If this perception was not safeguarded the crisis
carried the risk of undermining some fundamental elements of economic integration
in EMU and might even bring the whole project into question.
The first invited discussant of Bertola’s presentation was Helen Wallace, Professor of
political sciences at the European Institute of the London School of Eco-
nomics. Her questions and remarks focused on the possible impact of
the current financial and economic crisis on labour market developments
and policies in the EU. As a first and most straightforward point, she
wondered about the likely overall impact of the crisis on jobs in the EU.
She felt that although Bertola had briefly referred to the crisis, people
may, given the gravity of the current economic situation, be particularly
interested in understanding how many jobs may actually be lost during
the ongoing economic downturn.
As regards policy options, Wallace pointed out that there were clear lim-
its at the EU level. She recalled that while there were EU instruments with an impact on
employment, labour market policies as such remained a national prerogative.
She went on to say that rising unemployment and job insecurity could have implica-
tions for one of the fundamental freedoms on which the single market project was
built, namely labour mobility. She thought that the perception of labour mobility both
from outside and within the EU may become increasingly negative. Linked to this pos-
sible mood shift, Wallace also raised the question of how voters would react to the cur-
rent economic recession and rising unemployment more generally. She felt that, while
in the past the EU had generally been associated with economic growth, the current
crisis could potentially bring about a more radical change in perceptions of the EU, es-
pecially if on top of the economic hardship people were to conclude that, as suggested
by Bertola’s research, EMU meant more income inequality.
20
The second invited discussant of Bertola’s presentation was Klaus F. Zim-
mermann, President of the economic think thank DIW in Berlin and
professor of economics at the University of Bonn. As an introduction to
his comments he briefly went back in time recalling that deep concerns
were put forward in the years preceding the inception of EMU, when
many economists actually predicted that the project would fail because
in a monetary union in the event of economic shocks an excessive ad-
justment burden would be put on the labour market, thereby under-
mining political support. In Zimmermann’s view, Bertola’s paper was
part of the relatively large body of evidence showing that such concerns
were exaggerated, but that EMU also had its costs.
Overall, Zimmermann concurred with the analytical structure of Bertola’s work, which
highlighted the trade-offs between economic integration and the effectiveness of la-
bour market policies. However, he felt that some degree of caution was in order when
drawing conclusions from the empirical work as it was based on relatively short time
series (1995-2005). Along similar lines, Zimmermann also argued that (i) the aggregate
indicators of labour market policy used by Bertola may not sufficiently capture actual
differences across countries and (ii) on top of taxes, EPL and unemployment benefits
there were other instruments such as active labour market policies that impact on the
performance of national labour markets.
On substance, Zimmermann argued that more attention should be paid to mobility of

labour or migration in the context of EMU. In this context, he pointed out that while
labour mobility was considered to be one of the key ingredients of a well-functioning
monetary union (in the case of idiosyncratic shocks labour mobility would be an im-
portant part of the necessary adjustment) little progress had been made on that front
in practice. He stressed that a number of elements, notably higher house-ownership,
persistent barriers to the transferability of pension rights and higher female participa-
tion, had actually hindered or even reduced labour mobility. He also pointed out that
while EU enlargement had led to stronger cross-border labour flows, there was a feeling
that these would only be temporary. Consequently, Zimmermann identified the need
to focus on policies that would foster labour mobility.
The general discussion revolved around three major topics. The first
group of interventions related to the link between economic integra-
tion in EMU and labour market reforms.
The view was expressed that associating EMU with an acceleration of

labour market reforms on the basis of a few aggregate indicators of la-
bour market institutions may be misleading. Rather, EMU was con-
sidered to have been accompanied by reform fatigue rather than more
reforms. However, this view was found not to be consistent with exist-
ing work, especially with a recent study by Alberto Alesina who had
shown, surprisingly, that reform efforts had indeed increased with eco-
nomic integration in the EU.
As regards causality, doubts were raised about whether more reforms had been trig-
gered by economic integration in EMU or whether they reflected other processes such
as globalisation in general or the fact that at the beginning of the integration process
EMU countries had a backlog of reforms compared to the non-EMU countries. On this
point Bertola admitted that his analysis was partial in the sense that it did not cover all
possible concomitant events and factors that may have an impact on economic reforms.

However, he was relatively comfortable with the conclusion that EMU was
one important factor.
The second group of interventions had to do with Bertola’s finding whereby

