In fact, this succession of initiatives and decisions is part of a longer-term trend: over the last few years, the Commission steered away from an emphasis on austerity and competitiveness that came to be seen as one-sided. Already in 2013, the Commission’s Social Investment Package signaled the need to broaden the agenda. ‘Below the radar’, social issues became gradually more important in the European Semester process. It is my contention that the Eurozone crisis has triggered the beginning of a cautious paradigm shift, at least on the level of the Commission. Will this paradigm shift be translated into operational policies and tangible results? To answer this question, I first elaborate on the paradigm shift and then I return to the problem of delivery.
The paradigm shift, as I see it, essentially signals a new attempt to answer the economic, employment and social policy challenges created by EMU. The upshot of the new thinking is that monetary unification imposes a degree of convergence in some key features of the participating Member States’ social and employment policies; my emphasis is on ‘convergence’ (not: uniformity) and on ‘some’ (in some policy domains, not in all domains). Admittedly, the idea that there is a social policy corollary to monetary unification is not new. Already in the 1990s, reform in labour markets was justified by the advent of the monetary union. The 1997 European Employment Strategy emphasized supply-side flexibility: an agenda for flexible labour markets was interwoven with an agenda of investment in individual labour market opportunities and the development of ‘enabling’ policies; together, this would create ‘flexicurity’. In the immediate aftermath of the financial crisis, the drive for convergence in the functioning of labour markets gained new momentum in the EU’s policy discourse, as part of what is called ‘structural reform’; one element of this was the repeated call on Member States to decentralize their systems of collective bargaining, which can be seen as yet another instance of the need for ‘flexibility’.
In a nutshell, the new paradigm adds ‘stability’ as a desideratum to ‘flexibility’: stability both in terms of the avoidance of large financial and economic shocks, and of a stable development of the wage share in national income. I will elaborate upon the first understanding of ‘stability’, and then return briefly to the second understanding, the stability of the wage share.
A basic insight, that has gained prominence in the Commission’s thinking, is that nearly all existing monetary unions are true ‘insurance unions’. They not only centralize risk management with regard to banks, they also centralize unemployment insurance. EMU is the one exception, but it is gradually developing policies driven by the need for mutual insurance, notably in its progress towards a Banking Union. Next to Banking Union, the Commission argues that EMU also needs fiscal stabilisers; to achieve this, one of the options would be the re-insurance of national unemployment benefit schemes at the Eurozone level. The reference to unemployment insurance is not happenstance: unemployment insurance supports purchasing power of citizens in an economic downturn, and is therefore an ‘automatic stabiliser’ par excellence. Existing monetary unions either opt for a downright centralisation of unemployment insurance (like in Canada or in Germany), or they demand some convergence in the organisation of unemployment insurance and provide a degree of reinsurance and centralisation when the need is really high (like in the US, which combine centralisation and decentralisation in unemployment insurance).
This is rational behaviour for two reasons. First, risk pooling enhances resilience against asymmetric shocks. The second reason also applies when shocks are symmetric across the whole Union and risk pooling across Member States has no added value per se. National insurance systems create an externality; a country that properly insures itself, also helps its neighbours. Therefore, the concern with the stability of the Eurozone entails a cluster of policy principles to sustain an effective stabilisation capacity in each Member State: sufficiently generous unemployment benefits, notably in the short-term; sufficient coverage rates of unemployment benefit schemes; no labour market segmentation that leaves part of the labour force poorly insured against unemployment; no proliferation of employment relations that are not integrated into systems of social insurance; effective activation of unemployed individuals; and the constitution of budgetary buffers in good times, so that the automatic stabilisers can do their work in bad times.
The social and employment policy principles mentioned above are part and parcel of the European Pillar of Social Rights. These principles become a fortiori imperative, as quid pro quo, if the Eurozone were equipped with reinsurance of national unemployment insurance systems; but even without that perspective, such ‘stability-related’ principles should figure on the Eurozone’s agenda. This testifies to the coherence of the Commission’s approach.
However, the Pillar is not only about unemployment insurance and related policy issues. It defines 20 principles, organized in three categories: (1) equal opportunities and access to the labour market; (2) fair working conditions; and (3) social protection and inclusion. Some principles are well-known, as they have already been formulated in the context of earlier efforts to coordinate the Member States’ policies. Other principles are relatively new at the European scene, such as the objective to ensure adequate minimum wages. The communication on the Pillar is ambitious: it is said to be about “delivering new and more effective rights for citizens”, and Commission President Juncker called for agreement on the Pillar “to avoid social fragmentation and social dumping”. That message is clearly not confined to the Eurozone but applies to the EU at large. However, in the next paragraphs, I first return to the specific challenges of EMU.
Eurozone’s Member States also need labour market institutions that can deliver on wage coordination, to sustain symmetry in wage cost developments and thus prevent divergence in competitiveness and macro-economic imbalances. With a view to wage coordination, totally decentralised and uncoordinated bargaining systems are an institutional liability rather than an asset. This insight is also re-emerging, witness a recent paper by the Director General of DG ECFIN, arguing in favour of coordinated bargaining in general, and higher wage growth in Germany and the Netherlands in particular; implicitly, what is called for is a set of policies that sustains a sufficiently stable wage share in national income. The one-sided insistence on decentralization of collective bargaining, that dominated the European policy discourse for a number of years, has been abandoned.
