A European Social Union: Unduly Idealistic or Inevitable?

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A European Social Union: Unduly Idealistic or Inevitable?
Frank Vandenbroucke*
ABSTRACT
This article summarises a lecture delivered at the EIB on 5 March 2015, on the idea of a European Social Union.
The main argument is that a basic consensus on the European social model has become an existential
necessity for the EU. A consensus must be reached on the respective roles of EU institutions and national
governments in social policy, and on the general objectives and standards of the European social model. The
Greek crisis, which is not resolved at the moment of writing, highlights the complexity of the challenge, but
also its urgency. To illustrate the potential for such a consensus, reference is made to a report published by the
think tank Friends of Europe, ‘Unequal Europe: Recommendations for a more caring EU’. Reference is also
made to some elements of the recent report ‘Towards Economic Union – Convergence, Prosperity and Social
Cohesion’ by the Presidents of five major EU Institutions – known as the Five Presidents’ Report – which
shows a growing awareness of the need to incorporate the social dimension in our thinking on the future of
the EU. However, the Five Presidents’ report underestimates the education agenda that confronts the EU.
Finally, it is argued that the Greek drama illustrates first and foremost a ‘deficit in common purpose’ rather
than a democratic deficit in the EU. A sense of common purpose, notably with regard to the European social
model, is essential for the Eurozone and the EU to survive.
* Professor at the Katholieke Universiteit Leuven
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A European Social Union: Unduly Idealistic or Inevitable?
Frank Vandenbroucke
The founding fathers of the European project were convinced that economic integration would
contribute to the development of prosperous national welfare states, leaving social policy concerns
essentially at the national level. History has not proven them wrong, at least until the mid-2000s.
However, the experience of the crisis forces us to reconsider the question: how can the EU be a
successful union of flourishing welfare states? It is obviously necessary to restore economic growth,
but this short-term urgency cannot be isolated from the imperative to develop a social policy
concept for the EU, i.e. a basic consensus on the respective roles of EU Institutions and national
governments in social policy and on the general objectives and standards of the European social
model. The argument is not that the EU should become a welfare state itself. However, restoring the
social sovereignty of the Member States, with the EU strictly confining its role to economic and
monetary policy – a call which can also be heard – is not an option, unless we are ready to trade in
illusions. Hence, we need a coherent conception of a European Social Union, even if we may not like
that expression.
The core idea can be summarized as follows: a social union would support national welfare states on
a systemic level in some of their key functions; it would guide the substantive development of
national welfare states by indicating general social standards and objectives. The ways and means to
implement social policy would be left to Member States, with due respect to their different historical
legacies and institutions. The idea of a ‘social union’ does not refer to a separate pillar, to be added
to existing pillars. It aims to clarify what is the point and purpose of a social dimension to the
European project. One could also say that it describes the ‘social contract’ which the EU needs,
between its Member States and between its citizens. Rather than focusing on the terminology – this
contribution is not about political communication, let alone political marketing – my aim, here, is to
focus on the concept we need.
Although that concept may sound unduly idealistic, it is not: it allows for the piecemeal progress
which often characterizes EU politics. To illustrate this, I will relate elements of my argument to the
Five Presidents’ Report on Completing Europe’s Economic and Monetary Union, which has now been
published.1
I will not discuss the Five Presidents’ Report in globo, but only to show how the idea of a
European Social Union can serve as a benchmark concept for the direction the EU should take.
The incomplete monetary union
A social union, so conceived, is not only desirable but necessary. This argument is partly based on
the functional implications of a monetary union. Well-known economic theory explains the benefits
and drawbacks of monetary unification in terms of trade-offs. Members of a currency area are
confronted with a trade-off between symmetry and flexibility. Symmetry refers to movements in
The report was drafted by the Presidents of five major EU Institutions: the European commission, the
European Council, the European Central Bank, the Eurogroup and the European Parliament
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output, wages and prices. Flexibility relates to wage flexibility and interregional and international
labour mobility, which determine a country’s internal adjustment capacity in case of an asymmetric
shock. Less symmetry necessitates more flexibility: the less symmetry there is between the countries
of a single currency area – e.g. in productivity growth – the greater the required capacity for internal
adaptability in order for the monetary union to be beneficial. In this traditional textbook analysis
‘adaptability’ is understood mainly in terms of labour mobility and/or wage flexibility. There is a
second trade-off: if asymmetric shocks can be absorbed through fiscal transfers between the
member states, then the need for flexibility is reduced. Obviously, fiscal transfers, even if they are
not permanent but only temporary and reversible, require a readiness to organise solidarity among
the members of the monetary union.