from a cross-country perspective unemployment and income inequality
seem to be positively correlated. A number of participants found this re-
sult somewhat puzzling and wondered about the underlying causes. Bertola
reasoned that if unemployment benefits were sufficiently generous (higher
than the wages to be earned in the market) the income situation across in-
dividuals could improve in cyclical downturns when the number of unem-
ployed usually increases. An alternative explanation provided by one of the
participants related to the behaviour of personal income in the financial sector across
the cycle: it tends to rise particularly sharply during booms and hence may contribute
to higher personal income inequality, while it drops very sharply during downturns.
Another point made in the discussion in relation to the increase in income inequal-
ity in EMU was to argue that it may also be explained by technological change rather
than by more flexible labour markets. However, while technological change may indeed
contribute to a less equal distribution of personal income, Bertola excluded the possi-
bility that technological change may be the main explanation for the increase in income
inequality in the EMU period because in that case one should have observed significant
increases in productivity like in the US, which was not the case.
A third group of remarks and questions was centred on Bertola’s policy implications,
notably that more labour market flexibility coupled with more financial integration
would be necessary to cope with the increasing degree of economic integration. A
number of participants felt that such a “US-like” recipe would not find the necessary
consensus in continental Europe. While Bertola acknowledged that the policy message
was not particularly palatable for EU tastes, he argued that such concerns would not
invalidate the actual necessity of stepping up the reform process in the labour market,
unless one were to give up or reverse the process of economic integration.
A final set of remarks and comments was about the possibility that migration had the
potential to inject additional degrees of flexibility into EU labour markets and that this
additional flexibility could help address the requirements of progressively intensify-
ing economic integration. A number of participants pointed to country-specific cases,
notably the UK and Spain, suggesting that migration could indeed improve the work-
ing of labour markets. Bertola admitted that his analysis did not allow for the impact
and effects of migration and did not exclude the possibility that in the recent past the
inflow of migrants had helped to fill gaps in EU labour markets. However, he felt that
the actual litmus test concerning the degree of flexibility provided by migration would
be to see whether immigrants return to their countries of origin during downturns. He
thought that only the coming years would tell.
22
Chapter Two
2 migration
Presentation
Demetri Papademetriou
President of the Migration Policy Institute,
Washington, D.C.
Discussants
Rainer Münz
Head of Research & Development, Erste Bank, Vienna;
Senior Fellow, Hamburg Institute of International
Economics
Juan Dolado
Universidad Carlos III, Madrid University; Member
of the Group of Economic Policy Analysis (GEPA)
Demetri Papademetriou, President of the Migration Policy
Institute in Washington, DC, began his remarks by saying
that, in the last two decades, capital and the market for
goods, services and workers of many types had weaved an
ever more intricate web of global economic and, in many
ways, social interdependence. As a result, governments
and public alike across the globe had begun to re-examine
some of globalisation’s tenets and look more carefully at
its effects. He contended that international migration was
a by-product of the globalisation process and one of this
century’s unavoidable issues, as more countries were now significant players in the in-
ternational migration system than at any time in history. He pointed out that the abso-
lute size of international migration had grown significantly in the last few decades but
that this had not been disproportionate to the growth of the world’s population. For
example, nearly 30 million people who are now counted in the UN population statistics
as immigrants had never moved - borders had moved around them as the Soviet Union
had given way to the Commonwealth of Independent States, - and the 170 million or so
remaining immigrants today made up about 2.5 percent of a world population of about
6.7 billion. Mr Papademetriou made it clear that this proportion was only slightly larger
than the approximately 2.3 percent of the world’s population that had been counted as
immigrants by the UN throughout most of the last 40 years.
Turning to the immigrant density in the thirty OECD countries, he said that the pro-
portion of foreign-born in the population had nearly doubled, from about 4.5 per-
cent to 8.3 percent of the population. As a result, OECD countries now accounted for
60 percent of all the world’s immigrants, a share of the total that had grown substan-
tially over the course of the past fifteen years. He added that nearly half of that total
was intra-OECD country migration, with two very large exceptions (emigration from
Mexico and Turkey), and that the UN and OECD statistics referred to the immigrant
stock and thus did not typically account for the much more dynamic migrant flows.
These flows included large and growing numbers of desirable migrants, such as stu-
dents and business persons, but also a very large proportion (the largest plurality in
the overall cohort) of unauthorised migrants. Mr Papademetriou felt that the volume
and density of migration, large as they were, were not at the root of the discomfort with
which most immigrant-receiving countries now viewed immigration. Spain, Ireland,
the United Kingdom, Greece, Russia (which now had more immigrants in its midst
than any other country bar the US),and South Africa were the countries that had expe-
rienced substantial influxes of migrants. Similarly, the ranks of significant emigration
countries had been growing briskly, as had those of migrant-transit countries, while
a growing number of countries had simultaneously become immigration, emigration
and transit countries.
Furthermore, unlike migration for most of the last century, one of the defining features
of today’s flows was that large numbers of those who moved - and the majority of those
who had moved outside of legal channels - had come from countries of vast social,
cultural and often racial “distances” from the countries they had entered. He felt that
religious distance often seemed to take “pride of place” among these differences. These
realities increased the “visibility” and “other-ness” of newcomers, which in turn fuelled
the discomfort of host populations and their reactions to these newcomers.
Mr Papademetriou then turned to the governance challenges thrown down by inter-

national migration movements. He said that, at the beginning of the recent large-scale
24
migration process, some European countries, most notably Germany, had decided to
“deny” the permanence of immigration and its embedment in the host society’s life -
thus losing valuable time in the essential effort of having immigrants and their progeny
become members of German society. Others had chosen alternative policy options,
including: (a) the officially “welcoming” but nonetheless isolating and marginalising in
their effect Dutch and some Nordic models for most of the last thirty or so years, (b)
the French model of “splendid neglect,” and (c) the “racial equality” model the British
had instituted since the 1970s. Countries with much less experience in migration, such
as those in Southern and Eastern Europe, had understandably struggled even more
without the full legal and administrative framework required to even begin to manage
their part of the immigration system and commence the long and difficult process of
immigrant integration. He added that the crux of the formidable challenge posed by
international migration was “no less daunting than adjusting, even rethinking, accom-
modations each society had reached, often after decades and centuries of upheavals, on
how societal goods, and particularly social and political power, were allocated”. Success
in this deeply delicate task promised political and economic gains through migration’s
dynamism and potential for contributing to the host country’s growth and prosper-
ity, especially at a time when demographics made such contributions nothing short
of essential. Failure ran the risk of social unrest and political instability. Failure also
missed out on the opportunity of improving the immigrant’s, and his or her family’s,
circumstances and, through social, political and economic remittances, the lot of their
households and communities in the country of origin.
Mr Papademetriou went on to say that there was an urgent need to encourage govern-
ments to work closely with civil society and to find ways of gaining better control over
the integration process and thus produce better policy outcomes for host countries
and migrants alike. He felt that the “migration process” was neither “selective” nor oth-
erwise “truly regulated”. Family and asylum immigration were obvious examples of
that. He suggested that one policy avenue was to introduce immigration schemes that
responded responsibly to economic needs and built up a country’s human capital infra-
structure in economic sectors that fuelled growth and prosperity. Another was to invest
in making existing immigrants more economically self-sufficient through initiatives
in education, training and reform of social welfare policies. Both should be pursued
diligently, he argued, in the interest of altering the image of immigration that tends to
prevail in rich societies by demonstrating to the public that immigrants as a group are
law-abiding and respectful of their hosts’ values. He contended that gaining control of
international migration also called for specific tools to reduce illegal immigration flows
and to maintain a sense of proportion in how to regulate legal immigration flows. In
other words, poorly regulated and illegal migration, in addition to unsettling the re-
ceiving communities and the broader public, also severely hampered the ability of im-
migrants to get the highest returns on their investment in migration. As a consequence,
the ultimate policy goal was “creating political space for managing an orderly, smartly
and flexibly regulated flow of legal immigrants whose contributions to the economy
and society were higher in large part because the process was successfully regulated”.
Looking ahead, Mr Papademetriou said that the international community was now
aware of the main triggers and drivers of international migration and thus a “migration
forecast” could be prepared on the basis of this knowledge. However, this knowledge
could prove insufficient, as four imponderable factors could thwart any effort to get
this forecast right: (a) illegality - pressure from unauthorised migration was likely to
remain strong in the years ahead and managing it would continue to be a major con-
cern for governments; (b) the socio-cultural reaction to migration, especially in the

