Reinvigorating Social Europe: The Four Areas Of Conflict

After years of prioritising the reinforcement of economic instruments to meet European budgetary targets, the debate on Social Europe has lately enjoyed something of a renaissance. This is no mere bolt out of the blue and its protagonists come from well beyond the usual circle of advocates among the enthusiasts for Europe in academia, the trade unions and left-wing parties.

Austerity has triggered a backlash. Cutbacks, new budgetary control measures and interventions in the policies of euro member states have yielded limited economic benefits, while interrupting economic cycles and exacerbating the debt burden. Indeed, in the areas of employment and social security they have given rise to upheavals that are so far-reaching and extensive that the social question has re-emerged on the European policy agenda. The high youth unemployment is only one outcome manifest at the tip of an iceberg made up of a large number of misguided EU social policy goals and intentions, stagnating income inequality and rising socioeconomic divergence.

Critical voices pointed early on to the dangers of a one-sided crisis management confined to budgetary policy and warned of irreparable harm to the European Social Model. Now, the Italian presidency of the European Council is warning of the collapse of social cohesion if a new balance is not reached between financial policy goals, on one hand, and growth and social policy goals, on the other. And the new President of the European Commission, Jean-Claude Juncker, has given assurances in his policy guidelines that he will “never lose sight of the social dimension of Europe” and pay heed to “social fairness” in the implementation of structural reforms – to this end he has proposed the introduction of a social impact assessment.

But where to start with a new try for Social Europe? Four areas of conflict can be identified with regard to the EU’s social dimension: claims of national sovereignty against European policy approaches; an integration mode based on market creation against one based on market shaping; a supply-side against a demand-side economic policy; and an unjust against a just distribution of wealth and poverty.

These four areas of conflict display the key criteria in accordance with which a Social Europe can function or will remain impossible. The impression is inescapable that at present the insistence of the member states on national sovereignty, a primarily market creating mode of integration, continuing supply-side reforms and the apparent acceptance of an increasing gap between rich and poor in societies and countries leave no room for a social integration project. But the deterioration of the economic and social situation has demanded a toll from austerity policy as contributing cause. This is the spreading – and taken up recently by politicians of every stripe – demand for a social dimension for the EU. However, this will be no more than a figleaf for “business as usual” unless policy-makers have the courage to revisit the core elements of integration by changing track in the four areas of conflict identified. The conditions for a successful Social Europe can be clearly described and there are more than enough starting points for its realisation:

Liberal Reform Convergence Makes An EU Social Policy Framework More Likely

Welfare liberalism, permanent austerity and diffusion of ideas ranging from flexicurity to the youth guarantee have contributed to a hybridisation of welfare states. The once rigid path dependencies are no more and even Europe’s intractable pension systems are tending to turn in the same direction. It is not uncommon for a welfare state today to combine a universal health care system with Bismarckian pension insurance and a liberalised labour market.

In contrast to the academic debate on models in the 1990s and 2000s, when a European Social Model remained a normative goal and the differences and path dependencies of welfare states were emphasised, the market liberal pensée unique has cleared the ground for institutional and reform policy similarities. This, ironically, has made it easier to come up with common solutions in subdomains of social security on a European basis. Basic elements of the same policy area can easily be discerned in all 28 member states. Thus there is no reason why the agreement on a new, more binding Open Method of Coordination in a revised Europe 2020 Strategy, with clearly formulated social protection targets and furnished with sanctions, should founder on differences between welfare states. Even the establishment of a European unemployment insurance as a basic macroeconomic governance and social policy model no longer appears improbable.

Social Inequalities Endanger Economic Integration

The conflict about the dominance of the single-market freedoms in the ECJ rulings Viking, Laval, Rüffert and Luxembourg – pertaining to the problems of social dumping within the framework of posting of workers and cross-border freedom of service provision – has, just like the worries about the privatisation of services of general interest in recent years, made it clear that a single market furnished only with uniform regulations on competition and guaranteed open borders is not complete. If doing business on a common basis is a declared aim in Europe labour and social protection provisions cannot remain solely at national level. There they are exposed to heightened pressure and are either supported or taken under the wing of national protectionism, which in turn endanger economic goals.

This can also be seen in the monetary union: a common monetary policy without extensive fiscal and political agreements is a precarious structure. The global financial crisis as an exogenous shock was sufficient to lay bare the internal deficits and imbalances of the Eurozone. In the political realm, given the interrupted economic cycles, high unemployment and growing risk of poverty there is every justification to demand a correction. Alongside the budgetary surveillance beefed up in the crisis this should also keep an eye on developments with regard to employment and social affairs that are problematic for the functioning of the monetary union.