Since 2008, we have learned that the traditional textbook description of these trade-offs is
insufficient to understand the Eurozone crisis. Design failures of EMU made it unstable and fragile: it
lacked both a banking union and a central bank that was ready to be lender of last resort, if
necessary. The Five President’s report now adds to this that the Euro area also needs a fiscal
stabilisation function. Indeed, both a lender of last resort and a fiscal capacity are indispensable to
support Eurozone welfare states in one of their key systemic functions, stabilization in times of
economic crisis. The idea of a fiscal stabilisation function, which implies fiscal transfers in one way or
other, remains at a very generic level in the Five Presidents’ Report. Admittedly, it raises complex
political and technical questions, and different options can be pursued. It is therefore urgent to
clarify this idea. Fundamentally, both with regard to the completion of banking union (which raises
issues of mutual insurance) and fiscal stabilisation (which can also be understood as the organization
of a kind of mutual insurance against adverse economic circumstances), the Five Presidents’ Report
signals an acute awareness that we need to organize more solidarity in the Eurozone.
The organization of solidarity requires mutual trust. Solidarity on the basis of mutual insurance is a
rational option, but even the most rational individuals will not engage in mutual insurance, if they do
not trust each other sufficiently. European solidarity requires mutual trust with regard to the quality
of the social fabric in the Member States, notably with regard to their capacity to deliver on
competitiveness and sound public finances. What we have also learned since 2008 is that exposure
to market forces has not in itself produced discipline in the monetary union. On the contrary,
monetary integration, as it has been implemented, invited ‘lack of discipline’ rather than discipline.
We witnessed divergence, rather than convergence. Since market forces do not lead to symmetry
and convergence, EMU needs a visible hand that pursues symmetry, notably with regard to wage
increases. Moreover, Member States need labour market institutions that can coordinate wage
increases: the visible hand must be effective.
One should note that arguing that a visible hand is necessary, as I do in my case for a social union,
does not mark a departure from current EU principles, but rather from current practice. The Six-Pack
and the Macroeconomic Imbalance Procedure2
are deliberate attempts to strengthen the visible
The Six-Pack is a set of European legislative measures, bundled into a ‘six pack’ of regulations introduced in
2010-2011, to introduce greater macroeconomic surveillance. The Macroeconomic Imbalance Procedure was
part of the Six-Pack; it is a specific surveillance mechanism that aims to identify potential risks early on,
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hand of European policy makers. But current practice has put a one-sided emphasis on adjustment in
Member States with current account deficits and has not addressed the role of Member States with
surpluses. Symmetry should be organized instead around a common benchmark, for instance, a
‘golden rule’ linking national wage increases to national productivity increases. A second desirable
departure from current practice is to acknowledge the positive results that come from coordinated
wage bargaining within Member States. Instead of encouraging the decentralization of collective
bargaining, the EU should take steps to encourage and facilitate bargaining coordination. The Five
President’s report now tables a proposal which can be linked to the need to revamp systems of
collective bargaining: it proposes an Euro area system of national ‘Competitiveness Authorities’,
thereby referring to Belgium as an example of good practice. It so happens that the Belgian
competitiveness watchdog is embedded in national collective bargaining institutions, and derives its
authority precisely from being part and parcel of the collective bargaining system. Hence, the ‘good
practice’, which the Five Presidents’ Report refers to may be broadened to embedding such
competitiveness authorities in collective bargaining systems.
