On the social dimension of a genuine Economic and Monetary Union

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

Social convergence should be a key consideration as member states embark on a new round of integration to complete the EMU, otherwise it will result in an intensification of competition between them and social dumping, writes Maria João Rodrigues.

Maria João Rodrigues is professor of European economic policies at the Institute of European Studies (Université Libre de Bruxelles) and policy advisor to the EU institutions. 

"Redesigning the EMU is now a fundamental exercise to overcome the financial, economic, social and political crisis of Europe.

Four main building blocks are being considered in the report prepared by President Van Rompuy: an integrated financial framework, a budgetary, an economic and a political one. Now, It is also important to clarify the terms in which a social dimension should be considered in this fundamental process.

The central question European institutions should address seems to be: how can we ensure the long-term sustainability of the EMU and make it a platform to improve prosperity and democratic citizenship in Europe? Fiscal discipline, financial responsibility, growth and stronger competitiveness for a new growth model are certainly key principles.

But the same clearly applies to a certain degree of upward social convergence, which should also be considered a key principle to ensure the long term sustainability of the EMU. The central purpose of:

  • The new financial framework is to ensure a responsible and supportive financial system, by creating a stronger European supervision mechanism;
  • The new budgetary framework one is to ensure stronger fiscal responsibility and European surveillance in exchange of a certain level of fiscal solidarity, by defining a European democratic fiscal authority;
  • And of the new economic framework one is to coordinate reforms and investments, by strengthening a common strategy for growth and jobs and monitoring macro-economic imbalances.

These can be very important improvements of the EMU, but if there is not a clear frame for social coordination and convergence when the member states accept sharing higher levels of their financial, budgetary and economic sovereignty, the normal consequence will be intensification of competition between them, notably by downgrading their social conditions.

This is something economic theory can predict with a high level of certainty. This trend will  first affect the euro-area members with lower competitiveness and will spread gradually to all the others, creating a downward spiral based on a institutionalised social dumping, which will downgrade, wages, social contributions, social standards and ultimately the basic ingredients of quality of life and of forward looking competitiveness in Europe. Later on, this trend will also undermine the economic, financial and fiscal stability of the EMU, due notably to uncontrolled movements of people and capitals.

Therefore, which are the minima conditions to consider this indispensable social dimension when reshaping the EMU towards the new envisaged one?

  • A clear definition of basic social standards to be respected in the eurozone, and to be promoted in the relationship between the EU and its external partners
  • A definition of targets for social progress in the frame of the European growth strategy
  • A stronger monitoring and coordination of social reforms and jobs plans in the frame of the national reform programmes
  • Stronger means for social investment to be considered in the Community Budget and in the European surveillance of the national budgets. These means for social investment should be used as conditional incentives for the progress in these social targets and reforms
  • A surveillance of the macroeconomic imbalances and a better macroeconomic coordination, which should also consider their social indicators and not only the economic and financial ones
  • The development of a European Fund to cushion major social macroeconomic shocks, if there is higher coordination of eurozone member states regarding tax and social contribution policies

Finally, these developments also require an adaptation of the current institutional setting:

  • Meetings to improve the  coordination of Social ministers regarding the specific issues of the eurozone, which should also involve the European Commissioner for Social Affairs
  • A more active role of the European Parliament in the different stages of the  European semester and its internal organisation to deal with the specific issues of the eurozone
  • The development of procedures of social dialogue able to cope with the specific issues of the eurozone

A genuine Economic and Monetary Union without this kind of explicit social dimension will not be genuine, because it will simply not survive.

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