Plea for the Defence of the European Social Model

The EU has done a lot in the economic crises of recent years to save banks, promote competitive structural reforms and insist upon budget overhauls in member states. But it has done little to protect its social dimension, let alone sustain and extend it. Anyone wishing to support a social Europe is confronted with two challenges simultaneously: on the one hand, correct the economic bias of the EU that has existed since the start of the integration process, on the other, provide a convincing answer as to how to correct the injustices arising out of the deep social divisions of Europe in the wake of managing the crises.

Welfare states in competition

In 2017 the European Pillar of Social Rights (EPSR) was proclaimed after a prolonged withdrawal of anything ‘social’ from the European agenda over the years. This was a striking effort to respond to the – quite properly – ever-louder questions from ordinary Europeans as to whether the EU is simply the catalyst for more pro-competition globalization or is capable of protecting them from it. With the Pillar of Social Rights, the member states were forced to concede a set of 20 principles for promoting equality of opportunities and access to the labor market (chapter I), fair working conditions (chapter II) and social protection and inclusion (chapter IIl). But these principles do not constitute mandatory, enforceable rights if these had not already been enshrined within the Lisbon Treaty – as is the case for gender equality and anti-discrimination. Because it is not set in primary law and given the sluggish development of secondary law in the social domain, the European Commission recently tried to inject the Pillar of Social Rights into the European Semester. But this initiative has to battle against the predominance of budget surveillance, now even more firmly anchored since the structural reforms of the euro crisis, within the Stability and Growth Pact and the Fiscal Compact. The ‘constitutional asymmetry’ (Fritz W. Scharpf) between a strongly developed, market-creating economic integration and a relatively lagging, market-shaping social integration still holds true.

The EPSR will, therefore, not suffice, as a temporary bridge of political coordination in the shadow of economic integration plans, to restore sight to the blind social eye of the EU. That would require an end to the second-order treatment of social policies at Community level. A multitude of social policy actors have been busiest in recent decades in protecting the social gains of their respective national welfare states from the changes wrought by market liberalism. They thereby failed to extend their defensive strategy with a pro-active element at EU level. This meant that the big integration projects of the Single Market and Economic and Monetary Union (EMU), with their primarily market-creating structure, led to ever-greater pressure on national employment and social policies. By the time of the euro crisis at the latest it was obvious that a pro-active strategy for defining and implementing social targets at European level was/is required. For the alternative is the further undermining of national welfare states via the demands of an economic integration framework that is set on market expansion, political non-intervention and competition. There should be no more rivalry among welfare states as to which model is best adapted to the market. No more treating the integration process uncritically as the catalyst for a globalization driven by financial markets.

Social Europe cannot come about through a competitive race to harmonize welfare states according to the principles of deregulation, privatization and greater flexibility as the apologists of the Third Way tried in their push for modernization in the 1990s and 2000s. They were sure then of being applauded by all those who wanted to further reduce decommodification (‘degree to which individual, or families, can uphold a socially acceptable standard of living independently of market participation’) to the objective ‘social amounts to job-creating’ (as one could still read in the CDU election manifesto of 2017). The solution does not lie in holding fast to national rules while simultaneously hoping for less pressure through market-creating structures. A twin strategy alone points the way forward: protection of extant national employment and social protection standards comes through establishing a European social policy framework. This framework must, however, be endowed with sharper teeth than what passes for employment and social policy coordination today. Of course, in 2000 the original version of the Lisbon Strategy embraced the goal of a twin obligation to foster economic growth and competitiveness as well as social security and cohesion. But the established coordination mechanisms have proven too weak to resist the shift to a market-liberal Zeitgeist. At EU level social policy has increasingly been treated as a burdensome appendage and obstacle to increased competitiveness. At most it was seen as playing a part in creating a level playing field in the area of anti-discrimination, cross-border portability of social benefits and aftercare for those at risk of poverty. In the euro crisis, even this aspect collapsed – the increase in being at risk of poverty was simply taken on board in austerity policies.

