The Monetary Union needs a ‘genuine’ social dimension instead of austerity dogma.
The new European governance architecture with its central European Semester mechanism of coordination, reporting and monitoring in economic, budgetary, employment, social and many other policies enables the EU to better organise the decentralised policies by common targets and rules. But as progress in the field of European social governance is rather modest, most of the new instruments belong to the economic governance area. The implemented Six-Pack, the Two-Pack, the Euro-Plus-Pact and the Fiscal Compact are set in order to strengthen fiscal discipline in the Economic and Monetary Union (EMU). It is obvious that all other policy areas will be subordinated to fulfil this objective.
Already the integrated approach of combining the Europe 2020 Strategy targets with the Stability and Growth Pact rules in the European Semester opened the door for cross-thematic references in the recommendations for the member states. Now, with tightened budget discipline, the likelihood is even higher that the European Commission and the Council voice their objections on unsuitable budgetary policies of a country with reference to particular employment and social policies. That means, if the strengthened Stability and Growth Pact rules are not fulfilled, the Commission and the Council will demand structural reforms of the concerned welfare state.
The crisis proofs the asymmetric constitutional design of European integration to be frozen: the market creating mechanisms for enabling free trade of goods, people, capital and services are dominant and the market shaping and market correcting mechanisms are lagging far behind. For years there has not been a step ahead towards strengthening the social dimension of the EU in legislation:
- the equal prominence of social rights and economic freedoms in the shape of a social clause in all EU legislation is still missing;
- the Europe 2020 Strategy focusses on employment rates and poverty reduction instead of setting common social standards;
- the one-size-fits-all approach of the Open Method of Coordination (OMC) is not taking into account different welfare state pathways and singularities;
- intra-European competition for investments, jobs and production sites is encouraged while there are no common rules for minimum wages, social spending and harmonised cooperation taxes, which would be needed in form of a ‘European Social Stability Pact’;
- the non-binding ‘Compact for Growth and Jobs’, concluded by the heads of state at their June 2012 summit argues for structural reforms and a deepening of the single market as well as for implementing project bonds and making better use of the European Investment Bank (EIB) instead of starting an actually effective European New Deal programme of employment and social investment;
- the December 2012 summit concluded to develop a time-bound roadmap for the completion of a ‘genuine’ EMU until the June 2013 summit, also stating the importance of a social dimension of EMU; but this aspect was left aside in favor of preparatory works on new instruments to foster competitiveness and economic surveillance.
Since EMU was founded, national welfare states experienced difficulties in following their own paths in some economic and social policy areas. We have seen competition between different wage-, tax- and social spending models in the last 14 years, based primarily on economic not on social policy considerations. Now, within the new framework of economic governance and the streamlining process in the European Semester, we’ll move from free competition over the question which welfare state model adapts best to the economic integration scheme, to a sort of codified ‘right path’ on a supranational level, forcing all member states to follow.
An obvious example is the austerity course in the crisis: the adjustment measures for Greece, Portugal and Ireland, but also the recommendations for Spain and Italy, to cut social spending, to lower wages and pensions and to flexibilise the labour market dismantle the respective welfare states. From a northern perspective this is nothing new, but in these countries, trade unions and other veto players defended major cuts for a long time – and these singularities are over now.
Another important single policy example is that of the pensions sector: of course, social policy remains in the hands of the member states, but the EU now disposes of a governance framework in which claims to modify old-age policies in the welfare states can be raised. A look into the Commissions’ green and white book on pensions shows the line of argument: portability of pension entitlements is necessarily an issue of the single market. And the high financing costs of pensions are an issue for financial sustainability in EMU. The expected recommendations in the field of pensions will therefore rely lopsidedly on financial sustainability and not on the adequacy of pension entitlements.
Constantly, we are moving towards an even more liberal European Social Model. What we are losing on the national level in terms of competence to shape our welfare states by the new European economic governance structure is not given back to us on a supranational level.
It is primarily the Merkel administration in Germany which is to blame for the dominant crisis strategy and as a consequence for the problems we are facing and which will aggravate further still: structural reforms are necessary in the states in crisis but it would be more helpful if these reforms concentrate much more on increasing the tax bases and tax collection and on modernising and simplifying administrative machineries instead of excessively cutting down wages and social spending.
The basic problem with the austerity course is that Greece, Portugal, Ireland, Spain and Italy are caught in a trap of recession and debt. Through the fiscal multiplier, lower consumption and decreasing economic activity caused by the spending cuts and growing unemployment lead to lower taxes and an even higher public debt.
Without progress towards an European Social Model based on solidarity, the crisis will not be solved and welfare states will be dismantled even further. Therefore the austerity course has to be stopped. Also, the social and growth dimension of EMU governance reforms needs to be pushed forward, for example by setting up a European Social Stability Pact and a European New Deal Programme.
This is a shortened version of the author’s contribution “A New European Economic Governance Structure with major Shortcomings”, in: Fundación Alternativas/Friedrich-Ebert-Stiftung (Ed.): The State of the European Union. The Failure of Austerity, Exlibris Ediciones, Madrid 2013, pp. 67-77, http://www.fes.de/cgi-bin/gbv.cgi?id=09840&ty=pdf