Social policy in a monetary union: puzzles, paradoxes and perspectives

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A 1 Social policy in a monetary union: puzzles paradoxes and perspectives Frank Vandenbroucke University of Amsterdam1 Submitted for publication as chapter in: Boone Marc; Deneckere Gita & Tollebeek Jo (eds ) The End Postwar the Future Europe – Essays on work Ian Buruma Verhandelingen van de KVAB voor Wetenschappen en Kunsten Nieuwe reeks 31 Uitgeverij Peeters Forthcoming Abstract All existing unions centralise to various degrees specific social functions notably that support economic stabilization like unemployment insurance European Monetary Union features only exception Compared United States organises more solidarity within its member states but far less between states: this is an untenable paradox strong parochial Any way out leads complex puzzle sovereignty mutual trust One should not underestimate complexity solving it implies lasting fragility construction Contrary what sometimes argued we are facing ’tragic dilemma’ integration maintaining welfare need repair major design flaws solution does point state true union would national systemic level some their key It presupposes basic consensus model I will briefly refer Commission’s initiative launch ‘European Pillar Rights’ since can contribute developing such Risk sharing basis – kind advocate contribution ‘reciprocity’ Reciprocity cement states; also inspire For instance apply principle reciprocity current debates cross-border mobility Politically arguments presented may seem uphill battle today However shy away from rational argument: order ‘take back control’ Europeans must be ready share risks domains 2 Introduction: tragic dilemma? Developing integrating were greatest political projects 20th century They raised hope: ‘free people fear need’ was put end history bloody wars Both now at standstill if deep trouble (EU) faces existential questions about ultimate goal There no questioning per se which protect against impression they capable realising talk succession crises has been confronted with nor discuss all challenges our Hence important issues covered during lecture zoom one particular question: case project odds each other? Are caught dilemma because objectives (integration openness by protection security states) longer compatible qua objectives? In community EU scholars pessimistic assessment new According Fritz Scharpf impossible conceived become market economy: consistently pushes towards liberal founders thought rather opposite: signatories Treaty Rome convinced development prosperous inclusive retrospect summarize optimistic belief follows: • Economic stimulate growth participating countries allow developed catch up: convergence machine could safely left where trade parties develop sufficient pressure redistribute benefits fairly agree pan-European standards Countries ahead economically socially hindered policy: affect internal cohesion 3 short founding fathers’ credo based two articles faith clearly distinguished: convergence-through-integration cohesion-in-convergence immediately add second article (cohesion-in-convergence) undisputed fifties there whether possible without harmonisation This question heart 1956 Ohlin report together Spaak prepared launching Community Bertil Ohlin4 believed differences wages related expenditures involved mainly productivity; hence have downward when allowing free added any divergence diminish states’ competitiveness common adverse corrected adapting exchange rates Thus describing insignificant caveat fathers followed suit large degree 5 History proven wrong least until halfway first decade 21st century: catching up went hand Over last however started show cracks predating 2008 crisis spinning inequality increasing several mature ‘cohesion-in-convergence’ applied crack or spectacular fissure emerged crisis: stopped north south tearing apart Since (a number of) particularly Eurozone table Union: unification mean policy? am merely asking abstracto: focus serving therefore illustrate how very ambitious still today’s enlarged highly unequal twin challenge slightly technical following section readers who don’t graphs tables skip move Unequal Figure 1a shows next individual US (Figure 1b) Henceforth simply call them ‘states’ grey diamonds represent black square middle both figures represents imaginary ‘representative state’ i e American residents’ income distribution correspond respectively average 6 horizontal axis median state’s residents relation vertical measure 7 being GINI coefficient thus comparing coefficients When diamond) situated right representative (the square) higher than Conversely diamond lower A above indication while below indicates dotted circle holds Sweden Denmark four countries: Austria Belgium Finland Netherlands these considerably richer (with 34 53 percent average) equal 9 17 Rumania Bulgaria well Latvia Lithuania Estonia Greece Portugal just 29 (Rumania) 72 (Portugal) 13 illustrates heterogeneous quite special 4 Source: Eurostat Bureau Census see endnote details 1b cannot compared unequally distributed diverse comes characterises country results every situation different If consider single high But combined result (moderate) most Moreover poorer often display ones even diversity comparison levels (as 1a) select rung ladder benchmark; Table compares incomes five relative 60% 70% 80% 90% 100% 110% 120% 130% 140% 0% 50% 150% 200% Inequality (GINI) % Median 1a: EU28 household across 1b: domestic those same bottom use someone top quintile his country; 20% fellow countrymen Rumanian citizen (i poor standards) currently 23 To compare relatively rich fourth citizens whose 32 corresponding average: ‘rich’ fares better opposite observation Denmark: ‘poor’ Dane displays similar comparisons third (neither terms) main ‘static’ emerging gap ladders observe change; dynamic perspective conveys positive negative news: Eastern Central managed 2006 rungs ladder; dramatically news occurred Greek Polish distribution! 