Cherishing the European social model

The good news about constructing social Europe is that there is a common basis, a type of ‘elective affinity’ (Colin Crouch) among the often very different welfare states. They make up the characteristics of the European social model. They include – whatever the welfare model but quite distinct from many other parts of the world – a pro-active regulatory state; protection under labour and social legislation for employees and collective bargaining; social protection from the important risks of life associated with old age, unemployment and sickness; avoidance of poverty; a social security system built on taxes and contributions; the use of financial redistribution to retain social cohesion. These particulars mark the European social model as such. Its core characteristic is the long historical struggle for social security, for regulating and limiting market forces as well as guaranteeing and institutionalizing ‘welfare rights’ (Thomas H. Marshall). Absent this historic pathway that has been closely linked with the workers' movement since the age of industrialisation, there are strict limits to setting up comprehensive welfare systems. This is not only the case in developing and emerging countries but also in developed economies – just think of the long, apparently unending row in the US about introducing obligatory health insurance for all Americans (‘Obamacare’).

For non-European countries the European social model is a success story. But in the EU it's little appreciated. Since the ground-breaking work of the sociologist Gøsta Esping-Andersen on the three worlds of welfare capitalism came out in 1990 experts have stressed the differences among European welfare states. At the same time and under pressure from advisers steeped in financial markets, media campaigns and the search for cost-cutting modernization, politicians have set about running down the institutional variety and shared characteristics of this success story and, step by step but radically overall, amending it. There was no single procedure and dismantling the welfare state, its apparently unavoidable re-commodification, was not equally successful in all EU member states. Of course, countries started out on their reform plans from differing levels of social protection: while Great Britain had long been geared to a high level of market reliance, the Scandinavian states retained their universalism through moderate adaptations. Central and east European countries picked and chose from the toolbox of the welfare state those elements that best suited them – albeit by and large moving towards the liberal model since comprehensive social security had too many connotations with the socialism which they had just left behind. Corporatist welfare states with their Bismarckian social insurance systems proved stubbornly resistant: in Germany the social democrats finally took the lead and, in the 2000s, introduced greater flexibility to the labor market and partially privatized the pension system and services of general interest. In Austria, on the other hand, the same attempt, undertaken by the ÖVP-FPÖ (centre-right/far right) coalition under Wolfgang Schüssel, was beaten off by opposition from the trade unions and social democrats. In France, a few minor reforms took place under conservative and socialist aegis, but it was only under Emmanuel Macron's presidency that one could observe a distinct shift to the Third Way of Schröder/Blair-ite social democracy – dead and buried elsewhere. Countries in southern Europe, long since classified as rudimentary welfare systems with their strong role for both family and church, after a promising promotion to the league of corporatist welfare states, with strong social partners and social insurance, eventually went into reverse because of the austerity policies brought on by the euro crisis. Today, for many jobless and socially excluded in Spain, Portugal and Greece it's once more the family that has to step into the breach with support where the Troika has cut social security to the bone and shredded protection against unfair dismissal and collective wage contracts.

Agreeing on a European social protocol

Social Europe can only transpire when the evolved systems of regulated market activity and social insurance are recognized as European unique selling points (USPs), as the distinctive expression of pro-active policies. Allowing the member states to set their own priorities in line with their diversified welfare systems, to protect these and, at the same time, set the strategic guidelines for a Community-wide social model – that would be a seminal task at supranational level. There will not be a single European social system in the near to middle future – albeit a pooling of earmarked funds via comparable forms of institutional investment is feasible as currently discussed in the case of a European unemployment (re)insurance scheme for the eurozone. But this would mean less of an institutional communitarization and more a variant of (re)distributive European social policy that would depend on the business cycle and therefore remain temporary and would thereby be clearly differentiated from the pursuit of strategic goals through the European social and globalization funds.

