If the European economic and social model is to live to see brighter days, three changes are required: more centralisation, more competition and more trust in each other. These factors could allow new instruments of solidarity to develop, such as a European unemployment insurance system.
The supposed contradiction between solidarity and a market economy could be resolved if the system were organised properly. The Germans realised this early on with the introduction of the Godesberger programme in 1959, which allowed the state to be both the facilitator and corrective of the morally blind, wealth-generating market economy. For the social market economy to work, it needs a strong state and a strong welfare state. This has now been implemented on a national level. But on a European level, we are still finding it incredibly difficult to handle.
Where is the strong EU welfare state?
What we have created over the past thirty years is a fabulous European market economy known as the European Single Market. Germany is particularly benefitting from this. Things produced over here can be easily sold across Europe. And things produced in other parts of Europe can be easily bought in Germany, simply because the same product standards have been adopted across the region. What is sometimes criticised as an excessively detailed EU regulation is actually a prerequisite for having a successful European market economy. How much prosperity the internal market brings, and how much one can lose by leaving it, is exactly what Britain is about to find out.
But where does the European market economy leave the strong welfare state? The father of the European Internal Market, Jacques Delors, knew that having a social Europe is a part of the European market economy. However, this has barely been implemented so far. Yes, we do have strong European competition authorities which are effective in countering excessive monopoly power. Yes, European regional policy is a tool to promote economic convergence. And yes, more and more vague initiatives are being launched to promote a social Europe, such as the EU Commission’s current proposal for a “Pillar of Social Rights”. However, the status of the European welfare state is remarkably low in comparison to the inter-regional social insurance and solidarity mechanisms which there are in the USA – and the USA is not known to be much of a social state.
Why is there not more European solidarity? Why are people so much more worried about a poor resident of Greece misusing our solidarity than a poor resident of Germany? For some, a feeling of cultural superiority may play a role. Hopefully, one day people will realise that Greek culture does not need to hide behind German culture.
The desire for sovereignty
The real problem does not lie with the cultural differences between different EU states, which are actually enriching and can often be seen as a positive; rather what is crucial are the different forms and varying quality of national institutions in Europe. Education systems, pension systems, health care, legal systems, refugee housing and tax offices are constructed in very different ways, and are also of variable quality. Here it should be expressly reminded that Germany’s institutions are by no means leading Europe in all these areas.
A plausible and fundamentally legitimate explanation for the fact that social Europe is still so weak today could be the lack of willingness of the European taxpayer to permanently subsidise comparatively weak national institutions. Even in the United States, where the individual federal states have much more autonomy than, for example, the German federal states, the central state does not tolerate underperforming regional institutions in key areas such as pension insurance, health insurance, taxation and national authority.
But there is fierce opposition to precisely these restrictions on the sovereignty of the individual Member States in Europe. A European super-state is not wanted unless it conforms to each respective national model. But there will never be a French, a German or an Italian Europe. Instead, we need a multi-layered strategy, firstly with more centralisation, secondly with more competition and thirdly with more trust in each other. Within the framework of such a strategy, new and concrete forms of solidarity can be developed, for example a European unemployment insurance.
Centralisation: even if we are not seeking a European super-state, in some areas we simply need a more centralised Europe. A good example of this is the banking union. In the long run, there can be no solidarity in financial crises in the Eurozone as long as the supervision of the financial sector is lenient and differs between the Member States. Therefore, the creation of the European banking union is a real and inevitable step towards centralisation, which actually needs to be implemented even more consistently. Another example is the humanitarian treatment of refugees in the EU and the safeguarding of the external borders. Both must be collectively funded and organised jointly so that Europe’s system of open internal borders can function even if a single Member State is experiencing financial or organisational difficulties. Yet the guiding principle must always be to have as much centralisation as is necessary, and as much subsidiarity as is possible.
How Erasmus is boosting competition
Competition: in other sectors, competition between government institutions can be useful to improve their quality. The solidarity mechanism of Erasmus serves to not only broaden the horizons of the students, but also creates a constructive competition between universities which spans across national boundaries. It is important that this is done for the benefit of the students and independent of how much money their parents have. Similar competitive elements can be found in the better parts of European research funding, and could also be added into the promotion of investment, for example, so that a constructive competition can develop between different regions over the quality of investment projects.
At this point, however, we should expressly warn against the idea of states generally competing with one another like businesses. The state is supposed to be effective precisely where private competition leads to negative effects, for example in the case of insurance against illness or poverty. The state rightly insists on an insurance obligation from birth, so that the comparatively healthy and rich cannot withdraw from contributions once they realise their privilege. If competition were reinstated in these areas through the back door of state competition, then precisely the problems which the state is supposed to prevent would be caused. The countries would cut their taxes too much to lure the healthy, well-educated and wealthy people in, instead of investing more in education and health and providing better care for those in need. This destructive form of state competition, especially in the field of taxation, should prevent Europe from organising such a competition.
Trust: sometimes, we in the EU need to trust each other more. After the Second World War, Germany was given the benefit of the doubt by its European partners. The crisis-stricken countries today have also earned such trust, amongst other things in the form of substantial European future investments.
Surrounded by dark neighbours?
In contrast, right-wing populists use nationalism to advance their own cause, using nationalist slogans to convince voters that their own pure, valiant country is being treated unjustly and is surrounded by countries with dark intentions. What is absurd here is that right-wing populists in Germany, France or Greece can win votes using this basic argumentative structure of nationalist segregation and exclusion together with reciprocal resentment, whilst at the same time they are happily working together in the European Parliament to break Europe.
Europe is a historically unique entity and will therefore have to develop new and unique forms of solidarity to solve its problems. Unconditional European solidarity will not function in the long run because it creates false incentives by increasing the longevity of dysfunctional national institutions. Yet solidarity will have just as little effect if draconian penalties are unreasonably given to weak countries in the case of misconduct which cannot be reasonably enforced in the event of a crisis.
Towards solutions which really work
New European solidarity mechanisms containing elements of centralisation, competition and trust are particularly promising. In my opinion, a good example of this would be the introduction of a European unemployment insurance scheme in the Eurozone to help avoid, or better manage, future crisis situations. There would obviously be an element of centralisation present here. For example, institutional minimum requirements for a productive and social labour market organisation could be established across Europe as a condition for access to this insurance scheme. As an element of competition, risk-dependent contributions by various states to the scheme could create incentives for further improvements to national labour market institutions. Finally, a project of such a size with such considerable uncertainties, and an asymmetrical starting position with the labour markets of the Eurozone, also requires a high degree of confidence in the good intentions of the respective partners and in all the arrangements which can and should be taken.
Europe must become more solid, in this good social-democratic sense of “yes, but” and “as well as”: we need a new balance between market and state, between self-responsibility and solidarity. We do not need populist slogans, but rather balanced solutions which can also work on a long-term basis.
Jakob von Weizsäcker is a Social Democrat member of the European Parliament, where he sits on the Committee for Economic and Monetary Affairs.
This article was first published in German in Berliner Republik, and has been translated by Claire Caruth.