In order to moderate the subordination of social policies to the demands of increasing market integration a social impact assessment would make sense for all EU legislative projects. Furthermore, social policy actors such as the Employment, Social Policy, Health and Consumer Affairs Council (EPSCO) of the national labour and social affairs ministers but also committees such as the European Economic and Social Committee should concern themselves more closely with the impact chain of market creating integration. In order to actively strengthen a market shaping integration approach a set of social minimum standards and target figures – depending on national economic development – should be agreed as a European regulatory framework, for the monitoring of which a procedure to counter social imbalances should be included in the European Semester, as has already been discussed at least in a European Commission non-paper in 2013. The most sustainable solution would certainly be the adoption of a social progress protocol with a social clause demanding equal status for social rights and economic freedoms.

The Eurozone Crisis Can Be Overcome Only Through Demand Measures

In the crisis, austerity policy has become disenchanted with its one-sided supply-side orientation. Instead of the success hoped for by imposing such strict constraints policy-makers had grudgingly to admit that all the austerity paradigm had managed to achieve was the accelerated collapse of economic cycles in the crisis countries. Only from a demand-side perspective is it possible to explain how the vicious circle made up of lower incomes, lower consumption and investments, collective redundancies and company bankruptcies, falling tax revenues and higher debt ratios came about.

Greece’s debt ratio illustrates this spiral effect well: in the crisis the public debt ratio rose from 113 per cent of GDP in 2008 to 175 per cent of GDP in 2013. Collapsing output caused the debt to increase in relation to GDP – austerity failed to achieve its principal aim. Furthermore, despite the guarantee issued in 2012 by the European Central Bank that it would do everything in its power to sustain the Eurozone the low interest rate policy has not led to investment activity and rising growth. The Troika’s structural reform policies may be able to boost the competitiveness of markets in the crisis countries, but they are unable to do anything about the credit crunch or reluctance with regard to investment and consumption. This would only be possible by means of a banking union, which does not shrink from transnational transfer.

What is to be done? Already under discussion are exceptions and flexibility with regard to government spending on investment under the terms of the Stability and Growth Pact. Another interesting measure might be to include national investment rates in the scoreboard of the macroeconomic imbalance procedure. Even better would be to allow a European – or at least one coordinated by Europe – investment programme, like the “Marshall Plan” envisaged by the German Trade Union Confederation DGB. Germany can be seen as an excellent example, having used a government-backed scrappage premium and a building refurbishment programme to stimulate demand, enabling the German economy to weather the global economic crisis of 2008/9 very well.

The Injustice Debate Demands A Political Response

The increasing tendency for a widening social divide in Europe and increasing inequalities of income and wealth offers many starting points for new political demands. Given the electoral successes of right-wing nationalist parties in European elections it is a matter of urgency to implement policies capable of reigning in increasing divergence processes in the EU. This will, however, not happen without targeted support for disadvantaged regions and new transnational equalisation mechanisms. It also entails that, at the next review of the multi-annual financial framework, the member states renounce the notion of »juste retour«.

However, anyone who wishes to prevent not only the EU’s economic and social disintegration but also its political division, increasingly exploited by radical voices such as Marine Le Pen, will also have to give up thinking in terms of red lines. The increasingly evident division of society into a wealthy few and a large low-income majority condemned to eke out their working lives in drudgery and their old age in penury represents a golden opportunity for politicians to make fairness and probity more palatable to the majority of voters by means of specifically targeted taxes and social contributions.

One does not have to elevate Thomas Piketty into a saint, but the hype surrounding his work can be harnessed to lend new impetus to projects for an inheritance and wealth tax – why not coordinate these efforts at the European level? – as well as for a European financial transaction tax, which seems to be at risk of coming to grief in committee meetings in Brussels. It is astonishing that in Europe hardly any politician has taken this up.

The appointment of the new European Commission offers an opportunity, together with the new European Parliament, to replace the lost appeal of austerity, marketization and risk individualisation with new approaches to an EU social dimension. Social policy and economic prosperity are not only closely interconnected, they are also not opposites. Social democrats in particular should recall their history and recognise how a socially just society is also economically more productive. And what was true for the labour movement in the nineteenth century with regard to the establishment of the national welfare state is fully justified for the creation of a European Social Model in the twenty-first century.

The ideas presented here can be found in more detail in the author’s publication: Social Europe as a Field of Conflict. Four Challenges and Opportunities to Shape the European Social Model, published by Friedrich-Ebert-Stiftung in October 2014.