Bearing in mind these observations on the importance of coordinated bargaining within Member
States and across the Eurozone, we can now return to the long-term trade-off between symmetry
and flexibility. Flexibility is a catch-all concept: it includes less regulated labour markets, temporary
shock absorbing mechanisms such as Kurzarbeit in Germany3
and a highly skilled and versatile
labour force. All these features provide different ways and means to achieve labour market
flexibility, which can be combined in different ways, according to social preferences. For example, a
‘high road’ to labour market flexibility, based on skills and work organization, can be opposed to a
‘low road’, based on mere labour market deregulation. At first sight, one might think that it is
irrelevant which of these various labour market flexibility arrangements are adopted as pillars of a
sustainable monetary union: i.e. they can be seen as functionally equivalent models as long as they
yield mobility of workers and responsiveness of wages to constraints of competitiveness. However,
not all systems of labour market regulation deliver equally well with regard to wage coordination.
National models of labour market flexibility as much as wage coordination and wage policies are a
matter of common concern in a monetary union: their choice cannot be relegated totally to the
national domain. That does not mean that the EU should counsel Member States in detail on the
organization of their labour markets. But there is a limit to the social diversity that can be
accommodated in a monetary union, not with regard to the details of their organization, but with
regard to their fundamental parameters.
Neither flexibility nor fiscal transfers, nor systems of wage coordination, are socially neutral choices.
Hence, the long-term trade-offs implied by monetary unification force upon the participating
countries a consensus on the social order on which the monetary union is based. Although its
proposals remain rather vague and timid in this respect, the Five President’s report illustrates a
growing recognition of this fact. The report refers, for instance, to the need for European ‘standards
prevent the emergence of harmful macroeconomic imbalances and correct the imbalances that are already in
place.
Kurzarbeit makes it possible for German firms, confronted with a reduction in economic activity, to diminish
the regular working hours of their workers on a temporary basis (instead of firing them), with a compensation
paid by German social security.
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for labour markets’, which should combine security and flexibility. The challenge now is to make this
proposal operational. Here is some important homework for Marianne Thyssen, the Commissioner
for Employment and Social Affairs.
Integration and social regulation in the EU28: a ‘balancing act’
Some arguments in favour of an active social dimension apply not only to the Eurozone, but to the
EU as a whole. A well-known argument holds that economic integration without social
harmonisation induces downward pressure on social development in the most advanced Member
States. In the past the spectre of large-scale social dumping has never materialized, but in today’s
enlarged EU blatant cases of illegal working conditions and exploitation do occur, resulting from the
interplay of gaps in the domestic implementation of social and employment protection in Member
States, their reduced legal sovereignty, and the absence of common social standards in a very
heterogeneous group of countries.
A crucial condition for European public opinion to accept labour mobility and migration is that they
should fit into a regulated social order; they must not undermine that social order. Whether or not
minimum wage standards can be protected in a context of free movement of workers and services is
a salient example. Reconciling mobility and the four freedoms on the one hand with the internal
cohesion of national welfare states and industrial relations on the other hand is a complex challenge,
but it is not an insurmountable one. It requires a ‘balancing act’, which is feasible: the Friends of
Europe report Unequal Europe – Recommendations for a more caring EU suggests practical initiatives
in this sense. This balancing act is not just between economic and social principles. Both
international openness (under certain conditions) and domestic social cohesion can be understood
in terms of solidarity. Hence the balancing act is also between different types of solidarity.
A shared notion of solidarity
The foregoing discussion shows that we have to combine two perspectives on solidarity in Europe: a
pan-European notion of solidarity and solidarity within national welfare states. The pan-European
notion of solidarity refers to upward economic convergence and cohesion on a European scale, and
to the specific solidarity that is needed to sustain the monetary union. But it also refers to the rights
of individuals to improve their own lives by working in a Member State other than the one of which
they are nationals; or the rights of patients to benefit, under certain conditions, from medical care in
other member states than their state of residence. Solidarity within national welfare states refers to
social insurance, income redistribution and the balance of social rights and obligations. This dual
perspective makes solidarity inherently complex and multifaceted. There should be no denying that
it can imply trade-offs between national solidarity and pan-European solidarity, certainly in the short
term. However, the political legitimacy of the European project depends on its capacity to avoid a
negative trade-off, or, in other words, to avoid a zero-sum game between national cohesion and
pan-European cohesion. In yet other words, the legitimacy of the European project requires a
virtuous circle of growing pan-European and national cohesion. Sustaining such a virtuous circle
should be the primary objective of a European Social Union.