face of policy ineptness (irresponsibility might be a more appropriate term) in opening
the immigration valve; (c) security (terrorism); and (d) the effects of the deepening
global recession. He contended that host societies must resist the temptation to retreat
in the face of immigration’s challenges and retrench behind increasingly restrictive,
and ultimately undemocratic, controls. At the same time, he noted, advanced industrial
societies could not simply exhort migrants “to stay at home” without a serious commit-
ment to a long-term and costly endeavour to improve conditions there. Migration had
tied sending, transit and receiving countries as well as immigrants, their families and
their employers into increasingly complex systems of interdependence. This called for
increased cooperation of virtually all these stakeholders – combined with smart policy
decisions, thoughtful regulation and sustained enforcement – to make real progress
and limit the effects of migration’s challenges enough to draw on even more of its ben-
efits. Mr Papademetriou added that managing migration also meant securing coopera-
tion across government agencies and levels of government within a single state, across
competencies across states, and between governmental and non-governmental sectors
within and across state actors. He concluded by saying that governments should make
changes in the ways they managed migration, so as to balance the legitimate interests of
the host societies and migrants and enable all stakeholders in the “migration equation”
to reap the benefits.
Rainer Münz, Head of Research & Development at Erste Bank in Vienna and Senior Fel-
low at the Hamburg Institute of International Economics, started
his presentation by saying that the share of migrants as a percent-
age of world population might not have increased much over the
last fifty years. The growth in world population, however, had
been “impressive” in absolute terms, and the same was true of the
growth in the number of international migrants: from 75 million
in 1950 to almost 200 million today. He added that in the 1950s
many migrants were the result of the partition of former colonial
empires and the creation of new nation states (e.g. India/Pakistan;
Israel/Palestine). Therefore the majority of them used to live in the
less developed parts of the world.
Today, there were four major poles of attraction for migrants: (a)
the United States of America and Canada; (b) the European Union and associate coun-
tries such as Norway and Switzerland; (c) the Russian Federation with over sixteen mil-
lion migrants on its territory; and (d) the Gulf States, which had “commodity-driven”
migration. These four poles represented 60 percent of the world’s migrants or some
200 million people. He went on to say that in the 1960s Europe still had had more emi-
gration than immigration, which was common for Europe since the 18th century. Only
since the 1970s had the European Union (in its present-day boundaries) experienced
more immigration than emigration – a positive balance which had grown in size. For
example, he said that in the mid-1990s net migration to Europe accounted for 500 000
migrants a year, while in the 2000s the net flow of migrants (immigration minus emi-
gration) had already reached 1.5 to 2 million annually. This inflow of migrants, com-
ing on top of intra-EU mobility, accounted for between 80 and 90 percent of Europe’s
population growth. This was a specific feature of Europe, as more than half of US popu-
lation growth was still due to “birth surplus”. He underlined that in today’s EU with
500 million inhabitants, some forty-three million people did not live in their country
of birth: 14 million of them were intra-EU migrants, many of whom had taken up
residence within the European Union before their countries –became members, nine
million came from countries bordering the EU such as the Western Balkans, Moldova,
26
Ukraine and Turkey, and some 20 million were from Africa, Asia and Latin America.
He then highlighted the main demographic challenges Europe would face in the future,
notably an ageing and shrinking working-age population. He wondered to what ex-
tent migration could address this issue and how a smaller young European generation
would cope with the problem of a rapidly ageing population.
He then pictured a benchmark scenario with an additional 30 million migrants working

in Europe in the coming 40 years, assuming that Europe’s labour market participation
would remain unchanged. He warned that even under such circumstances, Europe’s
work force would shrink by some 42 million people. Obviously, without net migration
and with no change in labour market participation, the gap in the work force would
amount to around 72 million people. He then said that even if Europe’s governments
were to increase the pension age by 10 years and to allow 30 million more migrants to
live and work in Europe, the EU labour force gap would still be in the region of 12 mil-
lion people. This scenario would have a more limited impact on Europe’s labour force.
He contended that having an inflow of 72 million migrants to Europe in the coming
forty years to offset its shrinking working-age population was unrealistic and could
raise the spectre of social unrest and xenophobia. He made it clear that migration could
therefore be only a part of the solution to Europe’s shrinking workforce. He added that
Europe had neither the capacity to manage such a large inflow of migrants nor the at-
tractiveness, as Europe had a poor “integration infrastructure” for migrants and was
often unable to employ them according to their educational attainments – the so-called
“skill waste” phenomenon.
He harboured some doubts as to the feasibility of the Blue Card for highly skilled work-
ers, wondering why Europe intended to attract more skills when it could not even find
jobs that better reflected the work and education experience of those skilled migrants
who were already working in its Member States. He felt that the absence of a European
mechanism providing for formal recognition of university degrees and previous work
experience of migrants was a major obstacle to the integration of migrants in Europe’s
labour market. This was in fact the main reason why the contribution of migrants to
the socio-economic development of our continent had been limited thus far. In other
words, Europe had no “competitive offer on the table” for migrants. He concluded by
saying that, whilst from an economic and demographic point of view it was quite easy
to make a stronger case for more migrants in Europe’s labour market, our society and
part of our economic system were ill-equipped to cope with the formidable challenges
posed by international migration.
Juan Dolado, Professor of Economics at the University Carlos III in Madrid, began
his remarks by saying that the paper Mr Papademetriou
had prepared for this Conference gave a comprehensive
overview of the main challenges posed by international
migration, highlighted the main push and pull factors
behind migration movements and identified the ad-
vantages and disadvantages of different policy options.
However, he felt that his paper “lacked” specifics and
made it clear that he could not share some of the con-
clusions contained in the paper. He then recapitulated
the main historical phases of migration movements,
underlining that there were different categories of mi-
gration such as asylum, family reunification, labour,
temporary residence and settlement. He observed that,

while at the beginning of the twentieth century migration accounted for 6.6 percent of
the world population (1.5 billion people), in 2007 migrants accounted for 2.5 percent
of the world population (6.7 billion people).
Mr Dolado said that the main drivers of recent migration flows had been demographic
gaps, falling real interest rates which had favoured long-term investment, especially in
infrastructure and construction, and technological progress, as native workers tend to
stay away from menial and low-paid jobs. This had substantially increased the demand
for low-skilled and unskilled labour. He added that the major push factor had been the
demographic boom in less developed countries and this trend was set to continue as
the OECD proportion of the world population would shrink from 30 percent in 2008 to
15 percent in 2050, according to the latest demographic long-run estimates.
He then turned to the costs and benefits of migration for host countries, saying that for
employers the medium-term benefits of migration outweighed the costs. He stressed
that migration also entailed costs for the countries of origin, which largely depended on
migrants’ skills. He contended that Europe had attracted more low-skilled and unskilled
migrants because of its generous welfare state and its more egalitarian socio-economic
system, whereas the US was able to attract both low-skilled and highly skilled migrants.
He went on to say that migrants’ skills were better employed in the developed world and
remittances were the positive outcome of migration for the countries of origin, as re-
mittances accounted for more than official development aid. He thought that family re-
unification played a big part in determining the volume of remittances. With no family
reunification, he argued, remittances would tend to be higher, as migrants would send
a larger portion of their salaries to their families, thereby having a more positive impact
on the countries of origin. He therefore felt that circular migration should be promoted
in the future, as it increased the “human capital” of migrants, maintained a higher vol-
ume of remittances and minimised the adverse effect of the brain drain. Highly skilled
workers, for example, would eventually return to their countries of origin. He said he
had proposed to the Spanish Government that temporary work permits be introduced
along the lines of temporary visas, which already existed in the US (3 years + 2). Under
this scheme, migrants or their employers should pay a non-recoverable sum of €600,
which could obviously change from country to country, to cover the initial expenses
borne by the host country for healthcare coverage and education. In addition, migrants
or their employers should deposit around €2 000, which would be recovered just be-
fore migrants returned to their countries of origin. This sum roughly corresponded to
the amount of money that migrants had to pay for transport and initial costs once they
arrived in the host country. Mr Dolado remarked that this migration scheme should
be accompanied by more stringent application of existing family reunification rules to
avoid any reduction in the volume of remittances, and by education and labour market
reforms to improve the skills of migrants looking for jobs.
On the issue of undocumented migrants, he observed that he no longer believed in

