To put it bluntly: Europe, more precisely, the European Union, has not delivered for decades now. The Union safeguards the interests of the employers and the mandarins from Brussels and 27 other capitals. Basically, this kind of integration is not in the interest of workers, trade unions, consumers et cetera. In the current state of affairs, more Europe means less social cohesion. Therefore, disintegration (a “core Europe”, see below) could be in the interest of workers, at least to some extent.
The main reason for that is the highly ideological, “neo-liberal” and “ECOFIN/lobbies driven” agenda of economic policies: more structural reforms and austerity all over Europe, less regulation, no Financial Transaction Tax, no EU-financed investment program, et cetera. In this respect, demanding more Social Europe is a rather naïve and unrealistic position. Speaking about a “European Social Union” is, given the current political climate, nothing more than wishful thinking. Just have a short look at meetings of the Social Question Working Party or the Employment Committee of the EPSCO council, a rather disillusioning experience. Europe does not give the feeling of community, solidarity, (social) security – all deep rooted emotions that the nation states and the regions do deliver, at least as far as globalisation allows and politicians stand up for.
But sometimes history “jumps”: who thought in the winter of 1988 that the fall of communism and the collapse of the Berlin wall would be realised within one year? Nobody! It currently does not look that way but maybe the fall of the neoliberal wall is within reach. In any case, Europe is at a crossroads.
The Labour Market And Institutional Challenges Ahead!
- Secular Stagnation, deflation and high unemployment
For years to come, “secular” stagnation is a realistic scenario (with a probability of, let´s say, 60%). If the forecasts are not over-optimistic (as usually), the Euroarea will reach the production level of 2008 next year. So we’ll have 7 years of zero real growth on average! Overall inflation rates are down to 0.3% and several member states already have entered a deflationary period. In order to bring global savings and investments into equilibrium, real interest rates should be below zero. But the combination of low inflation rates and the zero lower bound of nominal interest rates is an insurmountable obstacle. Maybe the era of high growth rates is over for a long time. Unemployment will rise in countries with lower rates (like Germany, the Netherlands and Austria) and will become structural in nature in the periphery (Greece, Spain, Portugal). Therefore, the social situation in the Euroarea will get far worse, maybe in some kind of dramatic way for some countries.
Politically, it was the right thing to do. But seen from a systems theory point of view, the complexity of the Union after the enlargement of 2004 has increased dramatically to the point of almost being dysfunctional. In this respect, enlargement has been a failure. Beyond that, many new member states have learned to see Brussels as a kind of new Moscow. The “overstretching argument” would also fit the EMU not being an optimal currency area and with no complete integration of fiscal policies.
- In 2019, the EU will have less than 28 member states
This scenario comes into being with a likelihood of, let´s say, 33%. The centrifugal forces in the Union are all too obvious. Just to name UKIP and the British referendum in 2017, Scotland (they made it only just), Catalonia, Presidency election in France with Marine Le Pen potentially winning, and other euro-sceptical political forces all over Europe. The most important driving force regarding euroscepticism is that the European Union does not deliver for ordinary people and this is water on nationalists’ mills.
- Kick the Brits out of the Union
What are the social and employment costs of British EU membership? The British governments in the last two or three decades have been against almost every social progress, were it the working time directive, the posted workers directive, employment goals in the European Employment Strategy or whatever. Therefore, it would be in the interest of all when Great Britain and their allies would participate in the Single Market only (this is what they are obviously aiming for).
- The “Youth Guarantee” – Failing Europe, it´s a shame!
The European Youth Guarantee is a good example how Europe is failing: Firstly, the youngsters need primarily good-quality jobs, which are just not there in countries such as Spain, Portugal, Greece and others. This was the main reason why a country like Spain was arguing against the Youth Guarantee in the Council negotiations. Secondly, €6 billion in two years are not enough – we would rather need €21 billion, as the ILO says, or even more. Thirdly, almost two years after the EPSCO council has made the decision on the guarantee (in February 2013), only a small amount of money has been used for programmes so far. There are mainly two reasons for this failure: over-bureaucratic procedures in Brussels on the one hand and a lack of resources for even co-financing such small sums as 10%-20% of the total on the other. All in all, in the eyes of young unemployed this “Youth Guarantee” must be a great disaster!
- Social democratic parties have to make a quality decision – to be or not to be
Last, but not least: if social democratic parties in government like in France, Germany, Italy, Denmark, Sweden and other countries are de-facto riding the neoliberal agenda and are paying only lip services to more Social Europe, then their historical end will be near, actually very near. Syriza, Podemos and other groups will continue their historical mission.
What has to be done? The high productivity, high wage innovation road beyond GDP
They might sound somewhat radical but I would consider the following steps towards more social cohesion necessary:
- Find a core-group of like-minded countries for more Social Europe. You could maybe start with Luxembourg and Austria.
- Work on a clear division of labour between the EU and the national level. All structural policies in the area of education, labour markets and labour law, technology and innovation and the like are national competences. Value added from Brussels could come in the area of security, energy and environment, monetary and fiscal policy and the like. Aim for a pro-active economic policy coordination (versus the rather restrictive version currently used) taking the Euroarea as an entity – NOT individual member states – and recognise positive and negative spill over effects in a pro-growth approach aiming mainly for qualitative growth, which means not just more products but products that serve life satisfaction on a broad basis.
- Aim for a “high productivity, high wage” agenda which goes beyond GDP: In this respect, it is not cost-competitiveness that matters primarily but innovation, skills and competences. This means, for example, that the member states must get rid of the problem of having some 20% of adults not being able to solve even simple everyday problems (see PIAAC results). At the EU level, environmental standards should be set on a medium-term perspective and the main aim is to foster green innovation via continuous pressure on the innovative capacity of enterprises.
- Implement true employment policies, i.e. demand management where monetary and fiscal policies serve the interest of high-quality employment. ECOFIN ministers fundamentally misunderstand investment as they only see the costs which come to the fore at the beginning; they are not able to see the long-term pay-off of good investment projects. As a Eurozone-wide counter-cyclical stabilisation capacity a European Stabilization Mechanism should be developed. In any case: the best social programme is good economic policies.
- As high inequalities in incomes and wealth are bad for growth, fight rising inequalities by setting standards for European minimum wages (60% of average national wage levels) and minimum income schemes. On the EU-level, a social investment package could be stimulated and coordinated.
The only thing missing are the political actors that would carry such an ambitious program. But maybe history jumps again! Who knows what happens in 2015?
Johannes Schweighofer is a senior economist at the Austrian Ministry of Labour and Social Affairs. His main responsibilities are international labour market policies (EU, OECD, ILO) and research. He is a long-standing member of the EU-Employment Committee and the OECD Working Party on Employment. Recently, he has published articles on labour market effects of immigration, youth employment and the effectiveness of labour market programmes. He writes in a strictly personal capacity.