Session 4: Political and social consequences of the crisis

Jun 28th, 2010 | Category: Session 4

11 June 2010

The session concentrated on the following questions:

• Are we witnessing the end of an era as regards Social Europe?

• Does the crisis necessitate a renegotiation of the domestic social contract in individual member states?

• If so, then what may be the role of the EU in all this?

The current economic crisis is exacerbating tensions and weaknesses that already existed in Europe and it is pressing policy-makers to react and manage rapidly unfolding, inter-related economic and political aftershocks unleashed by the 2008 credit crunch and ensuing ‘deglobalisation’. It is redrawing the boundaries between states and markets and challenging issues of economic governance that were taken for granted over the past few decades of EU integration (monetary and fiscal policy, financial regulation, welfare provision, labour market rights and entitlements, etc). The question therefore is whether it will lead to yet another reinvention of welfare capitalism? In response, the need for ‘social pragmatism’ and for far-reaching and forward-looking social policy reform was underlined during this session.

The broader social and political consequences of the economic crisis have been a long time coming and it seems that neither the crisis nor its consequences will be over any time soon. Evident internal differences and asymmetries within the EU mean that the ‘shape’ of the recovery will be uneven in different Member States. Some economies may rebound with a ‘V’ shaped recovery, others may undergo an extended ‘U’ shaped stagnation or ‘W’ double-dip before recovering, other still risk a longer ‘L’ shaped pattern with longer and more painful losses. In all cases, adjustment is likely to take longer than expected, and in many cases it will probably be even tougher than expected.

With a population that is ageing, Europe is facing challenging times as it has pressing choices to make regarding:

• reviewing its pension and care funding;

• its choices in managing its labour supply and employment policies;

• and, the need to trim its public sector, including its social spending.

With growing unemployment, particularly youth unemployment, and more limited opportunities for social mobility, social exclusion and poverty are likely to be on the rise. Yet with increasing austerity measures, the challenge for European states is not only to be able to respond to these growing social demands, but to be able to fund the necessary changes in order to achieve the desired transformations to achieve medium and long term recovery and growth. Domestic social contracts will inevitably evolve, and it seems in some cases they will evolve quite radically.

In reaction to this, it was argued that fiscal deficit problems should not be allowed to become an excuse to cut back on the welfare state. Less is not more. European states should reform aiming at increasing the efficiency of social spending and investing in research and skills-creation in order for Europeans to be well equipped to face growing competition (particularly from Asia) on the global labour markets.

The EU has a key role to play and four dimensions in particular were highlighted. It can: contribute to reinventing flexicurity; facilitate policy learning; monitor and scrutinise Member States and put forward recommendations; and build governance.

The key messages put forward could be summarised as:

• Reforming the welfare state is inevitable. The challenge is what sort of reforms are necessary in order to make it more efficient and more effective in what its meant to be doing/ providing, and in order to make it sustainable and more inclusive;

• European countries should stop being complacent and invest in innovation and skills-creation in order for their citizens to be competitive on the global labour markets.

The question to pose in this context is how will European societies react to these changes?

We are witnessing a growing mistrust both within societies and among Member States. Moreover, the attractiveness of the markets and of the neo-liberal philosophy that dominated the last two decades appears to be waning. The public’s disenchantment with the market forces/ actors and with politics is evident and is spreading across most EU countries. And, it is being accompanied by a rhetoric that builds on a myth of an (idealised) ‘welfare-state paradise’ that is being lost to current global competition and insecurity. This is already translating into newly emerging right-wing populism that is pro-welfare state and vehemently anti-immigration. And it may translate into further support for ‘anti-systemic’ political parties that will try to fill in the political vacuum. It is also translating into a growing protectionist and introvert nationalism.

If this is the case, then it is important to consider how this may affect attitudes towards the EU? Might it be considered irrelevant? Or a threat? Or will it be able to present itself as an ‘innovator’ of ideas and break out of the current impasse?

The EU and its Member States must reflect on the roles that each should take on in order to address and respond to the implications of the crisis. They must deal with the short-term effects of the crisis while at the same time make the necessary adjustments to pave the way for the longer-term priorities. They must equally reflect on the common values and principles that are keeping them together.

And in this challenging context, it is important for the EU and its Member States to understand that working for ‘stability’ alone is not enough. It is certainly necessary, however, ‘stability’ alone is unable to address the internal and external challenges that Europe faces today. ‘Growth’, ‘equity’, ‘innovation’ and ‘cohesion’ are just as necessary and are as pressing as ever.

Rapporteur: Ruby Gropas, ELIAMEP

• Iain Begg, “Social Policies after the Crisis”

• Anton Hemerijck, “The End of an Era: economic crisis and welfare state transformation”