Does the Eurozone Crisis Signal the End of Social Europe?

The concept of a social market economy was supposed to distinguish Europe from US and UK market liberalism. It was enshrined in article 8 (8) of the Lisbon treaty. A huge academic literature is dedicated to showing how ‘Europe’ is different to ‘US’ style capitalism. However, most of what passes for ‘social Europe’ is the legacy of national socio-economic regimes in Nordic and Alpine European countries. There has never been a homogenous ‘European’ model. In the original six countries that established the European project there was relative convergence between their fiscal, health, pension, labour market and wage setting regimes. This changed when the UK and Ireland joined the single market. Today, there are 27 member states with huge institutional diversity. For many, this expansion made it impossible for a standardised politically constructed social-model to emerge (positive integration) and the result will be continued legal contracted market liberalisation (negative integration). See Fritz Scharpf.  

The process of Europeanisaton began as an attempt to construct a single common market. Market integration through the liberalisation of capital, labour and product markets was the constitutive force behind inter-governmental transactions. The ‘social’ dimension of public service provision, social protection, regulation and public infrastructure was to remain at the national level. So, for parsimonious reasons we can say Europe = market integration, National = social protection. This trade-off worked, for a period. But, since the early 1990’s there has been a clear hierarchy between the two. The process of market integration and liberalisation has increasingly disrupted the national societal bargains underpinning social democratic institutions.

This transformation occurred incrementally, it was not the big bang shock therapy that afflicted post-Soviet states or many countries in Latin America. It is therefore an important question to ask what caused this shift toward orthodox market liberalism. Was it the dominance of neoliberal ideas or was it deep structural factors associated with the integration of member states? The process was easily internalized by the Anglophone countries of Europe given their liberal oriented market economies.

The UK adapted through a state centred unilateral approach whereas Ireland adopted a more embedded market conforming alliance via the process of social partnership. In fact, in these liberal economies, the single market was used as a justification for government decisions (similar to what the Irish government now say in relation to the ECB-IMF loan i.e. we have no domestic choices which is, of course, not true) to ehance market freedoms. When they resist European legislation, it is usually when it increases regulatory pressure on their liberal labour, product and capital markets.

If there is an implicit design in the institutions of Europe that is structurally biased toward market liberalisation but not the corresponding social protection to embed this liberalism then ‘social Europe’ is nothing more than an idea. But, structures do not and cannot determine the strategy of political actors – institutions provide opportunities as well as constraints. At the same time, actors do not operate in a structure free zone. Therefore it is important to avoid simplistic assumptions that if national governments elect left-wing governments (as in Greece), the outcome will be  social democratic policies or strategic choices. The institutional framework of the European Union, and in particular, the Eurozone should not be underestimated. National actors operate in a seriously constrained institutional environment. But, simultaneously, it is national actors who underpin the EU, if they pull out, the process falls apart.

In many ways, the process of European integration has occurred through law rather than politics. This is reflected in the series of Treaties and the increasing importance attached to the European Court of Justice (ECJ). Their judgements are, in all respects, ‘higher’ than national law. Although, Ireland is a slight exception to the rule given the centrality of its national constitution. In national legal systems, the government can change law through parliamentary majorities. In this regard, the political and legal are closer at national level. This is not the case at European level. 

European law is much more immune from political correction (see Scharpf, 2010) and the guiding philosophical discourse behind European legislation since 1980 has been to guarantee economic liberties. It is primarily about ensuring member states do not construct barriers to free trade, free service delivery, free establishment, free capital movement and free mobility of workers. It is market enhancing.

The impact of this negative integration is that it is premised on enabling economic mobility not economic protection. Thus, most cases that end up before the ECJ are taken by those with an interest in ensuring greater market freedoms. Cases are usually about how national regulation impedes the freedom of capital. The subjective rights of individuals and firms are taken as paramount. This, inevitably benefits those with significant financial resources. It is not likely that a single mother will take a case to the ECJ and argue that the liberalisation of national competition laws has resulted in them not having the protection of the state against market risk. The drive is ‘liberalising’ obstacles to enterprise, hence it is market making not market taming.