1: Income (in Benchmark Average 27 Poland Germany 2013 Top Quintile 26% 32% 123% 133% 48% 138% 65% 24% 30% 132% 45% 67% 93% 62% 21% 28% 139% 145% 88% 58% 18% 23% 144% 152% 43% 136% 82% 53% Legend: standardized net disposable quintiles unweighted EU27 purchasing power parities (PPP) take into account price differentials Eurostat: SILC 2007 figures; 2014 explains why poverty line generates rate much rates; improved after 2004 8 Should traditionally unified closer numbers At sight confirm heterogeneity too beneficial progress inevitably decline others reality Tragic dilemmas repairable flaws? Welfare redistributive effort seems waver advanced used serve role withstood recent fact explanation cases yet other seen already before increase (which absolute poverty) diminished among pensioners considerable increased working age children played reduction diminished; households participation labour low widened so happens comparable information post-2004 period Survey Living Conditions (EU SILC) implemented enlargement tempting proof ‘tragic dilemma’ referred earlier: decreasing capacity perceived pay engine sure erode Ohlin’s optimism worked another party 28 sounds plausible backdrop data story? think Ohlin’s recipe adequate really First distinguish punctual lacunae regulation fundamental trends Lacunae ‘posting’ create (posting means works say employer Poland; posting allows exceptions viz-à-viz rules normally workers) needs reform; return issue my badly organized system flaw How Competitive minimum might lead assumption limits margin absence workers Minimum play pivotal organisation protection: constrains turn residual assistance Consequently whole edifice under ‘minimum wage competition’ While hypothesis group set (or affirmed) public authorities recorded Eurostat10 indeed shift relationship favourable minimum/average ratio trend whereas made efforts resulting happened UK suggests mounting jump conclusions: constitute component systems 15 years many governments amended tax-and-benefit improve jobs: British ‘in-work benefits’ well-known example A1 (see Appendix) importance low-wage instigated stronger keep high; purse somehow dispensed employers responsibility Now stop making efforts11 prevent sufficiently Whether policies pursued matter budgetary priorities Cantillon Marchal Luigjes evolution 2000s 1990s balance ‘favourable’ ‘unfavourable’ developments latter period) 12 That contra-indication idea continue jobs depends choices made) necessitate greater little potential Furthermore demographic changes unrelated competition (and Europeanisation) fight growing lone parents example: societies dual-career families norm suffice lift family threshold generous replacement: inadequate Governments tools imperative migration wave contributed EU15 migrants natives risk side effect ‘benefits tourism’ applies job We notice non-EU connection: perhaps EU-immigrants compete ’traditional’ non-western immigrants make difficult 14 Next direct impacts outcomes indirect impact via attitudes Brian Burgoon examined redistribution Poor heightens concern jeopardises states’ financial sustainability respect vicious present factors causal chain cut long story regard (not quality) provide though explanatory factors; drivers synthesis life-long research Anthony Atkinson emphasizes inequality16 varying experience capital markets analysis board technological employment relations codes conduct form taxes Increasing stem ‘iron laws’ talking stock Piketty focuses on) globalisation Europeanisation Each own pattern willing counter sociological generate words crux is: oppose forces do want that? relevant effective provided Mind respond laws nature removed chemistry physics objective mechanisms: world ideas plays decisive problem David Cameron’s ‘Brexit deal’ had everything wagers clear facts shock-absorber created drift apart: reverse gear grew origin definitely Let me aspect lack shock-absorbers built-in automatic stabilisers: progressive downturn smoothing shocks These stabilisers temporary deterioration budget hit hard switch off quickly reactions strict austerity agreed upon Council Analyses Commission spending initially complied stabilising expect changed phase discomforting known partially centralised implications drawing IMF economists 18 Furceri Zdzienicka (2013); note idiosyncratic ‘asymmetric’) affecting product government consumption bars indicate extent smoothed relate 1963-1990 period: 75 cent shocks’ (one ‘neutralized’ ‘absorbed’ cent) figure distinguishes three Shocks production revenue invested outside people’s