With regard to regulatory and co-ordinated social policy, political decision-making means an active effort to mitigate the asymmetry between market-creating and market-shaping dynamics in integration. As soon as possible the EPSR should be assimilated in its entirety within the Treaties. If this fails because of resistance from individual member states, the model – successfully applied in the Maastricht Treaty – of a European social protocol for a small group of states should be set in train. Drafts of such a social protocol are available: as early as 2008 the European Trade Union Confederation (ETUC) published a draft ‘social progress protocol’. This is about a protocol-like declaration added to the EU Treaties. It has the characteristics of primary law and lays down that in all member states social and worker rights have at least the same status as the four freedoms of the single market for goods, workers, services and capital. Incorporating the EPSR within EU primary law would, first, lend support to secondary law initiatives in the social field begun by the European Commission since the proclamation of the Pillar of Social Rights, such as the establishment of a European Labour Authority (ELA), working for more transparent and reliable working conditions or access to social protection for employees and the self-employed. Second, that would at a stroke, within the coordination framework of the European Semester, put it on a par with the economic policy procedures of the Stability Pact and Macroeconomic Surveillance. Beyond that, there would be a push towards greater democracy since the European Parliament could be involved through the normal legislative process more intensively in the expansion of the social dimension.

Setting minimum social standards in the EU

Policies to preserve and extend the European social model should take their place directly within EU coordination cycles. Treaty changes would certainly be the most comprehensive and clearest solution. Yet it is also right in the operational business of annual policy coordination to make good the missing balance between economic and social objectives. The EPSR basic principles are now monitored via a Social Scoreboard marking the development of income inequality, risk-of-poverty, employment rates and social benefits among many others. But the benchmark is simply set by the relevant EU average score. This can mean that a bad performance of all member states can award an outstanding mark to an objectively problematic but relatively well-positioned member state. But that makes little sense if one, as the Commission emphasises, wishes to breathe new life into the old promise of upward social convergence and make genuine social progress. What is required therefore is an agreement on quantifiable minimum social standards and targets. And a ‘one-size-fits-all’ solution as in the days of the open method of coordination (‘soft laws’) in the Lisbon Strategy can be ruled out: the institutional and socio-economic differences among the member states should be taken into account along with a percentage-based scale based on national variables. These include:

• A framework for a normative minimum wage of 60% of relevant national median earnings;

• a framework for basic income support, with benefits set according to the relevant national poverty rate;

• a framework for the provision of per capita social expenditures that match the long-term development of GDP;

• implementation of the long- and fruitlessly discussed Common Consolidated Corporate Tax Base (CCCTB**)** with minimum fiscal parameters based on current economic development status.

Such a cluster of social targets and minimum standards could take the place of the soon-to-end Europe 2020 Strategy and prevent types of dumping in wages, social benefits and corporate taxes. The goal is clearly defined: welfare states should no longer be played off against one another in competition for the best market position. Competition should take place among companies offering the most innovative and keenly priced products and not between welfare systems.

Social targets as the defining framework for the European social model are, indeed, merely one important component in breaching the current predominance of economic, especially budgetary coordination efforts. The tone is set in the European Semester by the council of economic and finance ministers (ECOFIN). They decide quite straightforwardly over topics for coordination in the fields of old-age pensions, health provision or labour market policy. Since finance ministers keep their eye firmly fixed on their national budgets, an economic reading of social policy goals – such as the Europe 2020 Strategy – has become the norm. This was taken to the extreme through the tightening of the Stability Pact and, most of all, in the adjustment programs for countries in crisis. Yet that should not remain the case. The structural discrimination against the council of employment and social affairs ministers (EPSCO) in the governance structure of the EU could readily be removed. Improved coordination on economic and social topics could be reached in joint sittings of both council bodies that could equitably resolve trade-offs between economic and social points of view. The precondition for this, all the same, is that employment and social affairs ministers must take on a much stronger profile as stakeholders, meet more often and take up the cudgels not just on dossiers of EU legislation but on developments in individual member states.