This has the effect of de-regulating national regimes without re-establishing a common European regime that can provide the necessary policies and social protection that the national can no longer provide. Whether this is the ‘intentional’ strategy of the actors (i.e. one big capitalist conspiracy) is unlikely. It is a structural effect of having negative market integration without the corresponding political-legislative integration required for a ‘social Europe’. But, even if the latter was possible, it would be hugely difficult to achieve given the political diversity amongst 27 member states with significant veteo power.

The absence of collective political action at European level has led to a renewed interest in potentially new multi-governing actors such as the coalition for green and social procurement, an alliance of European trade unions and green non-governmental organisations formed in opposition to the new public procurement directive in 2000-2003. The emergence of such coalitions is certainly a positive example of political action but it does not increase the strategic capacity of the state to govern a capitalist economy.

This begs the question as to whether European market integration has removed the capacity of member states to shape their internal regimes according to domestic political preferences? I think it does. But, one cannot assume that the domestic political preference of actors is any different to the neoliberal constitution of Europe. In Ireland, there is more chance of a social democratic regime being imposed from above than from within given the dominance of centre-right political parties in government and a  conservative Supreme court. The institutional structure of the political economy is very much disposed to favour the interests of business and capital.

If for example, an elected government attempted to nationalize the Corrib gas field it would almost certainly deemed illegal under European law. This will condition the strategy of governments who consider this option. They will most likely choose to avoid a nationalisation strategy because of political-institutional constraints. But, they may find a mechanism or loop-hole in the law to get around such constraints. For example; in terms of environmental protection or health and safety. It is in these areas of regulatory standards that examples of ‘positive integration’ can be found at European level.

However, given the current crisis one cannot but conclude that Europeanisation has reduced the capacity of the state to govern the domestic economy according to non-liberal economic orthodoxy. In Greece, Spain, Ireland, Italy and Portugal, citizens are voicing their opposition at the national level. In Ireland, the main governing political party was annihilated in national elections. In Spain, the Zapatero government is almost certain to be voted put of office and a variety of social movements have emerged at grassroots level to tackle the jobs crisis. In Greece, there has been a series of general strikes. On the other hand, the Finnish and Dutch have elected anti-European right-wing parties.

 All of these political actions are focused at the national level in the assumption that national politics will or can protect their interests in European decision-making. But, this is not the case. Europe is not a political federation. Therefore, it does not have the institutional structures typical of a political federation that gives equal status to national, sub-national and regional units.

Europe cannot talk about Ireland as a region that requires federal support but only in terms of  an independent state in need of a bail out. It completely ignores the normative or political concerns of citizens, and cannot take into account differences in regional size and wealth.  At the same time, the decisions being taken by the ECB-IMF, EU Commission lack any semblance of democratic legitimacy. Political and technocratic elites at a European level are dictating national public policy in return for a ‘bailout’ for private banking elites. What is worse, the editorial line of most leading Irish newspapers, and its commentators, fully support this neoliberal technocratic arrangement. This is because they identify Ireland’s problems with excessive social spending which hindered its operation as a normal ‘liberal’ market economy.

In this regard, Ireland is best placed to benefit from the negative market integration as it has limited impact upon its political economic institutions. Unsurprisingly, the first thing to go when the crisis hit was ‘social partnership’, a process that is usually associated with social market economies. One only has to think of the comments by Christine Lagard, the new managing director of the IMF, last week. She stated that the Greek political system should learn from Ireland. Thus, Ireland was a poster boy for the de-regulated financial policies that led to the crisis and is now the poster boy for how to deal with its effects – massive fiscal austerity and labour market liberalisation.

Thus, the current design of European integration and the Eurozone is structurally biased in favour of the normative and political interests of business, capital and liberal orthodoxy. As it stands, national politics is bound within the constraints of an institutional framework that lacks any capacity to embed social rights against the market. History has shown that when societies are not embedded and protected against capital the result is political support for the far-right. The inevitable tension between democracy and capitalism takes expression in a variety of ways and European elites that prioritize the latter over the former should look to their own history to realise the catastrophic effects this can have.

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