In short, the new thinking implies that a well-functioning EMU needs a consensus on labour market institutions that support both flexibility and stability. Flexibility was associated with ‘enabling’ policies: equipping people with adequate skills would empower them and thus recreate individual security. To achieve stability, one needs collective action: collective bargaining, but also the organisation of collective insurance devices. Stability requires instruments that typically protect vulnerable individuals: unemployment insurance stabilises the economy, because it protects the purchasing power of the unemployed. In other words, stability is intrinsically associated with collective action and ‘protective’ policies. Enabling and protective policies can be mutually reinforcing in creating resilient social systems.
In addition, the monetary union calls for integrated competitive markets for goods and services as well as for cross-border mobility of labour. This in turn entails a social corollary. For instance, next to reform in the regulation of posting, national minimum wage regimes should be transparent, predictable and universal in coverage. An upshot of the argument is that, on an analytical level, one should carefully distinguish between (i) the ‘social corollary’ of EMU, and (ii) the ‘social corollary’ of the Single Market; they partly overlap, but are also different. The Reflection Paper on the Social Dimension of Europe of April 2017 is insufficiently clear about this.
Since a number of interrelated initiatives with regard to the EU’s social dimension all reached the status of a formal proposition in 2017, this year may indeed be marked as a turning point. However, the jury is still out on the final delivery. Important questions are pending, both on the ideational level and on the level of practical politics.
Although the Commission’s work can be interpreted as signaling a new paradigm about the relationship between economic and social aspects of European cooperation, the public debate remains handicapped by the absence of clear analytical thinking about the nature of a European Social Union, i.e. a European Union that is not itself a welfare state, but supports and facilitates the development of flourishing national welfare states. With reference to an expression sometimes used in developmental psychology, a Social Union creates a holding environment, which takes care of welfare states and is seen – by citizens – as taking care of welfare states and what they mean for individual citizens. Thus, a European Social Union answers the broad-felt need for a ‘caring Europe’. Simultaneously, a European Social Union has to be a clear-cut institutional and normative concept: it requires clarity about the role the EU should play in social policy, and about the role it should not play in social policy. Also, with regard to the substance of the policies to be developed by Member States, more thinking is necessary about the way in which notions of ‘social insurance’ and notions of ‘social investment’ have to be combined.
A delicate political question, directly related to the analytical issues mentioned earlier, is whether the implementation of the European Pillar of Social Rights can proceed at a different speed in the Eurozone as opposed to the EU27. The Commission’s statement that the Pillar is “primarily conceived for the euro area but applicable to all EU member states wishing to be part of it” is analytically coherent, but, politically, such a differentiation is not well received in a number of Member States.
From the outset, launching the Pillar implied a huge political risk: although it is not formally about justiciable ‘rights’, the language of the Pillar speaks to individual citizens. If the EU does not deliver on the promise enshrined in the Pillar, the initiative will backfire and create frustration. Hence, it is important that the Commission, the Council and the Parliament develop a credible roadmap to deliver. Delivery presupposes that different instruments are combined to implement the Pillar’s principles: EU legislation; policy coordination and benchmarking; and EU funding. These principles should play a tangible role in the European Semester and fiscal and macro-economic surveillance. A credible roadmap also requires the selection of priorities: a short list of priority actions that is fully implemented is much better than a long wish-list that is only implemented half-heartedly.
Finally, the key political question is whether the Member States will allow the EU to proceed on the basis of the new paradigm I sketched in this contribution, notably with regard to the completion of EMU. At the time of writing – waiting for a new German government – it is unclear what to expect from the Franco-German axis in the sensitive questions that are still pending with regard to the Eurozone. In this respect, the position defined in the new Dutch government’s coalition agreement is worrying: rather than keeping options open, the coalition agreement explicitly excludes not only generic notions but also specific instruments that might fit in a deal on the completion of EMU, such as a ‘fiscal capacity’, ‘common lending’, etcetera. If the Netherlands wishes to play a creative role in Eurozone negotiations, this policy stance is counterproductive. In the end, keeping an open mind with a view to finding an agreement on the completion of EMU is in the national interest: for a highly competitive Member State that benefits enormously from an open international environment, such as the Netherlands, it is of vital importance that EMU provides a stable environment, as much as that is the case for any other Member State. Moreover, many of the issues tackled by the European Pillar of Social Rights, which can be seen as a social corollary of a completed monetary union, feature high in the domestic policy debate in the Netherlands. Therefore, smaller Member States, such as the Netherlands, might see the new framework created by the Commission as an opportunity rather than a threat.
About the authors
Frank Vandenbroucke is University Professor at the University of Amsterdam, and served as Minister for Social Security, Health Insurance, Pensions and Employment in the Belgian Federal Government (1999-2004), and Minister of Education and Employment in the Flemish Regional Government (2004-2009). His research focuses on the impact of the EU on the development of social and employment policy in the EU Member States.