Solidarity Means Mutual Support – What We Need for a Progressive Economic Policy for Europe

This Time is Different

The European Union is facing the biggest challenge in its history. The global corona pandemic engulfed the continent just at a time when most EU member states seemed finally to be recovering from the worst effects of the global financial crisis and the ensuing euro crisis. As things stand, we cannot tell how the various spheres of the economy and society will be realigned in the wake of the pandemic. It is therefore essential, after the symmetrical shock dealt to all European economies by the corona crisis, that no additional, asymmetric shock is allowed to restrict the scope of member states’ responses to their national financial capacities. Such a fate would exacerbate the centrifugal economic and social forces unleashed in the EU in the wake of the financial and euro crisis and could create the mortal peril of which Jacques Delors recently warned.

The basic principle of European solidarity must thus form the core of a common European strategy. This is because it is the very member states that have been hardest hit by the pandemic that have the least fiscal leeway as a result of the financial crisis and the brutal austerity of the 2010s. Furthermore, the corona crisis is mercilessly dragging the structural deficiencies of the European Union’s current economic and social model into the harsh light of day. This concerns recent failures, such as economic governance in the European Semester under the revised Stability and Growth Pact, but also failures from even further back in time, such as the flaws in the architecture of European Economic and Monetary Union (EMU), which remains uncompleted. For that very reason the severe downturn caused by the corona crisis also provides an opportunity for a change of course, which recognises the aberrations of European path dependencies and puts them right. A Europe of solidarity, which also stands shoulder to shoulder financially, will be able to attain true European sovereignty.

Solidarity-based Labour Market and Employment Policy – Strengthening Collective Bargaining Coverage

The corona crisis has brought home to us how closely intertwined Europe’s economies are – immediate crisis management and economic reconstruction must therefore be tackled on a European level. This is particularly clear in relation to efforts to stabilise employment and give top priority to the fight against unemployment. With the SURE regulation[1] the European Commission has now created an opportunity for the member states to finance short-time working regulations for workers and similar measures for the self-employed. Via this instrument member states can now apply for EU financial assistance through collective borrowing totalling 100 billion euros to fund a sudden massive boost to national public spending. What is remarkable about this is not so much the – in terms of financial policy – relatively modest sums, but rather the fact that in this way the member states were able to reach agreement in the Council of the European Union on the principle of solidarity in the EU through the vehicle of Community borrowing to address social needs.

The SURE instrument, which provides temporary support on the basis of Art. 122 of the Treaty on the Functioning of the European Union (TFEU) to alleviate the risks of unemployment, is initially due to expire at the end of 2022. It can be prolonged for a further six months, however, if the severe economic disruption caused by the Covid-19 outbreak continues. This provides ample time to expand this crisis mechanism into a true European unemployment reinsurance, which would be triggered automatically as a protective measure for the most vulnerable in the (pan-)European labour market in the event of spikes in national unemployment rates. Such a mechanism would, at the same time, reduce the uncertainties and expectations of crisis and thus alleviate the crisis itself. Unemployment reinsurance should therefore include (higher) coverage for all, adequacy, assistance with job search and all possible active labour market measures.

Strengthening collective bargaining coverage at European level and establishing a European framework for living minimum wages are fundamental to a solidarity-based labour market policy. On the latter the German government would like to reach a political agreement in the EU Council as a focal issue of its presidency, which commences on 1 July. Statutory minimum wages can only ever serve as a wage floor, however. In order to foster decent work and fair wages collective bargaining systems must be supported and collective bargaining coverage promoted at European level. Germany’s Council presidency should point the way towards enhancing collective bargaining coverage, for example, in the area of procurement law. Public contracts, grants, subsidies and resources from the structural funds should in future go only to companies that adhere to collective agreements and pay collectively agreed wages. Apart from that, the German government should promote the development (or rebuilding) of collective bargaining systems in countries in which, within the framework of the adjustment programmes at the time of the euro crisis, there were massive interventions in existing systems, sometimes with catastrophic effects. Strengthening collective bargaining coverage must, however, be embedded in a reorientation of European economic policy in order to be able to achieve its desired impact, namely decent wages for decent work.