national borders and that he could not put a figure on the number of irregular migrants
in Europe. Since it was impossible to return them all to their respective countries of
origin, he suggested three options: (1) offering an amnesty, which, although it could
have the adverse effect of attracting more undocumented migrants, could give irregular
migrants the possibility of finding a job in the host country. The host country, for ex-
ample, could give irregular migrants a period of six months during which they should
actively look for a job. If they found a job, their residence and work permits could
be extended for a period of two/three years; (2) securing more practical coordination
between Schengen member states; and (3) changing the tone of the media coverage,
28
which had devoted far too much attention to the problem of migrants entering Europe
in unseaworthy boats. He said that migration by sea made up only a small part of ir-
regular migration movements (in 2008, 4 000 irregular migrants had reached Spain by
boat, while some 630 000 had entered the country via Schengen airports). To give inte-
gration a better chance, he felt that EU Member States should reach out to third coun-
tries to conclude reciprocal agreements for electoral participation, as integration works
better if migrants can cast their votes in national elections, to eliminate any obstacles
for highly skilled migrants and to give access to public competition to enter national
civil services, including the police. Mr Dolado then touched upon possible reforms of
the EU's common agricultural policy and the work of the World Trade Organisation
and quoted Carlos Salinas de Gortari, former President of Mexico, at the time of the
negotiations on the NAFTA agreement: “[The] US government has to choose between
importing Mexican tomatoes or Mexican tomato pickers”. He concluded by quoting
from the book entitled “Dark Continent: Europe´s Twentieth Century” by Mark Ma-
zower: “As economic optimism (in Europe) evaporated in the early 1970s, immigrants
were transformed almost overnight from valued factors of production into a threat to
jobs, a drain on the welfare state and unwanted aliens.”
The general discussion was centred on the different challenges posed by internation-
al migration, ranging from the issues of governance, integration and labour market
barriers to the more socio-economic contributions of
migrants, especially with regard to their academic and
professional background, income disparities between
countries and the problem of recognition of university
degrees gained outside the European Union. Careful
consideration was also given to the issue of irregular mi-
gration and to ways of combating this growing phenom-
enon more effectively. Some participants felt that EU la-
bour markets had more of a shortage of unskilled labour
as a result of massive investment in the infrastructure
and construction sectors than of highly skilled labour,
for which it was difficult to find employment to match
their educational attainments because it was too hard
to have a university degree recognised in Europe. They
therefore questioned the underlying rationale of selective migration that facilitated the
entry of qualified labour at the expense of unskilled and low-skilled labour. Others
argued in favour of more qualified migration to Europe and wondered how national
governments and the EU could make labour markets more attractive for highly skilled
workers. They feared that Europe was ill-equipped to compete for talents, as other
parts of the world could offer better working conditions for highly skilled migrants and
their families. A final aspect of the discussion covered the issue of religion in migra-
tion flows, as migrants with a Muslim background have become more numerous than
migrants with other religious beliefs.

Chapter Three
3 energy / environment
Presentation
Claude Mandil
Former Executive Director of the International Energy
Agency; Member of the EU Advisory Group on Energy
and Climate Change
Discussants
Viriato Soromenho-Marques
Professor, Universidade de Lisboa, Portugal; Member of
the EU Advisory Group on Energy and Climate Change
John Llewellyn
Nomura; Member of the Group of Economic Policy
Analysis (GEPA)
The session on energy and environment was timely, with the European Council having
just reached an agreement on the EU energy/climate change package at its meeting of
11-12 December in Brussels. And on December 13, in Poznań, Poland, participants in
the UN climate change conference had agreed on a detailed work programme with a
commitment from governments to shift into full negotiating mood in the year to come
so as to ensure a positive outcome in Copenhagen in December 2009.
In her introduction to this session, Maria da Graça Carvalho, principal adviser at BEPA,
emphasised that Europe is the first key player to accept legally binding rules to reduce
greenhouse gas emissions. She argued that the final agreement reached by the Euro-
pean Council preserves the integrity of the 20.20.20 target put forward by the Com-
mission; that is by 2020 a reduction of greenhouse gas emissions by 20%, an increase
of the share of renewables in energy consumption to 20% and improvement of energy
efficiency by 20%. She pointed out that this carefully designed agreement is an impres-
sive example of EU cohesion and solidarity. It is also an example of how to conciliate
climate change and growth.
Indeed impressive things have been decided as Claude Mandil, former Execu-
tive Director of the International Energy Agency and presenter of this session
on energy/environment, acknowledged. However, he also stressed that a lot re-
mains to be done. He pointed out that a good energy policy has to achieve in a
balanced way the so-called 3Es: economic growth, environment protection and
energy security. He then assessed where Europe stands on these 3Es.
Regarding economic growth, Mandil said that bold steps had certainly been
taken since the decision twenty years ago to move towards an internal market
for energy – in particular for electricity – in order to improve economic growth.
We now have competition for supply, general third parties’ access to the grids,
and so-called unbundling. All this has been decided and is in the way of being
implemented. There is no other area in the world, maybe with the exception
of Australia, where such a global system of energy markets has been decided
so thoroughly. But we have to look at the reality. And the reality is that we do
not have a single market now. What we have is 27 liberalised markets. It is still
very difficult to trade gas and, even more so, electricity across borders and that
makes competition much less effective. There are many reasons for such a situa-
tion but the main one is national protectionism. There is no possibility so far to
have a single regulator in Europe. Each country has its own regulator. It is very
difficult to build cross-border, interconnected lines of electricity or gas. A lot
remains to be done to transform what we have achieved so far into one single market,
which would be a tremendous improvement for energy and for economic growth.
As for environment protection, the EU’s action should definitely be saluted. The EU
has decided to lead the way in the world, as shown by the decision to have a European
emissions trading scheme (ETS), for example. Initially this was a US idea but so far only
the EU has succeeded in implementing it on a large scale. The EU has also embraced
a very bold set of objectives with the 20.20.20 targets. Now the EU is asking the world
to follow its example. And indeed, stressed Claude Mandil, we need several leaders,
certainly one for the OECD countries and this could be the EU but also one for the
emerging economies. He expressed the hope that China would be ready to take on this
leading role for the emerging economies. That said, one may wonder whether the EU’s
actions will live up to the high expectations raised by its statements, and in particular by
its very ambitious targets. They are extremely demanding and, in Mandil’s view, public
opinion may not be prepared to accept the decisions needed to attain those targets. He
32
argued, for example, that public opinion is not fully aware that the ETS in itself does not
guarantee that the 20.20.20 target will be achieved. For that we need more than the ETS,
we probably also need a lot of detailed regulations such as limits for emissions of the car
industry, and not too many carbon allowances. Some of these decisions will definitely
not be easy to take as the targets set are really challenging.
The last E, energy security, is a topic that came much later on the EU’s agenda. Man-
dil considers that there is a paradox with energy security as Europe is faced with two
key requirements: investment and solidarity. As a whole the EU enjoys a quite accept-
able track record. The global situation in Europe is good: there are for the time being
enough investments and there is a very diversified set of suppliers even if Europeans
often complain about over-reliance on Russian gas. In fact, Russian gas accounts only
for 7% of Europe’s global energy supply and 25% of its gas supply. However, there are
two problems. First, in the future Europe will have to keep pace with the investment
requirements. Mandil is concerned that the current financial and economic crisis could
result in some key investments being delayed and create some difficulties in the near
future. Then one may ask whether it is legitimate to speak in terms of global average
figures. Mandil stressed that it is legitimate only if there is strong solidarity among
Member States. He agreed that at the December European Council, the compromise
reached by the Member States on the energy/climate change package is a good example
of European solidarity. Nevertheless, in the light of recent events, he is not convinced
that any country in the EU would be really prepared to channel energy to help another
EU country suffering from energy disruption for whatever reason. He pointed to the
fact that each time European leaders meet they do not miss the opportunity to under-
line the importance of speaking with one voice, which is a way of expressing solidarity.
But the following day, they go back to their own bilateral negotiations of their own
contracts and their own security framework with their suppliers.
Thus, the overall picture which emerged from Claude Mandil’s assessment of the state
of the 3Es at the European level is a mixed one. Many excellent decisions have been
taken. Many excellent words have been uttered. Many bold targets have been set. Glo-
bally, Europeans can be proud of the process they have launched. But a lot remains to
be done to ensure full implementation of what has been decided. And to go from words
to deeds is not going to be easy. One of the main difficulties highlighted by Claude
Mandil is related to the fact that public opinion does not have a good understanding
of what is at stake probably because it has not been properly explained. For example,
Mandil mentioned that it has not been easy to convince public opinion that market lib-
eralisation is good. The argument used by many politicians in almost all EU countries
was that prices would go down. But Mandil noted that they had gone up, as could have
been anticipated - when you liberalise you have to take the full cost of raw materials,
you have to suppress cross-subsidies, and more recently you have to phase in the need
for CO2 prices. Therefore a wrong argument was presented to the public. What should
have been said is that with market liberalisation you have a system which allows for
least cost options and best choices by any operator or any individual player. But now it
is difficult to put forward a different explanation than the one initially given.
Politicians at national and European levels have indeed a huge task ahead to better ex-
plain to their public what is at stake. In the current financial and economic crisis, they
also have to avoid two traps: delays in investments and increased nationalistic behav-
iour whereas it should be crystal clear that nationalism is not conducive to economic
growth, environment protection and security of supply.

