“Towards a Union of Strong Welfare States”
A conversation between Frank Vandenbroucke and Rolf Schmachtenberg
Former Belgian Minister of Labour and researcher Frank Vandenbroucke and State Secretary Rolf Schmachtenberg discuss the challenges for social upward convergence in Europe. They make the case for a Union of strong welfare states in the wake of the coronavirus pandemic and outline an ambitious agenda for implementing the European Pillar of Social Rights.
For a long time, it was assumed, that social progress would – in good as well as in bad times – more or less automatically occur alongside economic integration in Europe. Was this assumption justified?
Vandenbroucke: The pioneers of the European project were deeply convinced that if you integrate markets, countries that are lagging behind will get opportunities to catch up. Second, that we should not be worried about internal domestic social cohesion when markets are integrated, because governments and trade unions will push for fair redistribution on the national level.
Schmachtenberg: This assumption was confirmed in the beginning. In the post-war period, the European economies developed well despite differences in economic policy strategies. Thanks to this growth, each year there was more to go around and it was possible to expand the welfare state. This created trust in the idea that economic success and social progress were compatible.
Is this assumption still valid today, and can we rely on it when managing the current crisis?
Vandenbroucke: Let me, again, first return to past experience. In the 2000s cracks appeared in the optimistic model presumed by the pioneers. On the one hand, it became more difficult to maintain a high level of performance in social policy for the most advanced welfare states. On the other hand, even though there has been a steady process of upward convergence between the new Member States and the EU-15, when you look closer, within some of the new Member States there is a growing regional disparity, which is socially and politically a very serious issue.
Schmachtenberg: I believe that polarisation between those Member States and regions with successful growth and those with less successful growth is one of the greatest risks to the cohesion of the EU. In view of the economic downturn caused by the coronavirus pandemic, we need to redouble our efforts to protect workers and firms across countries and regions in order to avoid a widening prosperity gap as we saw it during and after the euro zone crisis. The EU Member States will not manage the pandemic alone as the economies are far too closely linked via supply and distribution chains.
Vandenbroucke: The corona crisis underscores that we must increase the resilience of our systems. And we have been warned! The last and most dramatic crack to the initial assumption that social and economic convergence would more or less automatically progress with European integration appeared during the euro zone crisis. This was the opposite of convergence. Hence, we know very well that the original assumption is not fit for purpose today. We do not need to reinvent the fundamental aspiration – which is still about upward convergence and cohesion within and between countries. But we urgently need to reconsider the ways and means to achieve this, the instruments. Otherwise, the fall-out of the coronavirus crisis will be a very sad repetition of the euro zone crisis: dramatic social and economic divergence.
What should be the approach to tackle the current challenges?
Schmachtenberg: Especially in the current situation, I hope that in the EU we will commit ourselves to the model of a Union of strong welfare states. A union of strictly separate welfare states risks disintegrating directly into national risk-sharing communities in the event of a threat such as the pandemic. The challenges ahead can no longer be met with the old mantra that social issues are solely the responsibility of the Member States. First and foremost the economic fallout of the coronavirus pandemic is testing the resilience of European social security systems and brought the idea of mutual reinsurance on the agenda. Moreover, to pave the way for a strong and sustainable recovery, we need to deliver on our promise to be not only a frontrunner in the green and digital transformation but also to manage it in a humane way, a way that puts people first. These aspirations require a high degree of policy coordination. That is why we need bold investments but also minimum social standards to make sure we are embarking on the right path. We need this to promote growth and innovation, on the one hand, and on the other to strengthen the capacities of the welfare states, for example, in terms of stabilisation, activation but also peoples’ confidence as regards the future.
Should there be a single European welfare state one day?
Vandenbroucke: My answer is no. There is an enormous diversity in architecture, in design of the welfare states and this is a legacy of the past. You could not convince an Irish citizen that the Belgium healthcare system is better nor the other way around. But what does this vague notion of “Social Europe” actually mean? We should come up with a more precise and operational idea. This is why I am rather using the expression of a “European Social Union”. A union of welfare states that provides systemic support to national governments in pursuing social policies, but leaves the ways and means as much as possible to the national level. To follow this path, we need a basic consensus what welfare states are about. We need to agree on what we value.
„High social standards are a part of Europe; we must constantly remind ourselves of this fact and we must continue to fight for – and where needed to rebuild – those standards. “
Schmachtenberg: Each Member State should be able to keep its tried-and-tested welfare state institutions and conventions that have evolved over time. At the same time, in Europe, we have a common understanding of what constitutes a good life. The idea of social solidarity is part of our inheritance from European history. I believe that common basic principles can be built on this foundation, also in times of crisis. High social standards are a part of Europe; we must constantly remind ourselves of this fact and we must continue to fight for – and where needed, rebuild – those standards. With the European Pillar of Social Rights (EPSR), we have successfully formulated these common principles and we can use them as guidance, in times of crisis and for the future. The phase we are in now is crucial for successfully translating the abstract nature of the EPSR into concrete results, i.e. to measurable minimum standards in individual areas – of course with due regard to what may urgently be needed at the moment, and what may be implemented later on.
What long-term social policy goals should the EU set for itself? Is the European Pillar of Social Rights a good guide for the future?
