The link between social policy and monetary policy integration
It is precisely these questions that could have been asked, and were in fact asked, in the middle of the 1980s and 1990s. Remarkably, the answers today are not much different than they were back then. Then as now, the question of social policy integration is directly linked to the question of the future of European monetary integration. Then as now, the question was raised of strengthening the role of the EU in the area of social policy as a reaction to growing fears that eliminating the traditional monetary and fiscal policy instruments of the individual governments under the economic and monetary union (EMU) would weaken the social welfare instruments at national level.
In fact, the 1980s with the continuing implementation of the internal market programme and the preparation for the decision to form the EMU considerably intensified the competitive pressure, particularly for several southern European countries. The EU responded at the beginning of the 1990s by paving the way to the EMU with the Treaty of Maastricht by significantly expanding interregional transfer payments – known as the second Delors package – and broadening their legislative powers in the area of social policy. The latter included the possibility of qualified majority voting in new areas which was approved through the signature of the social protocol that was part of the Treaty of Maastricht.
The North-South dimension
The North-South dimension of these decisions was impossible to ignore. In the second half of the 1990s, the wave of consolidation that took place prior to the introduction of the euro showed the close relationship between fiscal policy coordination and the question of how much flexibility individual countries have to structure their social policy instruments. Italy was one example of how profound the reform policy was. At the same time, the persistently difficult situation on the European labour markets led the EU to try and show more capacity for action in this area. This time, the focus was not strengthening financial instruments and expanding legislative powers but establishing a system of increased coordination of national social and employment policies.
The East-West dimension
At this point in time, the question of the role of the EU in relation to the future of the welfare state, however, had not only taken on a North-South dimension but also an East-West dimension. The central importance of the euro crisis for the European agenda currently involves the risk that the future consequences of the EU’s eastward enlargements that took place in 2004 and 2007 were underestimated in terms of the social dimension of European integration. This historic expansion of the EU was 'cheap' for the EU budget compared to the Delors II package in the 1990s. But the social policy divergence in the EU has actually massively increased with the enlargements. It would be naive to think that this will not have any medium- and long-term consequences for cohesion within the EU. The economic and financial crisis has also left a considerable mark in most of the new member states.
More legislative powers and more coordination
Both models to invigorate the social dimension of the EU – more legislative powers and coordination – have failed up to now. Starting at the end of the first half of the 1990s, the expansion of the European social legislation came to a de facto standstill in terms of the substantial content of the measures. The new coordination agenda included many interesting approaches but failed because it lacked political support at the highest government level. The example of fiscal policy coordination shows how important it is that the heads of state are directly involved in the European Council when it comes to the core areas of national economic and thus also welfare state policy. The Commission and the European Parliament cannot resist this logic. The European Parliament in particular, however, can make more use of it. Regardless, questions related to the future of the welfare state are first and foremost questions of the respective political majorities at both European as well as national level.
Into the crisis without a social agenda
The EU entered the current crisis without a social agenda. On the contrary, the drama surrounding the issue of financial policy coordination has completely pushed coordination of the social policy agenda out of the spotlight. Keeping the social dimension out of the discussion about financial consolidation will prove increasingly difficult. Member states that are in an extremely precarious situation will not be able to guarantee the long-term stability of their social security systems. Poverty in old age and extreme social distortion will be the result. The ability of the EU as a whole to make progress in these areas as originally planned is extremely limited. The compatibility of the social security systems within the EU will be more difficult to guarantee in the future. The increased inner-European competitive pressure makes progress in social standards through legislative measures even more unlikely than before.
Common European solution strategies at the highest level
Social policy is in need of attention at the highest political level. The Community methodʺ should not be played off against the importance of the intergovernmental coordination and vice-versa. The role of the member states as welfare states is far too important for this. The European welfare state doesn’t exist even though there appear to be good reasons for us to have one. It is certain that common European solution strategies are the only way to strengthen welfare state instruments and develop them over the long term. This will not be achieved through a technocratic process but requires a heavily politicised process the outcome of which outcome is uncertain. It is, however, clear that without new interregional financing instruments, the social agenda of the EU will not be rejuvenated. These types of instruments are only a sub-aspect of European welfare policy but the crisis is making this component more important than ever. The discussion requires countries, especially Germany, to change how they think.
Uwe Puetter is a professor at the Central European University in Budapest and director of its Center for European Union Research.
Translated from the German by Elisabeth Bunn