The first invited discussant of Claude Mandil’s presentation was Viri-
ato Soromenho-Marques, professor at the University of Lisbon. He
picked three main concepts in Mandil’s presentation - the need for
investment, the need for solidarity and the communication gap be-
tween public opinion and political actors – and he addressed them
with three questions: (i) why is energy and climate change policy an
epistemological challenge? (ii) Is the EU really the leader in energy
and climate change policies? and (iii) what are the implications of the
EU’s energy and climate change policies in other EU policy areas?
On the first question, he argued that we live in relatively closed specialised and epis-
temological communities and sometimes we can be lost in the maze of specialisation.
Trans-disciplinarity is still more a matter of wishful thinking than reality. In that sense
when you bring together energy and climate change you are confronted with a real
challenge in terms of knowledge, as cross-fertilisation among different disciplines and
scientific communities is more than ever indispensable to better grasp the variety of
challenges and dangers ahead in this specific policy area and to put forward adequate
policy advice and responses.
Turning to the second question regarding EU leadership on energy and climate change,
Soromenho-Marques presented a nuanced answer. He agreed that the recent European
Council decision on the energy and climate change package set an example of Euro-
pean leadership. If one looks at this leadership issue in comparative terms, it cannot
be denied that the EU is the first global key player to have put forward goals as well
as a timetable and a methodology to achieve its goals on energy and climate change.
However, Soromenho-Marques considered that if leadership is measured in terms of
outcomes then the EU cannot be viewed as the leader because it cannot do it alone. The
ultimate effectiveness of the EU’s policy in this field depends on the involvement of oth-
ers, in particular the US, China and India. The EU would be the leader only if its energy
climate change policy turns out to be also a successful spillover strategy. We need a new
paradigm which he labelled a “compulsory cooperation paradigm.”
About the last question on the implications of the EU’s energy/climate change policy for
other EU policies, Soromenho-Marques singled out three main policy areas where pos-
sible implications are particularly relevant. First, R&D. Soromenho-Marques stressed
that the gap between the tasks we are faced with and our capacities to perform them
is really huge. To narrow it, we need to invest in science and technology, to invest in
the so-called “Green New Deal.” Second, labour market. Referring to the EU economic
recovery plan, he pointed to the need to identify areas where jobs creation tends to be
more stable and continuous. He emphasised that all the areas connected with environ-
ment protection and new energies are in fact good examples of real opportunities to
create new jobs which will be sustainable. The wind sector, for instance, and in particu-
lar in Denmark, Germany or Portugal is a case in point as it allows for the creation of a
significant number of jobs. Third, foreign policy. Soromenho-Marques emphasised that
one way to measure the success of the EU’s energy/climate change policy is to ensure
that reductions in CO2 emissions in developed countries are not offset by emissions
growth in developing countries. The effective implementation of this crucial objective
should be at the forefront of our climate change diplomacy.
Viriato Soromenho-Marques concluded his discussion of Claude Mandil’s presentation

by drawing attention to the challenge posed by the EU’s energy/climate change policy
to the EU’s internal governance mechanisms. He raised the question whether the EU is
34
building new political structures that are flexible and strong enough to take the chal-
lenge of climate change to a final and positive conclusion.
The second discussant invited to respond to Mandil’s presenta-

