The eurozone crisis has transformed the debate on 'Social Europe' and threatens to undermine the pro-Europe sentiments of the left, writes Olaf Cramme, a visiting fellow at the London School of Economics. He asks how the supporters of a 'Social Europe' could use the crisis in their favour.
This commentary was authored by Olaf Cramme, director of the Policy Network and a visiting fellow at the LSE's European Institute. He has written widely on the future of the European Union and European social democracy.
"The ramifications of the euro crisis can hardly be underestimated. It has brutally exposed the flaws of economic governance in the European Union. It has exacerbated the divisions between the fiscally more prudent northern countries and its less conservative southern partners. And it has sparked off a new debate about the possibility of a multi-speed or two-tier Europe – not so much out of choice but out of sheer necessity. EU emotions are flying high: some foresee the looming spectre of a transfer union, a bottomless pit if you like; others fear servitude or paternalism from a faceless Brussels. There is anger, hope, resentment, ambition and indifference all at once. Things have visibly changed.
Supporters of a more 'Social Europe' ought to carefully take note. This new set of circumstances has considerably altered their battleground. National politics and European policy have suddenly become much more intertwined while social priorities, from income stabilisation to employment protection, are being negotiated on many different levels across the Union.
Understanding these shifts is absolutely crucial. So far, arguments in favour of social Europe have often been made at the wrong time and on the wrong grounds, failing to raise the stakes or make sufficient impact on the debate. At least four examples persist:
First, there is the argument that the liberalisation of the single market, with its four freedoms (goods, services, capital and people), has led to a downward convergence in social security spending, in particular after the intake of the Eastern European countries. The evidence, however, suggests that fears over a cumulative 'race to the bottom', brought on by policy competition and migration, remain largely exaggerated or unfounded, even though opening-up has surely contributed to new domestic disparities.
A number of rulings by the European Court of Justice with regard to the Posted Workers Directive a few years ago – conceding primacy to the freedom of service provision over national collective agreements – briefly managed to generate genuine social outrage, but ultimately failed to resolve the underlying tensions: namely how to establish common ground on the level of social protection between countries in different stages of economic development.
Secondly, it has been advocated that the EU is well placed to shield its citizens from the harsh effects of international economic competition. Adherents of this view tend to frame the Union's new 21st Century raison d'être along these very lines: if the market has become truly global, 'market correcting' must now be increasingly European. This logic demands centralised coordination in those social policy areas where positive scale effects can be identified – that is where policy is more effective if implemented jointly; for instance thanks to lower implementation costs or better insurance.
Yet the extent to which globalisation actually contributes to negative developments remains controversial, not least in the labour market. Furthermore, convincing proposals about where the EU can genuinely add value in the social realm are few and far between. Limited initiatives, such as the Globalisation Adjustment Fund, consequently represent the best possible outcome.
Thirdly, there are those who, in the aftermath of the EU referenda in France, the Netherlands and Ireland, assertively seized the opportunity to deliver their own conspicuous verdict: 'Market Europe' has been rejected; what citizens really want is a more 'Social Europe'. A similar equation was formed against the backdrop of declining EU approval ratings, as regularly measured by Eurobarometer. The subsequent debate was mostly presented in divisive terms: negative integration – that is primarily removing barriers between member states – is bad, whereas positive integration, i.e. common rules and laws imposed by a higher authority (here the European Commission) to address whatever form of inequality or injustice, is usually good.
The crux of this approach is that it ignores the ongoing erosion of the permissive consensus which carried European integration over many decades. Euroscepticism, both hollow and intelligent, is on the rise, while the base of EU legitimacy looks worryingly shaky. If confidence in the market and public institutions is low, the classical dividing arguments are unlikely to apply.
Fourthly, the advent of European monetary union has led to concerns about member states losing control over demand side policies – which they traditionally used to counter adverse societal developments. In other words, a systematic policy of public investment would have become impossible due to the budgetary restrictions imposed by the convergence criteria of the Stability and Growth Pact.
From this perspective, in order to compensate for the diminished room for manoeuvre of individual member states in welfare and employment, the liberal or conservative economic order ought to be countered by a stronger emphasis on preventative social policies at the EU level. Proposals in this direction often resort to a 'grand bargain' between continuous liberalisation of the single market to foster cross-border activity and convergence on the one hand, and stronger coordination, if not limited harmonisation, of social policies as well as targets on the other.
Many socially-minded policymakers and experts seem to believe that this line of reasoning can deliver the most promising results. They rightly point to the numerous achievements, from anti-discrimination legislation to common objectives on social inclusion to joint efforts towards labour market modernisation, which were essentially brought about using this kind of approach.
In the wake of the euro crisis and in the context of the raging debate over EU economic governance, it is clear that such an approach can offer some greatly renewed opportunities. However, it also begs a more fundamental question: is a 'Social Europe' which goes beyond a limited acceptance of social policy as a productive factor at all compatible with the institutional design of Economic and Monetary Union (EMU) as proposed by Europe's governing elites?
For some, like Professor Fritz Scharpf from Germany, the endpoint has now been reached. He argues that a re-balancing of the eurozone which is socially and economically acceptable to all member states and the populations-at-large has basically become unfeasible under the current framework and conditions. Instead, if the EU wants to rebuild its support and reconcile the reforms with divergent national and societal interests then it would need to revoke certain elements of economic integration.
Others, like Andrew Watt from the ETUI, want to take the logic of a 'grand bargain' much further and propose the use of social policy instruments and mechanisms to directly address the destabilising imbalances inside EMU. According to this view, a euro-wide incomes policy, for instance, could actually dissolve the mounting tensions between the perceived economic imperatives and the social demands arising in different member states.
What does this mean for the future of 'Social Europe'? For a start, we may well see a growing divide within the camp of its supporters. And this divide might carry a heavy price: it directly challenges the hitherto pro-European instincts of many politicians and thinkers on the left while cutting dangerously across its constituencies. If we want to curb this development, much deeper thinking about the feasibility of a more social Europe is required."