Europe 2020 and the battle against poverty: back to square one?

To replace the failed Lisbon Agenda, the European Council agreed on 17 June to adopt the so-called Europe 2020 strategy. Five key priorities were formulated including a poverty target. This is not surprising, because the quest for a ‘Social Europe' and the reduction of poverty has always been at the heart of EU-speak, but for the first time the target has been made explicit - some 20 million people should be lifted out of the risk of living in poverty and social exclusion.

Given the 80 million poor throughout the Union, this amounts to a poverty reduction of 25%. The quantification of the poverty target is however highly controversial and the result of a fierce political battle.

A dangerous compromise

Until now, poverty has been measured using the so-called at-risk-of-poverty indicator, meaning that people are considered poor if their household income falls below a certain threshold (set at 60% of the national median level). This threshold reflects the minimum level of income considered necessary to live a decent life with an acceptable standard of living, relative to the society in which people live. The indicator is also widely used in academic and policy-making circles due to its comparability.

When the Commission first formulated the EU2020 targets at its March gathering, Central and Eastern European member states (the ‘Visegrad Four' together with Bulgaria and Romania), but also France, expressed their concerns about setting explicit targets on poverty reduction based on the at-risk-of-poverty indicator and aimed to remove them from the ten-year plan.

They called the target ‘unattainable' and ‘illusory' and argued that poverty reduction should be a result rather than a target of the European strategy. A compromise arose. The target is preserved, although no longer solely based on the relative at-risk-of-poverty indicator but complemented by two non-monetary indicators (the number of people ‘materially deprived' and the number of people living in ‘jobless households'), supposedly reflecting other dimensions of poverty and exclusion.

Within the framework of the Europe 2020 strategy, an aggregate of these three indicators is being applied. This compromise, however, has the dangerous potential of dooming the European rhetoric about poverty reduction to failure.

Circumventing the poverty target

By using an aggregate of three indicators instead of one to define the poverty target, the number of ‘poor' in Europe (according to the aggregate) increases from 80 million to 120 million while the target remains exactly the same: reducing the people at risk of poverty by 20 million. This amounts to a reduction of 17% instead of the original 25%. In other words, by the ‘innocent' decision to use three instead of one indicator, the poverty reduction target has already been undermined.

But even the likelihood of reducing the number of poor by (a modest) 17% is doubtful because member states are free to choose which indicator(s) they will use to set their national targets.

This is far-reaching because the two new indicators are measures of growth and reflect general living standards while the original poverty indicator is a measure of the societal position of people at the bottom of the income distribution.

This has consequences for the policies that are necessary to make progress on these indicators. To decrease the number of materially deprived or people living in jobless households, economic growth and employment has to be boosted.

To decrease the number of poor according to the at-risk-of-poverty indicator, however, countries have to redistribute the generated wealth and, consequently, reduce inequality. As such it is a measure of the efficiency and adequacy of a country's social protection system. Briefly summarised: while the material deprivation and jobless households indicators are about economic and employment growth and generating wealth, the poverty indicator is about distributing the fruits of the wealth.

Although Eastern European countries state that boosting growth and employment will automatically lead to poverty reduction, research has shown that the so-called ‘trickle-down' effect is bogus.

There is no automatic correlation between economic growth and lifting people out of poverty, and progress on one indicator does not necessarily lead to progress on another. Moreover, huge differences in the number of people in poverty according to one of the three indicators prevail between member states. Consequently, it is perfectly possible for a country to choose one the new indicators representing the lowest number of ‘poor' to define their national targets and subsequently solely focus on economic or employment growth without having genuine intentions to fight poverty.

Consider the example of Bulgaria where 9 percent of the people live in a jobless household, 21.4 percent are at-risk-of-poverty and 31.4 percent are materially deprived. Depending on the indicator of choice, this amounts to a reduction of ‘the poor' by 116.896, 277.952 or 407.836 respectively.

It can easily be assumed that, given the current economic circumstances, the Bulgarian government will prefer the easiest target and go for employment growth. But giving people jobs does not equate with lifting people out of poverty (think about the working poor in this respect). Otherwise stated: a country can reach the EU2020 poverty target by carefully choosing an easy-to-reach target while avoiding the need to implement redistributive policies.

Finally, there is the issue of comparability. For the past ten years, poverty has been measured using the at-risk-of-poverty indicator which allows for comparisons between countries and the measurement of progress within countries. However, allowing member states to choose their appropriate indicator will hamper comparisons of progress in the future and make it more difficult to monitor progress within the framework of the open method of coordination.

Which road to take?

From the point of view of comparability and poverty reduction, the best solution would be to adopt the common poverty indicator best reflecting the reality of social exclusion in Europe (and currently this is the at-risk-of-poverty indicator).

However, if that turns out not to be feasible at the political level, another solution could be to redefine the poverty reduction target in such a way that progress has to be made on all three indicators simultaneously, taking into account varying circumstances in different countries. Several scenarios to achieve this are already circulating in the policy-making circles of the European Commission's Employment, Social Affairs and Equal Opportunities DG. Moreover, the parliament has the right to be consulted on the EU's employment policy guidelines and so could also play an important role in this regard.

In the end, however, it all depends on the willingness of member states to make a genuine contribution to the eradication of poverty. Of course, the proof of the pudding is in the eating and member states are now expected to map out their national strategies for the Europe 2020 targets.

But given the fact that the Commission does not have the power (except for the "policy warnings") to punish failing member states, the reluctance of some countries to provide more than lip services to the battle against poverty and the technical possibilities offered by the adoption of three separate ‘poverty indicators' to circumvent the agreed poverty reduction target, it can easily be assumed that most countries will choose the path of least resistance. Consequently, it would be back to square one for Europe's poor.

The writer is a PhD student at the Herman Deleeck Centre for Social Policy of the University of Antwerp, Belgium.