tion was John Llewellyn, who made five points. First, he com-
mented that in his view the real global significance of the Poznan
conference was that in the US it really strengthened the hands
of those who want to press ahead with energy/climate change
policies. This is instrumental as we know that if the US moves
then other key players are more likely to follow. Thus there is
now a higher chance than ever to reach a successful agreement
in Copenhagen. In his second point, he warned however that
the internal political battle in the US will be tense and vicious.
For the moment the talk is very much about auctioning and li-
censing. But if one looks at the progress of bills through the US
political process it appears that they never come through clean
and unscathed. And Llewellyn suspects that this one would not
either, not least because short-term self-interest in this field is pretty strong.
Llewellyn’s third point addressed the question of regulations versus markets. He stated
that generally economists prefer markets as they believe in the rational allocation of
resources or in the production of outputs at the least cost. However, he acknowledged
that when you start getting practical about this matter, it is not easy to assert that all
regulations are bad not least because it is difficult to figure out what the future costs
under regulations will be. To assess the conditions under which it is right to just rely on
the market mechanisms and the conditions under which it is appropriate to budge or
replace them with regulations is probably more an empirical matter than a theoretical
one. In any case, Llewellyn stressed that it is going to be an important matter.
His fourth point focused on the importance of clarity and stability of rules and regula-
tions to prevent stakeholders from exploiting remaining uncertainties and grey areas
about what the regulations will be in the next few years.
In his final comment, John Llewellyn addressed a specific political communication dif-
ficulty raised by our ongoing endeavour to bring about changes in our economy, which
obviously cannot remain in the future as energy-intensive as it is now. He noted that
for the lay audience this immediately leads to the notion that it is going to slow our
economic growth. As an economist, he argued that this is not true. It will be only about
a different mix of outputs and a different mix of inputs than the ones we have today.
He pointed out that a hundred years ago GDP was made up of candles, carts and type-
writers, today it is made up of electricity, cars and word-processors. That is a totally
different mix but we do not say that it does affect GDP. It is only an index problem.
There is no reason in principle why GDP should be affected by changes in the mix of
outputs and in the mix of inputs. However, what people have in mind is an economy
which produces intrinsically the same things as now but in which one of the major in-
puts is much more expensive than it is now. Thus it is not going to be an easy political
task, although a necessary one, to sell to the people the notion that it does not imply a
reduction in GDP.
The general discussion came back to the issue of markets versus regulations The point
was made that in fact there is no antagonism between markets and regulations, we need
both of them. As markets are not perfect we do need regulations. This point was illus-
trated by the paradox of the landlord and the tenant. The tenant wants his/her energy

bill to be reduced, which means investing in better insula-
tion. The landlord will have to pay for this investment but
will not immediately benefit from it and therefore is reluctant
to agree to such an investment. Similar situations where the
market signals do not reach the appropriate persons are nu-
merous and should be corrected by proper regulations. This
is in fact one of the major challenges the EU is now faced
with for its energy/climate change package to become a real-
ity. Who is going to invest? Who is going to verify that the
proper investments are indeed made?
The discussion focused also on the scope of the EU’s role in

energy security and on the opportunities for innovation in
the energy sector. On the first point it was argued that we have to be very clear on the
respective roles of industries on one side and of the EU or any national government on
the other. The EU and national governments do not have to negotiate contracts. That’s
the role of the industries. The role of the EU and governments consists in setting up the
proper regulatory framework which will be conducive to more investments, in particu-
lar in transmission, as well as to increased diversity in suppliers, and which ultimately
will lead to a single regulator. The idea that there is a trade-off – i.e. we have to choose
between security and single market – was disputed and it was stated that in fact more
security means more single market.
Finally, on the issue of innovation it was pointed out that mobile telecommunications
and distributed telecommunications had significantly fuelled productivity growth and
welfare for everybody in the world over the last fifteen years. The case was made that
the same reasoning could be applied to energy. Mobile energy could serve as the next
technology carrier that will open up totally new pathways of productivity growth. That
might be the technology that will lead us out of the current recession towards a new
long period of economy growth. Thus the issue is not so much how can we reduce en-
ergy consumption but rather how can we open up the innovation spaces that will make
economic growth possible. However, it was also argued that such a case was perhaps
too optimistic as one has to keep in mind two key factors: (i) the energy sector needs a
lot more investment than the information & technology (IT) sector and achieving this
will not be an easy task in the years to come, and (ii) the pace of technology progress is
much slower in the energy sector than it is in the IT sector.
36
Chapter Four
4 concluding session
Facilitator
Vítor Gaspar
Bureau of European Policy Advisers
The concluding session offered the opportunity for an open discussion
on six themes that emerged from the three sessions.
First session on jobs

ß “We care about jobs because we care about people.” This sound bite
by Guiseppe Bertola relates to the need to reconcile change and flex-
ibility on the one hand and protection on the other. We want to protect the individuals
not necessarily the jobs.
In this regard it was mentioned that we should rethink the Lisbon agenda taking into
account the need for proper safety nets and the ability to cushion the effects of eco-
nomic downturns for unemployed people. All of that is not really part of the Lisbon
agenda which was based on an assumption of macro-economic stability that has never
been challenged. In response to this comment it was stressed that the way the European
Commission has put forward its European economic recovery plan does recognise the
validity of this specific comment. In fact, it is necessary to review the issues having to
do with management of the current crisis in the context of the Lisbon agenda because
the response to the crisis has to be not only timely, that is immediate, but also compat-
ible with our goals for the medium to long term.
Another intervention under this theme focused on the connection with human capital
approaches and notably the connection with education. To care about people has also
to do with early educational training. Two issues were singled out as being of particular
importance here. The first one is related to the qualification framework approach. We
should explore further how to improve the discussion on future jobs market needs. The
second issue is about mobility. We need to ensure a tighter connection between edu-
cational mobility programmes such as Erasmus and the mobility of the labour market
in the coming years. For both issues – qualification framework and mobility – it was
emphasised that discussion with the social partners will be crucial.
ß How does globalisation affect the design and sustainability of our different social
models in particular in the labour market? This question is about the relation between
globalisation and public intervention in the labour market. One issue to be raised con-
cerns the viability of the TINA approach – There Is No Alternative – put forward in
Bertola’s presentation.
During the open discussion the question was asked whether the challenge to our social
systems is an issue of design – we can design our systems better in order to provide
insurance to people while preserving flexibility in our economies – or whether there
is a deeper, more profound and fundamental trade-off: if one provides more insurance
then one has, as a consequence, to pay an efficiency cost.
It was contended that providing security necessarily has an efficien-

cy cost. That said, the relationship between efficiency and provision
of security is not necessarily a negative one. The welfare state of the
1950s and 1960s brought together security and efficiency by provid-
ing more security and also more efficiency. The trade-off appeared
when the world changed. In the European case where there is a
great deal of security, globalisation clearly brought about the need
for greater flexibility. If we want less trade-off we have to change the
system. The difficulty now is that so many changes are taking place
at the same time, and when you move from an old equilibrium to a
38
new one you will always have winners and losers. Thus one cannot get away from the
political economy of the reforms: it is not enough to say that reforms bring better out-
comes, it is also necessary to know how to get from here to there.
Second session on migration

