Social dimension of the EMU: the road half taken

Disclaimer: all opinions in this column reflect the views of the author(s), not of PLC.

At this month's European Council (24-25 October), EU leaders are supposed to discuss the social dimension of the economic and monetary union, a proposal launched by the Commission, early October. Ideas are floated, but the initiative lacks ambition and far-reaching steps, writes Andrej Stuchlik.

Andrej Stuchlik is project manager at the Brussels office of the German think tank Bertelsmann Stiftung.

"On 2 October 2013, the European Commission presented a long expected initiative to cope with the social dimension of what has become coined as “genuine monetary union”.  Alas, the communication failed to trigger genuine enthusiasm. Arguably, this has a lot to do with the technicalities of the indicator business itself.

But criticism also stemmed from the fact that the final text did not live up to the high expectations attached to it. Originally, the communication was supposed to be the final block of the four presidents’ consultations on the European Monetary Union (EMU) and how to induce a social pillar to it. The final text, already due in June, lacks a concise road-map for ex-ante coordination instruments to prevent social imbalances. Instead, out of the three “building blocks” of the original draft, only the enhanced social surveillance and the selection of five headline indicators received the approval by the college of Commissioners.

The other two blocks, to introduce minimum social standards regarding labour and welfare state functioning and to allow for contractual arrangements including financial solidarity mechanisms, did not make it into the text. Quite the contrary to Commissioner Andor’s claim last month that the social dimension would have to consist of rules, procedures and capacities.

Scoreboard discussions at the summit – Managing expectations

This October’s summit of the heads of state and government is supposed to “look at the social dimension of the EMU” and “policy areas relating to strengthening economic policy coordination”. Yet, it has to pick up too many loose ends at the same time and the Commission’s five social indicators are just a tiny fraction of it. Apart from discussing the overall framework of economic policy coordination, the quest for macroeconomic indicators is not over yet. During the last weeks, member states had been asked to add economic indicators which would allow for a better ex-ante supervision of macro-economic imbalances.

Therefore, the ambitious set-up of a complementary social surveillance runs the risk to become just an auxiliary tool for the fiscal and economic arm of the European semester. For instance, in order to live up to its expectations, a social scoreboard should be able to conduct in-depth assessments of major employment and social imbalances, just along the lines of ECOFIN’s in-depth reviews.

Given this background, this European Council will not produce major outcomes, rather only a first exchange of views on strengthening the social dimension of the EMU. Nonetheless, the Commission’s proposals go into the right direction and should be endorsed at the European Council meeting in December. Measuring unemployment, household income and inequality do address the real issues.

A better surveillance of employment and social challenges will help to detect threats of social imbalances in the member states so that measures can be taken at an early stage. Still, beefing up surveillance is just half the story.

Outlook – automatic stabilizers and a fiscal capacity are more than an option

In order to create and foster a genuine social dimension of the EMU, more ambitious and far-reaching steps are necessary. As we have seen in the current crisis, external shocks can have a severe impact on member states with negative spill-overs leading to high unemployment and a rise in poverty risk which eventually jeopardises social cohesion as well as it crowds out public support of the EMU as a whole.

Concepts for automatic stabilizers and a fiscal capacity for the Eurozone need to become more than mere options. Due to political opposition from some member states and yet regrettable, the European Commission had to downplay its ambitions vis-à-vis the June draft of the communication. At present, there are several options for automatic stabilizers on the table: a Cyclical Shock Insurance, a European Unemployment Benefit Scheme, or a European Reinsurance Fund for member states, and more.

All of these have their pros and cons, but most importantly, they do not trigger welfare redistribution as critics often presume. Some of them might be fairly easy to implement whereas others would require treaty changes. To set the right pace for the presumably crucial summit in December, the heads of state or government will have to be bolder than the European Commission."


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