As a point in fact, this means that we should revisit the fundamental goals that have been part and
parcel of the European project since the Treaty of Rome of 1957: the simultaneous pursuit of
economic progress on the one hand, and of social progress and cohesion on the other hand both
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within countries (through the gradual development of the welfare states) and between countries
(through upward convergence across the Union). The founding fathers of the European project
optimistically assumed that growing cohesion both between and within countries could be reached
by supranational economic cooperation, together with some specific instruments for raising the
standard of living across the Member States (which were later brought together in the EU’s
‘economic, social and territorial’ cohesion policy). Economic integration was to be organized at the
EU level, and would boost economic growth and create upward convergence; domestic social
policies were to redistribute the fruits of economic progress, while remaining a national prerogative.
Consecutive enlargements as well as monetary unification made this complex notion of solidarity
even more complex and demanding. Indeed, what is seen by some as ‘the dynamics of upward
convergence’ associated with the enlargement of the EU is seen as social dumping by others. At the
same time, monetary unification necessitates forms of solidarity which were, so far, a no-go area in
European politics, such as a Eurozone stabilisation capacity and fiscal transfers. Over the last few
years, the Eurozone has displayed the exact opposite scenario of convergence: increasing
divergence. Excessive social imbalances threaten the monetary union just as much as excessive
economic imbalances. We risk being caught in a trap: we badly need more European solidarity just at
a time when it is becoming more difficult to achieve. We are at risk of a vicious rather than a
virtuous cycle.
The social investment imperative
How can we create a virtuous circle whereby both pan-European cohesion and national cohesion are
enhanced? In the long term, upward convergence among EU Member States (i.e. pan-European
cohesion) presupposes convergence in human capital, which is the fundamental long-term driver of
economic productivity and prosperity. In a recent analysis of economic divergence in the Eurozone,
the ECB (2015) mentioned investing in human capital as one of the key policies to pursue. The OECD
PISA tests indeed show a huge disparity in investment in today’s youth human capital, with weak
average scores for Romania, Bulgaria, Greece, and Slovakia; mediocre scores in Portugal, Italy, Spain
and a number of other countries; and relatively high scores in Finland, Ireland, the Netherlands,
Estonia, Germany and Poland. This illustrates not only the particular deficit in education of Southern
Eurozone welfare states compared to other Eurozone members but also the huge education agenda
that confronts the EU as a whole. The EU certainly recognises the challenge: the Europe 2020 agenda
singles out the reduction of the number of early school-leavers as one of the headline targets. The
European Commission has developed a comprehensive agenda on education, training and skills, and
issued excellent recommendations on the modernization of education systems. However, this
educational agenda does not carry sufficient weight at the highest levels of European political
decision-making and in the setting of budget priorities. Real public expenditure on education was
lower in 2013 than before the crisis in 10 Member States, including those that badly need to
improve their education system. The divergence in education spending across the EU may lead to
more long-term divergence in productivity, instead of the convergence that is so badly needed. That
is not to say that the quality of education systems can be measured in a simplistic way by the level of
public spending on education; but it seems very hard to improve education systems significantly
while disinvesting.
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Figure 1: A worrying divergence in spending on education
Figure 1 displays data on the evolution of public spending on education in real terms. The black bars compare, for each
country, its public education spending in 2013 with its average spending over the years 2006-2008 (deflated with the GDP
deflator): in 10 of the 25 countries under review, real spending is now lower than it was, on average, in the years before
the crisis. In Romania the decline is 29%, in Hungary it is 18%, in Italy 16%, in Latvia 15% and in Ireland 14%. Meanwhile,
there was a significant increase in real spending, with an increase in education spending of 10% or more in Denmark, the
Czech Republic, Germany, Poland, Belgium, Luxemburg and Slovakia (always comparing 2013 with the average over 2006-
2008). Obviously, demography plays a role: the grey bars in Figure 1 take demographic change into account, by calculating
real public spending on education per inhabitant younger than 19 years old. Per young inhabitant, real spending
diminished ‘only’ by 18% in Romania and 12% in Hungary; by contrast, in Ireland real spending per young inhabitant
diminished by 21%. The effort in public education spending is spectacular in Germany and Poland, when taking
demography in account. With regard to human capital, we are generating further divergence in the EU.