ß Is reality better than perception and how relevant is the existing communication gap
from a political point of view? The idea according to which we have empirical evidence
that shows that the impact of migration on our economies and societies is by and large
benign suggests that the objective evidence is a bit better than the perception. But per-
ception by people is a political and social reality that one must deal with and that leads
to this possible communication gap in the area of migration.
It was argued that the apparent gap between perception and reality concerning the ef-
fects of migration has much to do with unequal distributional effects. There are winners
and losers and to pretend that the overall effects are the only ones that count in politics
is to pretend that the earth is flat.
The gap between perception and reality has also to do with the fact that the reality of
immigration effects is generally measured in economic terms while the perception ex-
tends beyond sheer economic effects.
ß Whose interests are served by our migration policies and how does the discrimina-
tion between skilled and unskilled workers affect our policies? Migration is a very com-
plex reality. It affects different segments of the population in our societies in different
ways. Thus a legitimate question that arises when one thinks about migration polices is
whose interests are being served by those policies. The migrants themselves also have
differing experiences and one can wonder about the impact of differentiated migration
polices that distinguish between skilled and unskilled migrants and whether this type
of discrimination may entail perverse effects.
The open discussion emphasised a third theme related to migration

which could have been further developed in the previous discus-
sion, namely the external dimension of migration and in particular
the EU’s relationship with its southern and eastern neighbours. It
would have been interesting to present an internal perspective on
migration – distribution of the gains and losses, perception, differ-
ences across different segments – and an external one looking more
closely at the EU’s neighbours and in particular the poorest ones
who are mostly but not only from the Southern Mediterranean
region.
Third session on energy/environment

ß How are we going to mobilise the investment needed for the evolution of energy
production in order to foster economic growth and promote energy security? Invest-
ment seems to be necessary for production, transmission and distribution of energy.
For example, the current infrastructures in place in Europe in terms of cross-border
interconnections are simply incompatible with an integrated single market. This is not
only for reasons of competition but also from the viewpoint of security of supply. There
are specific examples in Europe of Member States being faced with disturbances in
production of power and finding it impossible to avoid a blackout simply because of a
lack of sufficient cross-border interconnections.

The challenge is very important because investment does require stability of the regula-
tory framework. It requires a predictable set of prices (cf. the issue of the price of car-
bon). And the situation is likely to be particularly challenging under current circum-
stances because the crisis is likely to make the availability of financing more difficult.
In any case, investment is absolutely crucial because the way forward entails expensive
technological change and innovation.
ß How does the EU deal with the external dimension of its energy/climate change
package? The external dimension of the EU’s energy and climate change package is a
tremendous challenge and a key to the EU’s success in this area. By approving a very
ambitious energy and climate change package the EU is leading by example. But the
only way that the EU is going to be effective in tackling the climate change challenge is
if its lead is actually followed, if the US requires the involvement of emerging econo-
mies and if the latter demand compensation in the form of resource transfers in order
to finance technology and research.
Two additional broader remarks completed this concluding open discus-

sion, one on the EU seen from abroad and the other on the current crisis
as an opportunity.
Recently and beyond the widely welcomed European leadership on cli-

mate change, Europeans have had the impression that European leader-
ship is becoming stronger on various issues. It was mentioned for ex-
ample that Europeans have the impression that the crisis has illustrated
that the blend of market and government intervention that we have in
Europe seems to have been strengthened vis-à-vis the US one. Europeans
have also been able to put together a response to the banking crisis in a
reasonably co-ordinated way. Finally, Europeans emerged from the G20 in Washington
with the impression that their agenda was very much a part of the common agenda of
the G20. Seen from abroad the impression may be different. In Beijing, for example, the
impression was believed to be quite the opposite, with Europe perceived as emerging
much weaker from the crisis than it was before. Europe is perceived as not having been
strong enough to resist the crisis coming from the US and as lacking gross autonomy
vis-à-vis the US. Thus we should not forget that in many respects we seem to have a
relatively benign view of ourselves while the perspective from abroad may be very dif-
ferent. That said, this may well be more a failure of perception than a failure of reality.
On the current crisis it was argued that it could and indeed should be viewed as an op-
portunity. In times of crisis you have to rethink what you have been doing, to identify
what has gone wrong and hopefully to fix it. It is in periods of crisis that countries
reform more. It is very clear that the current crisis has raised a number of global gov-
ernance problems and the willingness of national governments to act in a co-ordinated
and co-operative way has also been improved.
40
PROGRAMME
Plenary session 1: Jobs
Presenter, Giuseppe Bertola
Discussant, Helen Wallace
Discussant, Klaus F. Zimmermann
Plenary session 2: migration

Presenter, Demetri Papademetriou
Discussant, Rainer Münz
Discussant, Juan Dolado
Plenary session 3: energy

Presenter, Claude Mandil
Discussant, Viriato Soromenho-Marques
Discussant, John Llewellyn
Concluding session
Facilitator, Vítor Gaspar
plenary session: discussion with the president of

the european commission, jose manuel barroso
Closing dinner speech:

“The EU and Global Governance” by Richard Portes


LIST OF PARTICIPANTS
José Manuel BARROSO President, European Commission
Giuseppe BERTOLA Università di Torino, Italy
Stefano BERTOZZI European Commission
Enrico BOEM European Commission
Simona BOVHA PADILLA European Commission
Luis CABRAL New York University, United States
Vasco CAL European Commission
Sergio CARRERA Centre for European Policy Studies (CEPS), Belgium
Maria da Graça CARVALHO European Commission
Simona CICOGNANI European Commission
Elizabeth COLLETT European Policy centre (EPC), Belgium
Jonas CONDOMINES BERAUD European Commission
Paul DE GRAUWE Katholieke Universiteit Leuven (KUL); Member, BEPA Group of Economic
Policy Analysis (GEPA), Belgium
Pierre DECHAMPS European Commission
Juan DOLADO Universidad Carlos III de Madrid; Member, BEPA Group of Economic
Policy Analysis (GEPA), Spain
Peter DUN European Commission
Peer ELDERER The Lisbon Council, Germany
Maria João FERREIRA