The key issue here is that social policy actors – appropriately organised parties, trade unions and welfare organisations/charities alongside the ministers – behave far too reactively, too modestly, sometimes even too slowly and are uninterested in reaching a European position. The Lisbon and Europe 2020 Strategies beforehand and now, to a greater extent, the Pillar of Social Rights offered and offer information on a silver platter about the social breaking points on the continent. A more intensive use of the rankings available through the Social Scoreboard of the EPSR on the societal health of the Union and its members should be a core task for social policy actors. This exercise would not just be confined to the Brussels and Strasbourg bubbles: national parliaments above all must regularly broach the issue of progress or otherwise in indicators and the gap to targets specified either at European or national level.

Implementing a Social Stability Pact for the Eurozone

The social cleavage in Europe rose significantly through the euro crisis and a mode of crisis management fixed far too long and one-sidedly on austerity policies. Closing social divides in Europe therefore demands a special focus on economic and monetary union (EMU). The lesson to be drawn from the euro crisis and its mismanagement is to avoid any deflationary policy in future economic downturns and keep in view the social impacts of the crisis and its management. To stem susceptibility to asymmetric shocks, member states should closely agree among themselves not only on spending policies but also on fiscal, social, labor and wages policies in the EMU. Eurozone states should therefore reach an understanding upon a Social Stability Pact. This would link objectives in the European Pillar of Social Rights that are relevant to EMU to a procedure against social imbalances once threshold values (yet to be decided politically) are exceeded or undershot in the Social Scoreboard. Equivalent to the excessive deficit procedure in the Stability and Growth Pact and the Macroeconomic Imbalances Procedure (MIP), a mechanism would be created for monitoring and penalizing social divergences within the member states.

The ending of the subordination of social goals under budgetary rules should not result once more in a return to the long-standing practice of treating different coordination cycles as parallel to each other without any mutual points of contact. To achieve a new balance between budgetary and macroeconomic coordination on the one hand as well as social and employment policy coordination on the other, the Stability and Growth Pact should be amplified by a golden rule on the exclusion of social investments from deficit procedures. In the discussion about EMU reform, planned instruments – such as the ‘reform delivery tool’ and the ‘investment stabilization function’ – should from the start, when it comes to their functionality and design, be tailored to EPSR targets set out specifically within the Social Stability Pact.

The core of this macrosocial governance must be the same as that for macroeconomic coordination within a renewed macroeconomic dialog in the eurozone. Employment and social affairs ministers, sitting alongside social partners and the European Commission, will join on equal footing with eurozone economic and finance ministers. Decision-making powers will remain of course with parliaments.

Conclusion: Give Europe the powers to shape policy

In the interplay of creative policy-making in the economic and social area, it would clearly not be enough to extend the EU or even just the eurozone socially. At the same time, there must be change in the market-liberal character of large-scale integration projects – following the motto: ‘there is no right life in the wrong one’ (Theodor W. Adorno). Loading the governance framework with social phrases is only of limited use so long as the market-liberal design of the grand economic integration projects remains uncorrected. Therefore, all actors involved in the expansion of the European social model should be more strongly aware of the links between economic and social integration. The European Pillar of Social Rights does create possibilities as to how Europe could become more social but the decisive argument as to whether the European social model adopts a market-liberal or more solidarity-based guiding principle is taking place in highly controversial questions on imposing limits on tax competition and wage-dumping, cross-border insurance for workers and the transformation of the eurozone from a stability union into a fiscal union. Reforming the EMU requires elements of transnational liability in any emergency situation and/or its prevention through a completed banking union, an automatic stabiliser – on the lines of a European unemployment (re)insurance scheme or a eurozone budget – as well as closer economic policy coordination. The focus here must shift from the ‘one-size-fits-all’ fixation about public deficits and debt levels to a comprehensive coordination of macroeconomic decisions and employment and social policies that takes full cognizance of specific developments in the member states.

The expansion of the so far non-binding Pillar of Social Rights to a European Social Protocol endowed with minimum standards and a Social Stability Pact mirroring the economic coordination cycles established within the EMU would be sufficient answer to the twin challenge of the acute social division of the continent and the basic asymmetry of integration. Along with reforms of economic integration the defense of a European social model based on solidarity would give the opportunity to replace the predominant pro-market ethos with a new initiative for Europe as a creative political power.