Data retrieved from Eurostat website; author’s own calculations
Successful welfare states need a well-designed complementarity between ‘developing human
capital’, by means of education, training and activation and ‘protecting human capital’ by means of
traditional instruments of social protection (cash benefits, health care) and protection of
employment conditions (notably minimum wages). Based on these arguments, Vandenbroucke,
Hemerijck and Palier (2011) called for an EU-wide ‘Social Investment Pact’. The Social Investment
Package, launched by the European Commission in February 2013, presents a similar argument and
thus provides the common orientation EU Member States do need in my opinion. Obviously, a
‘package’ is not a ‘pact’. The idea of a pact underscores the sense of reciprocity that is required: all
-60%
-40%
-20%
0%
20%
40%
60%
Romania
Hungary
Italy
Latvia
Ireland
United Kingdom
Spain
Portugal
Greece
Estonia
Slovenia
Lithuania
Bulgaria
France
Netherlands
Finland
Sweden
Austria
Denmark
Czech Republic
Poland
Germany
Belgium
Luxembourg
Slovakia
Real spending on education, 2013 vs. 2006-08
Real spending on education per inhabitant less than 19 years old, 2013 vs. 2006-08
Spending % GDP, demogr. adj., vs. average, 2013
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Member States should be committed to policies that respond to the need for social investment.
Simultaneously, efforts of Member States this direction –notably by those experiencing budgetary
problems – should be supported in a tangible way. When difficult reforms are necessary, there must
also be solidarity for reform. Alas, the dramatic divergence in spending on education, mentioned
earlier, shows that we are far removed from such a common orientation today. Surprisingly, the idea
of social investment, as a useful unifying policy concept for all European welfare states, is barely
mentioned in the Five Presidents’ Report: adequate education is mentioned in passing, child care is
not mentioned. This is an important gap.
The democratic construction of a sense of common purpose
I have argued here that we need a clear-cut concept with regard to the social dimension of the EU.
The idea of a European Social Union, as outlined here, aims to clarify what is the point and purpose
of a social dimension to the European project. Admittedly, there is one crucial precondition: to build
a social union, we need a stronger sense of common purpose and, as a corollary, a real sense of
reciprocity. The politics of reciprocity amongst democratically elected governments is inevitably
complex. The protracted negotiations between Greece and the other Eurozone members that are
going on at the moment of writing illustrate how extremely difficult it can be to find a compromise
between democracies in a spirit of reciprocity. A union of national welfare states is a union of
democracies; but even if these democracies maintain their sovereignty on the ways and means of
social policy, they must agree on the common objectives of the union, on the burden sharing the
commonly agreed objectives may imply, and on the extent to which in specific domains sovereignty
has to be pooled. In itself, that constitutes a huge democratic challenge, which is not to be
underestimated. The Greek drama clearly shows that we have to rethink the political institutions:
the way in which the EU organizes its crisis management invites political polarisation among
governments and, thus, escalation rather than rational compromise. More effective political
processes must go hand in hand with stronger democratic legitimacy. However, is my contention
that the problem at hand is not, first and foremost, one of a ‘democratic deficit’ in the existing EU
Institutions; the problem is a ‘deficit in common purpose’.
References
Vandenbroucke, F., Hemerijck, A. and Palier, B. (2011), The EU Needs a Social Investment Pact, OSE
Paper Series, Opinion paper No. 5, May, Brussels: European Social Observatory.
Vandenbroucke, F. (2015), The case for a European Social Union. From muddling through to a sense
of common purpose, in B. Marin (ed.) (2015), The Future of Welfare in a Global Europe, Ashgate:
Aldershot UK, pp. 433 – 464 (downloadable, in a first version, as a Euroforum Policy Paper,
www.kuleuven.be/euroforum).
Friends of Europe, Unequal Europe. Recommendations for a more caring EU. Final report of the HighLevel
Group on ‘Social Union’, Brussels, Spring 2015.
Completing Europe’s Economic and Monetary Union, Report by J.-Cl. Juncker, in close cooperation
with D. Tusk, J. Dijsselbloem, M. Draghi and M. Schultz, June 2015.
European Central Bank (2015), Real convergence in the euro area: evidence, theory and policy
implications, ECB Economic Bulletin, Issue 5, pp. 30-45.