MARTINS ALBERNAZ European Commission
Noriko FUJIWARA Centre for European Policy Studies (CEPS), Belgium
Vítor GASPAR European Commission
Jean-Dominique GIULIANI Robert Schuman Foundation, France
Bernd HEMINGWAY International Organisation for Migration (IOM), Belgium
Heinz Hilbrecht European Commission
Egbert HOLTHUIS European Commission
42
Agnès HUBERT European Commission
Nico KEPPENS European Commission
Cécile KEREBEL Institut Français de Relations Internationales (IFRI), Belgium
Claire KILPATRICK London School of Economics and Political Science, United Kingdom
Jozef Konings European Commission
Martin LARCH European Commission
Julian LE GRAND London School of Economics; Member, BEPA Group of Societal Policy
Analysis (GSPA), United Kingdom
John LLEWELLYN Nomura; Member, BEPA Group of Economic Policy Analysis (GEPA),
United Kingdom
Claude MANDIL EU Advisory Group on Energy and Climate Change, France
João MARQUES DE ALMEIDA European Commission
Hans MARTENS European Policy Centre (EPC), Brussels
Anna MELICH European Commission
Giles MERRITT Friends of Europe and Security and Defence Agenda, Belgium
Rainer MÜNZ Erste Group Bank AG, Austria
Demetrios PAPADEMETRIOU Migration Policy Institute
Karl PICHELMANN European Commission
Malgorzata PILAWSKA Cracow University of Technology, Poland
Jean PISANI-FERRY Bruegel; Member, BEPA Group of Economic Policy Analysis (GEPA),
Belgium
Dana Adriana PUIA European Commission
Jitka RYCHTARIKOVA Charles University; Member, BEPA Group of Societal Policy Analysis
(GSPA), Czech Republic
André SAPIR Université Libre de Bruxelles (ULB); Member, BEPA Group of Economic
Policy Analysis (GEPA), Belgium
Elena SARACENO European Commission
Horst SIEBERT I nstitut für Weltwirtschaft (IfW), Universität Kiel; John Hopkins
University; Member, BEPA Group of Economic Policy Analysis (GEPA),
Germany

Myriam SOCHACKI European Commission
Viriato SOROMENHO-
MARQUES EU Advisory Group on Energy and Climate Change, Portugal
Istvan SZEKELY European Commission
Loukas TSOUKALIS ELIAMEP; Member, BEPA Group of Political Analysis (GPA) and Group of
Societal Policy Analysis (GSPA), Greece
Alina-Stefania UJUPAN European Commission
Frans VAN VUGHT NETHER, Belgium
Reinhilde VEUGELERS KU Leuven and Bruegel, Belgium
Jakob VON WEIZSÄCKER Bruegel, Belgium
Helen WALLACE London School of Economics and Political Science, Member, BEPA Group
of Political Analysis (GPA), United Kingdom
Katarzyna WILK European Commission
Michael WRIGLESWORTH Centre for European Policy Studies (CEPS), Belgium
Klaus ZIMMERMANN Institute for the Study of Labour (IZA), Bonn; Member, BEPA Group of
Societal Policy Analysis (GSPA), Germany
44
Cover photo: © Vaso European Commission
Politics and Policy-Making in the EU in the Age of Globalisation
Luxembourg: Office for Official Publications of the European Communities
2009 — 44 pp. — 17,6 x 25 cm
ISBN 978-92-79-11632-2
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Politics and Policy-Making in the EU

9 789279 116322 EUROPEAN COMMISSION

Politics and Policy-Making in the EU in the Age of Globalisation

Luxembourg: Office for Official Publications of the European Communities

2009 — 44 pp. — 17,6 x 25 cm

Europe Direct is a service to help you find answers

Freephone number (*): Publications for sale:

© European Communities, 2009

Printed on white chlorine-free paper

Stefano Bertozzi, Martin Larch and Myriam Sochacki (editors)

Politics and Policy-Making in the EU in the Age of Globalisation 1

A BEPA Policy Advisers’ Conference

Bibliothèque Solvay, Brussels, Belgium, 15 December 2008

Stefano Bertozzi, Martin Larch and Myriam Sochacki

Remarks by José Manuel BarrosO, President of the European Commission.............. 9

Chapter One: jobs………………................................................................................................................... 17

Chapter Two: migration………………………....................................................................................... 23

Chapter Three: energy / environment………………………………….......................................... 31

chapter four: concluding session………………………………………………............................ 37

Politics and Policy-Making in the EU in the Age of Globalisation 9

On 15 December 2008 the Bureau of European Policy

The EU is confronted with new and evolving challenges

To underline the ultimate objective of EU policy-making, the work of the participants

ß Migration: Making a success of migration management will certainly not be easy, as

Politics and Policy-Making in the EU in the Age of Globalisation 11

ß Energy/environment: The EU has adopted an ambitious and forward-looking po-

On migration, the discussion introduced by Demetri Papademetriou, President of the

Politics and Policy-Making in the EU in the Age of Globalisation 15

Turning to international economic integration, such as within EMU as well as globali-

Economic integration and labour market policies: What has changed

Politics and Policy-Making in the EU in the Age of Globalisation 19

On substance, Zimmermann argued that more attention should be paid to mobility of

The view was expressed that associating EMU with an acceleration of

Politics and Policy-Making in the EU in the Age of Globalisation 21

The second group of interventions had to do with Bertola’s finding whereby

Mr Papademetriou then turned to the governance challenges thrown down by inter-

Politics and Policy-Making in the EU in the Age of Globalisation 25

He then pictured a benchmark scenario with an additional 30 million migrants working

Politics and Policy-Making in the EU in the Age of Globalisation 27

On the issue of undocumented migrants, he observed that he no longer believed in

Politics and Policy-Making in the EU in the Age of Globalisation 29

Politics and Policy-Making in the EU in the Age of Globalisation 33

Viriato Soromenho-Marques concluded his discussion of Claude Mandil’s presentation

The second discussant invited to respond to Mandil’s presenta-

Politics and Policy-Making in the EU in the Age of Globalisation 35

The discussion focused also on the scope of the EU’s role in

First session on jobs

It was contended that providing security necessarily has an efficien-

Second session on migration

The open discussion emphasised a third theme related to migration

Third session on energy/environment

Politics and Policy-Making in the EU in the Age of Globalisation 39

Two additional broader remarks completed this concluding open discus-

Recently and beyond the widely welcomed European leadership on cli-

Plenary session 2: migration

Plenary session 3: energy

plenary session: discussion with the president of

Closing dinner speech:

Politics and Policy-Making in the EU in the Age of Globalisation 41

Giuseppe BERTOLA Università di Torino, Italy

Stefano BERTOZZI European Commission

Politics and Policy-Making in the EU in the Age of Globalisation 1

Politics and Policy-Making in the EU in the Age of Globalisation 9

Politics and Policy-Making in the EU in the Age of Globalisation 11

Politics and Policy-Making in the EU in the Age of Globalisation 15

Politics and Policy-Making in the EU in the Age of Globalisation 19

Politics and Policy-Making in the EU in the Age of Globalisation 21

Politics and Policy-Making in the EU in the Age of Globalisation 25

Politics and Policy-Making in the EU in the Age of Globalisation 27

Politics and Policy-Making in the EU in the Age of Globalisation 29

Politics and Policy-Making in the EU in the Age of Globalisation 33

Politics and Policy-Making in the EU in the Age of Globalisation 35

Politics and Policy-Making in the EU in the Age of Globalisation 39

Politics and Policy-Making in the EU in the Age of Globalisation 41

Politics and Policy-Making in the EU in the Age of Globalisation 43