home mechanism US: neutralized 39 consideration corresponds part (technically influence so-called ‘factor incomes’ depreciation simplify presentation) constitutes ‘insurance mechanism’ operating through private save conversely boom) absorbed Transnational credit international borrowing lending crucial respect: federal tax benefit programmes certain Washington reinsures tops schemes organised itself umbrella limited impact: absorbs read hatched -10% 10% 40% EMU 1979- 1998 1999- 2010 2: Smoothing Saving Net transfers Factor Total 10 What matters complementarity mechanisms explained organize insurance; nations (like Canada Germany) organizes funds supports help scheme complies requirements State incur deficit conditions borrow money And times severe provides ‘extended ‘emergency entirely financed budget; Obama administration 19 economy shock (except Italy US) 20 contradict members explaining difference prior thereafter eighties nineties later shape savings channel EU-level hardly Prior creation 45 Once saving dissaving receded; 26 authors gathered smooth systematically decreased Eurozone; ineffective downturns height southern closed responsible insuring banks contrast reinsured level) this: held ‘deadly embrace’ collapsed avoidable; repetition events absorb An integrated achieved run banking putting embrace’ priority Banking components needed: fully insurers Public catalyst guarantee fiscal stabilizers: sort complement 21 11 Why centralised? opt downright centralisation streamline reinsurance combine decentralisation behaviour reasons signalled pooling enhances resilience reason symmetric value se); refers ‘externalities’ National externality: properly insures helps neighbours You fire insurance: you hope your neighbour subscribes proper him unable damages place spread yours insurances car mandatory Vaccines archetypal externalities: vaccine individuals themselves infectious deceases get touch purely view efficiency subsidise vaccination compulsory elaborate analogy ‘compulsory vaccination’ then subsidisation contamination mere market; runs out-of-control 22 Therefore stabilisation built Which apply? From preventative prudence requirement: accumulate structural deficits reduces ability additional debt sufficient: stabilizing quality subject Do cover employees groups remain uninsured country)?23 enough creating inactivity traps? metaphoric camel’s nose: function good effects activation etc So programme entails cluster principles coherently comply Not coincidentally subsidised theory learns goods services externalities reach optimal although associate (granting subsidy high) qualities creates ‘vaccine’ volatility affordable) go Such device answer underpin politically easier obtain illusion small premium interstate look like? few proposals published linking 24 typically imply fund disburses affected g significant partner large-scale study led Centre Policy Studies (CEPS) topic; variants Unemployment Benefit Scheme 25 setting genuine complements underestimated exclude permanent favour avoid resources pure logic covering My conclusion meet implement takes ‘reinsurance’ Reinsurance flexibility offers scope mitigate institutional moral hazard (I below); complicated option here Instead going emphasize rationale approach trade-off (formal) sense simple: prevention cure Although came intergovernmental negotiations Solidarity ex ante rooted fabric post drawbacks Organising repeated ad-hoc burden conditionality easily conflict polarisation electorates Ex expensive certainly instability: swings driven expectations expectation doing preventing dimension ‘private mechanisms’ complementary ‘public International prone panics ‘sudden stops’ expected cushion serious probably argue argument doomed fiction Mutual distrust deeply proposal meets resistance dominant (Moral occurs actor actors costs consolidate weak casu ungenerous insurance) makes ‘complete’ fails level: well-developed incomplete Is complete Union? Admittedly difficult: stable relies simultaneous sensitive Everybody ‘cross street time’ done trust? Allow once list pieces classical prisoners’ solidary remedy imbalances position guarded know best handle adjustment spirit alas fair inconvenient truth collective action reducing formal upshot context mutually ‘insurance contract’ gain legitimacy enhance acceptability positions Fiscal simple transparent ‘flexibility’ governance accommodate catered Yet always intrusive touched previous let aim logical corollary reinforcing) quid pro quo organising generosity (notably short-term unemployed) coverage (short-term) parcel Trade movements welcome agenda us tread turf possibility ‘lax’ unemployed (re)employment obvious totally obsessed Moral unavoidable you’re eliminate faintest you’ll never able reap On dismissive hazard: address find solutions minimise reduced deviates historic (national) profile long-lasting High thresholds intervention intervenes (very deviations country’s profile) ‘claw back’ stipulate entitled collected reimbursed stringent regulations weaker essential establishing room powerful somewhat intention state; endeavour considering central provinces regions municipalities interesting Switzerland detailed implicit explicit politics wide range solutions: financing models control coordination Ever Employment Strategy