Which way forward for Social Europe?

By François Denuit

 

‘Social Europe’. These two terms have been used to mean many different things. Do they refer to the current social policies of the European Union? To the need to have a common European social welfare system? To the development of a left-wing agenda to balance the current monetarist and neo-liberal mainstream? Social Europe is vaguely defined and certainly reflects a little of all the questions above. The European social dimension is at a crossroad where the desirability for common European solutions is high but the diversity of national political preferences, fiscal regimes and social protection systems often make them appear to be unlikely , and even unfeasible. Yet, there are proposals that deserve our highest consideration. For there is no Europe without a Social Europe.

 

“Smith abroad, Keynes at home”

To know what lies ahead, one needs to understand what lies in history. For the founding fathers, the integration of European economies was the key to social solidarity and the development of a European welfare compromise. The logic is simple: trade triggers economic growth and the welfare states are able, as a result, to provide a generous system of social security. In short, “Smith abroad, Keynes at home”.

This compromise has often been referred to as the European Social Model (ESM). Although it may seem like a nebulous concept because of the diversity of the social security models that exist in Europe, the ESM can be understood as the combination of a system of competitive economy with social solidarity and the principle of subsidiarity (according to which social policy is a national competence). Roughly, it is a commitment to common values: social justice, equal access to employment, health and social protection, universal access to education, gender equality, etc.

 

The European Social Model under pressure

If this worked well for some time, it did not last. After the glorious thirty, with the end of Keynesianism and the rise of new challenges such as ageing populations, declining birthrates and growing international competition, this model came under pressure. The increasing level of interdependence between the European Member States together with the removal of economic barriers in order to ensure fair competition and a ‘level-playing field’ have resulted in pressure to move towards uniformity in economic policies and a regulatory competition between the Member States.

This is the paradox of subsidiarity: to maximize uniformity of social policies, the EU should do nothing and let the four freedoms and competition exert their pressure.

This is the paradox of subsidiarity: to maximize uniformity of social policies, the EU should do nothing and let the four freedoms and competition exert their pressure. In the European jargon, ‘negative integration’ (the removal of barriers to market-making integration) has not been matched by a sufficient level of ‘positive integration’ (a harmonisation of market-correcting policies). This has resulted in social imbalances or ‘social deficit’.

 

Blood-letting policies

Moreover, the crisis of public debts and governments’ deficits and the lack of buffering mechanisms to face asymmetric economic shocks in a currency union have caused a wave of structural reforms and austerity measures in many European countries, putting a particularly heavy burden on their populations and the welfare states’ capacities to further a generous distribution of social benefits.

The justification for austerity? A political ramble on the fallacious ‘there is no alternative’ discourse. Yet, Joseph Stiglitz himself assimilates austerity to the medieval practice of blood-letting. Taking blood out of the patient to cure him of bad tumours often got the patient sicker. And then? Just take more blood out! For the Nobel Prize winner, Europe is on the path to mutual suicide…

Today, we face a disastrous situation: a quarter of the EU’s population is at risk of poverty or social exclusion and nearly a quarter of the young generation is unemployed in the Eurozone (with more than half in Greece and Spain). Yet, the European Social Model is stuck between the need to harmonise different social security systems, to create European social programs and to remain respectful of the diversity of the Member States social systems. It is true that the sectoral specialization and the different degrees of competitiveness existing within the single market, the complexity of fiscal regimes, the diversity of governments’ debts and the variety of the welfare models reveal an incredible challenge. Nevertheless, a very broad range of solutions exist.

 

Which way forward?

A first possibility would be to create new social standards, such as a universal guaranteed wage floor indexed for each country according to a living wage standard (66% of the national median). Posted workers should also be able to enjoy the same working conditions and legal rights as the nationals in order to reduce social dumping.

Another would be to create convergence (and not harmonization) using ‘corridors’. For example, a corridor for corporate taxes would define the range in which the national tax on company’s profits should be situated, thus diminishing their capacity to use fiscal dumping to put a downward pressure on wages and the welfare state’s budget.

A binding social agenda would be another way forward. Using the Open Method of Coordination (OMC), a group of States could formulate clear social targets and a set of sanctions. Similarly, social rights could be given an equal status as economic freedoms and added to the treaties in the form of a new protocol.

Besides, European programs of long-term social investments in human capital from early childhood to old age could prepare individuals to the challenges of the competitive knowledge economy. This would ensure a systemic support structure of the welfare states and compensate for the huge disparities between what has sadly been referred to as the ‘northern core’ and the ‘southern periphery’.

It is possible to go even further. To counterbalance asymmetric economic shocks (and their impact on the welfare states), some have argued in favour of an EU or EMU-wide employment insurance system to help the welfare states in times of crisis (e.g. a co-payment of 50% of benefits for 6 months). Others call for a European unconditional basic income for all legal residents in the EU without means-test or work requirement (see my article ‘the Universal Basic Income: a promising idea?’).

 

Europe needs a soul

Nice words such as ‘smart, inclusive and sustainable growth’ now need to be translated into concrete deeds. Europe 2020 agenda has clearly not been a priority. To caricature, if a quarter of its youth is unemployed Europe does not care but if a deficit is a few points too high, beware! Today’s reality shows a prioritization of national egoism and technocratic governance over sound economic policies and social fairness.

It is time to understand that national solidarity is intrinsically linked to pan-European solidarity. It is time to understand that our common purpose ought to be a democratic, generous and caring Europe. It is time to understand that Europe needs a ‘soul’.

It is time to understand that national solidarity is intrinsically linked to pan-European solidarity. It is time to understand that our common purpose ought to be a democratic, generous and caring Europe. It is time to understand that Europe needs a ‘soul’. Its legitimacy depends on it. For there will be no Europe without a genuine Social Europe.

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