Change of Course in Economic Policy

In the upcoming negotiations on a European reconstruction programme within the framework of the multiannual financial framework 2021–2027 (MFF) the main task will be to make the right decisions to promote economic and social convergence in Europe and strengthen social cohesion. Key to this is a reorientation of existing instruments of European economic governance. For example, the European Semester was introduced in the Great Financial Crisis in 2010 to enable EU countries to better coordinate their economic policies and jointly address the economic challenges that affect the EU as a whole. Each year since then the European Commission analyses the member states’ planned budget, macroeconomic and structural reforms and offers country-specific recommendations (CSRs). The CSRs exhibit a clear social imbalance, however. For state budgets alone, especially those of the southern European crisis countries, they have recommended cuts well over 100 times, even for health care. Although the CSRs were supplemented with a social scoreboard in 2018, insufficient advantage has been taken of its potential for highlighting social ills in the EU. Its effectiveness is conditional on making its aims binding, as well as on the democratisation of the Semester overall. The negotiation of the CSRs behind closed doors between the Commission and the member state governments must also be ended and transposed to the co-decision procedure with the European Parliament. Germany’s Council presidency should take steps to get this under way.

A central lesson of the euro crisis is that the European Central Bank (ECB) can attenuate the most severe convulsions of the single currency with a well worked out monetary policy. Nevertheless, and despite implementation of appropriate measures – pandemic emergency purchase programme, asset purchase programmes – it is becoming clear in the wake of the corona crisis that the traditional limits of monetary and fiscal policy have become increasingly blurred and that even an expansive, unorthodox monetary policy – quantitative easing – requires a stabilising fiscal policy in order to tackle the crisis effectively. Even after 20 years of the single currency, Economic and Monetary Union (EMU) has yet to achieve full sovereignty of monetary and fiscal policy. Monetary and fiscal sovereignty is also a condition of the EU’s achieving true European sovereignty in its policies, both internally and externally.

The agreement between the French and the German governments on a Corona Reconstruction Fund represents an important step in this direction and has paved the way for the European Commission’s proposals for joint borrowing to fund European investments that have been on the table since 27 May under the heading ‘Next Generation EU’. They represent an opportunity for a new economic policy: joint investment instead of the failed austerity policy.

Thus for the first time the principle of joint EU bond issues for joint EU spending has been created. And this is the right approach: alongside the normal budgetary spending of the multiannual financial framework (MFF), totalling 1,100 billion euros, there will be 750 billion euros of new debt funding thanks to the new time-limited recovery plan. Its objectives are also to be welcomed: the bulk of the funding is to be spent on support in the face of social/environmental and digital transformation. The modernisation of the European capital stock through investment can ensure employment on condition that these investments are deployed intelligently to nudge the transformation processes that are now under way in a social direction. Such a Green Deal expanded to encompass decent work and sustainable prosperity would become an EU Social Deal and honour its commitment to solidarity. Now it depends on the German government, however. The negotiations on the final volume of spending and its funding fall under its EU Council presidency. The groundwork has been laid for a reorientation of European economic policy. But there must be no repeat of the mistake of undermining and nullifying the whole undertaking with a retrograde austerity policy on the part of the member states. A permanent raising of the government debt ratio ceiling after the end of the crisis – for example, from currently 60 to 90 per cent – would substantially ease the pressure for cuts in public spending. This would make it easier for the member states to grow their way out of public debt.

Finally, care must be taken to ensure that a member state’s economic strength does not permanently determine the competitive conditions affecting the enterprises located there. The temporary setting aside of the prohibition on state aid in accordance with Art. 107 TFEU to speed up rescue measures for the real economy harbours the risk of exacerbating economic inequalities in the single market: member states with budgetary shortfalls will be unable to keep up in the face of such state aid competition. The European level lacks an adequate balancing mechanism to cushion these economic inequalities. In future, EU competition policy should thus support national state aid with joint European strategies, for example, to achieve climate neutrality, and at the same time protect European companies against subsidised competition from third countries. Strategic assets receive too little protection against hostile takeovers. Strategically important manufacturing, in sectors such as pharmaceuticals, biotech and health care, should be brought back to Europe or prevented from leaving. Conditional recapitalisation measures for the social/environmental and digital transitions, in connection with an employment and location guarantee for employees, and even state ‘golden shares’ would thus be a key condition of a modern European industrial policy in the face of global competition.

(Translated from the German)

[1] Council Regulation (EU) 2020/672 of 19 May 2020 on the establishment of a European instrument for temporary support to mitigate unemployment risks in an emergency (SURE) following the COVID-19 outbreak.

The views expressed in this article are not necessarily those of Friedrich-Ebert-Stiftung.