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8. Building a Stronger Union: Social Policies in Europe and the Management of the Debt Crisis
- Brookings Institution Press
- Chapter
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148 The European integration project has been built on a broad concept of convergence , common regulation of markets and promotion of competition, shared prosperity, and a common standard of democracy. This multidimensional convergence has progressed quite well since the Rome Treaty in 1957, followed by the Single European Act in 1986–87, the creation of the European Union in 1992, the introduction of the single currency in 1999–2002, and, most recently, the “Eastern enlargement” in 2004. For the first time since the late 1950s, however, this process of economic convergence has been seriously challenged by the worldwide financial crisis and its impact on Europe and the eurozone. The effects of this crisis have varied significantly among the countries of Europe. Some countries, such as Germany and others in Northern Europe, managed to weather the storm rather well despite a tough shock in 2009. Other European countries had a severe debt crisis: Greece and Ireland followed by Portugal, Spain, and Italy suffered serious losses in GDP, rising unemployment, and a surge in poverty that Europe had not experienced since the war years. In Greece and Spain, the recession became a depression comparable to that of the 1930s. Much of Building a Stronger Union: Social Policies in Europe and the Management of the Debt Crisis jacques mistral 8 This chapter was prepared following suggestions by Kemal Derviş, whom I thank for his continuous support and useful comments. I also thank Edith Joachimpillai, who provided excellent research assistance; she skillfully prepared the statistical materials and the methodology appendix. social policies and the debt crisis 149 Europe, except Germany and a few other northern countries, is in economic and fiscal stress. At the center of the debate are the nature, quality, and sustainability of the fiscal and social policies of individual countries, as well as the European convergence process. In addition to the economic aspect of convergence, the European Union’s integration project has also always had an inherently political nature. The launch of the single currency was conceived as both a further step in the consolidation of the single market and a further step toward the long-term goal of political union. The fact that the United Kingdom and Denmark, latecomers to the union, then decided to stay outside the eurozone shows that there has never been complete unanimity inside the European Union on the nature of the multidimensional convergence process. The members of the eurozone, however, shared the objective of further economic and political convergence, including, implicitly, the convergence of social conditions. Indeed a lot of “social” convergence was achieved by 2008. The mechanics of social policy were national, but there was a common philosophy and intent on social issues in the eurozone, setting it apart from other parts of the world. The outcomes of social policies, such as the degree of income inequality, life expectancy, and poverty rates, were surprisingly similar. The crisis put pressure, however, on social policies in the southern countries. The austerity and adjustment measures that the countries in crisis had to pursue have started to create a new gap between them and the rest of Europe in social outcome indicators, particularly unemployment and poverty rates (see Heise and Lierse 2011). If this gap becomes permanent, it could undermine the dynamics of the single market, including free mobility of labor. It would also be a serious setback for the entire European convergence process. The key question in this regard is if, beyond what is hoped are shorter-term macro-economic problems created by the crisis, ongoing policy reforms can be made consistent with a social policy system and social outcomes common to the eurozone countries (similar retirement conditions, comparable unemployment insurance, equivalent access to health care, and so forth, as well as similar outcomes), or if these policies are creating a dual Europe, where citizens in the North have access to social benefits denied to citizens in the South. At the end of the chapter I outline the way to restore confidence in a “Social Europe” and a process for doing so. Present macro-economic conditions are dictated by the need to restore sustainable fiscal situations; but they create different social outcomes in the northern and southern countries. If these divergences were to become structural, they would undermine the political basis of the European project. If the eurozone is no longer seen as bringing the people [3.138.141.202] Project MUSE (2024-04-17 21:32 GMT) 150 jacques mistral and the living standards of the...