launched 1997 ‘coordination’ Youth Guarantee closely connected assurance regarding ‘soft’ trigger give bite: legitimate Binding commitments leave leeway differentiation concrete policies: essence elaborated detail homogeneous agreement necessity past attempts ’the model’ useful project: ‘nice have’ indispensable Today finding 30 Well-known terms trade-offs Members currency area symmetry Symmetry output prices Flexibility relates interregional determine asymmetric Less necessitates flexibility: required adaptability traditional textbook ‘adaptability’ understood and/or textbooks: alleviate plight Obviously reversible require readiness organise requires engage requirements’ mentioned paragraph general including deliver sound finances Exposure produced ‘discipline’ finance contrary witnessed asymmetrical Relative deteriorated significantly huge invisible visible pursues increases institutions coordinate increases: container concept ‘high road’ placed opposition ‘low road highly-skilled versatile force training facilitate transitions deregulation easy hiring firing irrelevant adopted pillars sustainable functionally equivalent outcome attached types equally perform dimensions relegated domain counsel limit accommodated Whatever method neither neutral long-term implied pillar rights Can start consensus? March 2016 consultation 33 focusses adhere term ‘rights’ confusing 16 tool benchmarking policies; replace change indicates: “The reference framework screen performance Member drive reforms specifically compass renewed process ” areas grouped themes: opportunities access conditions; debate building needed high-risk repackaging strategies strategy Open Method Coordination Protection Inclusion momentum prevailing scepticism Union’s significance successful met concluded leaders partners highest firm commitment (Think ‘Fiscal Compact’: ‘Social Compact’ salience Second competent establish legal conditions) competences legislative curbed supported thorough incisive instruments surpasses processes Third linked ‘harder’ initiatives designing Eurozone: link analytically compelling bargaining Samuel Bowles defines ‘strong reciprocity’ “propensity cooperate similarly disposed personal cost ”35 goes beyond ‘enlightened self-interest’ ‘conditional’ Quid ruthless mantra neglects compassion contexts; obsession overlook guiding normative explain non-discrimination citizens: Belgian enter existence assistance: legislation impose immediate unconditional inactive (to example) enjoys Belgium: he principle? facilitates tangible ideal citizenship non-discriminatory circles justifies worker’s pays contributions sustains tolerate territory Competition exactly workers: worker ‘posted’ remains foundational fortiori wants problems inspection ask reform Commissioner Marianne Thyssen rejected Denmark) moment stalemate ground search compromise? believe Cameron’s negotiating deal Brexit posted; wanted derogation motivated government’s paid Cameron attracts over expense taxpayer Other employers’ convincing discussion illustrated Brits As said arise facts; perceptions determining obtained voted divisive EU? New limitations (since regime them); simultaneously relapse citizens) justification fundamentally interests Dutch campaign considers excessive uncontrolled freedom realm urges Simultaneously opposition) voiced sympathy parts 36 Just contradictory rationales attracted rationales) short- interest interest? negotiation way: “We discriminate Netherlands: assure please understand undermined excesses application ” again representatives strike non-discrimination) uncontrollable proliferate thrive ultimately settle equilibrium lose whilst leaving concerns essentially did prove mid-2000s protracted reconsider flourishing states? spectrum despite conflicting views exact mix inspired position: yes isolated longer-term restoring strictly confining coherent conception ‘European Union’ notion deliberately invites propose clear-cut vague ‘a Europe’ surfaces discussions conventional dimension’ assert mobile health safety workplace directives workers’ non-trivial acquis fifty piecemeal solid foundation enforcing premised denial steps build stage ‘adding emphasis coincidence State: historical legacies entities primary purpose interpersonal borders; logics investment lecture)37 rethink practical subsidiarity ‘union More generally practice top-down one-size-fits-all policy-making 38 core summarised guide substantive ways operational definition ‘the Model’ expression focused given examples Think defining corporate taxation enable maintain balanced highlights ‘example followed’ unchartered territory: entire ‘union supposed puzzle: everyone’s happen increasingly losing situation? debate: synonymous ‘losing control’ Appendix: households’ couple income: influenced receive childless CSB MIPI Databank Version 3/2013; Van Mechelen et al (2011) 0 5000 10000 15000 20000 25000 30000 35000 40000 45000 LU IE AT FI DE FR NL DK BE IT SI EL CZ ES SK EE PL HU LT PT LV RO BG A1: with/without living with2 kids Gross salary (wage) References Anderson K M (2015) Palgrave Macmillan Allard C J Bluedorn F Bornhorst D ‘Lessons minimal elements euro area’ Cottarelli Guerguil (eds) Designing Lessons federations Abingdon: Routledge B Be Done? 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