Europe’s labour pains

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of PLC.

A European unemployment insurance system would require deeper eurozone integration. [fdecomite/Flickr]

The gradual transfer of competences to the EU has left member states unable to improve working conditions and drag their economies out of stagnation. It is time for serious change, writes Sotiria Theodoropoulou.

Sotiria Theodoropoulou is senior researcher at the European Trade Union Institute.

EU heads of state are meeting on Saturday (25 March)  in Rome to celebrate the 60th anniversary of the signing of the Treaty of Rome which launched in earnest the process of European economic integration.

Sixty years later, the achievements of that process, from peace, democracy, the rule of law and unity from west to east in Europe, to unparalleled economic prosperity and the expansion of cooperation among European countries beyond the economic domain, have been remarkable.

Yet, the sense of crisis is palpable. At the end of this month, the prime minister of Britain will formally trigger the process that should lead her country out of the EU by 2019. Political parties with agendas that question the merits of EU/EMU membership have been gaining prominence in several countries, underpinned by the widespread disillusionment of citizens with the political elites and a sense of having ‘lost control’ over policies.

In the euro area, recovery from the W-shaped recession began only in 2015, has been uneven across countries and looks fragile due to the still unresolved legacies of high debt, high unemployment and weak banks in several member states.

Finally, questions of managing migration and the large flows of refugees from the EU neighborhood have been causing further divisions within the EU.

Against this backdrop, the Rome summit is also expected to launch the joint reflection process on how to take forward the European integration project to tackle the above challenges. To that end, the European Commission presented in early March a White Paper with five possible scenarios.

Although economic developments and their social consequences cannot fully account for the current main challenges in the EU, strong social safety nets and healthily growing economies, especially in the euro area where the crisis hit the hardest, are necessary, albeit not sufficient, for dealing effectively with some of these challenges, such as high (youth) unemployment and falling incomes, and for creating more favorable conditions for finding workable compromises on others, such as integrating migrants and refugees.

From this perspective, the scenarios of ‘nothing but the single market’ and ‘doing less more efficiently’, including the better enforcement of existing single market rules are only likely to exacerbate the problems of having lost [policy] control [to the EU] and mistrust towards politicians.

For example, although the EU has a relatively limited mandate to legislate on social policies, EU regulations concerning the freedom of movement of workers, the freedom of provision of services and the European competition regime and their enforcement by decisions of the CJEU have over the years seriously eroded the legal authority and regulatory capacity of member states to conduct social policies, especially regarding the capacity to limit entitlement to social transfers on a territorial basis and the scope for organising the provision of social services, in particular healthcare.

These scenarios, together with the ‘carrying on’ one, would also imply no significant changes in the institutional setup of the EMU. Fiscal policies have been restricted by rules, which have been recently reinforced, without the establishment of some euro area fiscal functions in return, whether in the form of common bonds or a stabilisation mechanism (for example a European system of unemployment benefits) which could counterbalance the constraints.

Moreover, due to oversights in the institutional construction of the EMU and the allocation of policy tasks across macroeconomic policies, national public budgets have been burdened with remedying developments in other domains such as banking system and the weakened capacity of monetary policy to stabilise the euro area economy as interest rates have reached zero and recession has dragged on.

The combination of constraints and burdens has increased the indirect pressures on social policies in many member states, just when demand for social protection is at its highest due to unemployment.

Decisive, consistent and effective steps to sustainably resolve the crisis in the euro area and its legacies are needed. Therefore, it is only the scenarios of ‘those who want more, do more’ for at least the euro area current members and of ‘doing much more together’ that can potentially lead the EU out of its current existential crisis.

Rethinking the Maastricht allocation of policy functions across the fiscal, monetary and wage pillars, promptly completing the Banking Union, including the establishment of a joint deposit insurance scheme and the reinforcement of the single resolution fund, and creating some fiscal capacity as above should be prioritised under these scenarios.

Advancing in these areas would eventually also facilitate finding ways to deal with the legacies of the recent crisis, in particular regarding debt but also to allow for the development of the social dimension of the EMU.

Sixty years after the Treaty of Rome, the EU is going through the pains of birthing a new political system. Will it make it?

Member states, with the exception of monetary policy in the euro area, have been clearly opting for intergovernmental policy coordination on EMU affairs and resisting the delegation of increased competences in social policy to the EU level.

None of this bodes well for the kind of integration progress that is necessary for exiting from the crisis. Thinking in terms of Dani Rodrik’s trilemma of the world economy, the advance of European economic integration has limited substantially the scope of national policymakers for autonomous action by more than it has increased the capacity for EU policymaking in these domains.

Even if ex-post one concludes that launching the euro was not a wise idea, dismantling it and reintroducing national currencies would be very likely to impose immense economic costs onto already weakened economies. Something will have to give.

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