Vandenbroucke: The European Pillar of Social Rights is an excellent initiative, but it is also a high-risk initiative. If there is no tangible delivery, it will come back as a boomerang in our face and we will not be able to seriously talk about Social Europe for the next 20 years. Consequently, there must be delivery now. As you mentioned, we need to translate the abstract into the tangible. For that reason, Ursula von der Leyen is right to announce an action plan on the European Pillar of Social Rights in 2021. In my view, an action plan means that you really set out priorities, and that you show how you will fully exploit the instruments that already exist, such as legal instruments, benchmarking, the European semester and European funding. To deliver on the Pillar we also need to improve the way these instruments support each other.
How should the political agenda for the next couple of years look like?
Vandenbroucke: For the next couple of years, it is important to make progress on parallel tracks, like minimum wages, minimum income protection, and, lastbut not least, access to social protection, including unemployment insurance, for all. The latter should be the top priority for the implementation of the Pillar of Social Rights. Let me explain why. It is my fundamental conviction that one day, the monetary union must be an insurance union like all monetary unions in the world are. Universal access to social protection is one of the essential ‘nuts and bolts’ of a well-functioning welfare state: for social insurance to function well, everybody must be covered, no matter in which sector or in which type of employment relationship one works. Therefore, ensuring access to social protection in each of the Member States is a basic building block for a social union which, one day, should be a true insurance union.
This was my conviction before we ever heard about COVID-19. Today, it is abundantly clear that the lack of social protection for precarious categories of workers and self-employed is a major problem in some countries when they are faced with a sudden economic shock. Also, it would be good for all countries to implement systems like Kurzarbeit (short-time work). A European unemployment re-insurance scheme could promote and support the establishment of Kurzarbeit in those Member States where is still lacking.
Can you elaborate on your idea of an insurance union and its role in a monetary union?
Vandenbroucke: When a monetary union is hit by a large-scale shock, the risk of contagion is very high. For these situations all monetary unions in the world – except the European one – have a higher-level support scheme that kicks in when stability is in danger. The idea of European reinsurance for national unemployment insurance schemes is attractive because it organises support only when it is needed, not at all times. With such a scheme the EU would not have to intervene with the details of the national systems but only set some common standards. And insurance is not redistribution, it can be organised in a way that there are no transfers in the long-term. This is why reinsurance is a good example of what a union of welfare states should be about.
From the abstract to the specific – where should we start in the current situation?
Schmachtenberg: In the current economic crisis, we should reinforce our commitment to the European Pillar of Social Rights. We need real flagship projects. People all over Europe must feel that something is getting done in the social realm. From my point of view, we should consider the following points: First, solidarity within and between member states should be our guiding principle. Second, we must make progress in areas where there is already a broad consensus among the people, namely in the fields of securing livelihoods and fair wages.
During Germany’s EU Council Presidency, we therefore want to focus on making progress on an EU framework for fair minimum wages and another for national minimum income schemes. Both initiatives become even more relevant as we face an economic downturn. Reliable standards for minimum wage setting protect not only workers but also employment. And minimum income schemes act as stabilisers and foster rapid reintegration into the labour market. These objectives are already laid down in the EPSR. Member States would, of course, be free to decide how to meet the minimum standards. Minimum wages are one example: there are various models for setting good minimum wages in Europe.
What can be the contribution of the German Council presidency?
Vandenbroucke: The German EU Council Presidency can definitely play an important role. I might surprise you a little bit by saying that for me the role should be a combination of insisting on continuity and innovation. It is understandable that political actors are always keen to put forward new ideas. But obviously we should first deliver on the ideas that have been launched. In the past, some promising initiatives, such as the Social Investment Package, were not followed through simply because they were seen as ‘the ideas of the previous team’. Hence, it is important that you stress the continuity in the work of the Commission. The Pillar must lead to delivery and for initiatives like the one on access to social protection, there needs to be a tangible follow-up process. It would be good for the German Presidency to underscore the importance of universal access to social protection, and to link it to the idea of a European unemployment re-insurance scheme. On top of that, you can indeed give new impetus to the debate by becoming much more concrete on minimum income protection and the minimum wage issue. If Germany talks about it, it is credible, because Germany is always cautious but also has an immense fund of experience. So even on a sensitive and difficult topic like minimum income protection, you might be able to make progress. My expectation is high.
„It would be good for the German Presidency to underscore the importance of universal access to social protection, and to link it to the idea of a European unemployment reinsurance scheme. “
How can we build consensus for an ambitious social policy agenda in a Union of 27 very different Member States?
Vandenbroucke: Public opinion data shows that in many new Member States a considerable segment of public opinion believes that more European social policy initiatives would lead to improvements on the national level. This segment is less large in Member States where social standards are already relatively high, as in France or Germany. So on the one hand, among the new Member States there is a desire to further accelerate social policy developments. On the other hand, in the old Member States there is a genuine concern about unfair competition in the single market, whilst the new members are keen to valorise their actual wage-cost competitiveness. So let us agree on fair competition and free movement, decent social standards and support for upward economic and social convergence.
Which role does economic policy play for upward convergence?
Schmachtenberg: There needs to be both a short- and long-term strategy to protect and support people as well as firms across all EU regions. To facilitate the recovery after the current health crisis we should consider broad investment programmes. In parallel, in order to safeguard as well as promote progress in the convergence of living conditions, we need targeted economic development for certain regions. For example, regions in areas that are on the periphery geographically often find it more difficult to integrate themselves into the established value chains of places where industry is located. This challenge will be exacerbated by the crisis. That is why I believe that a Europe made up of strong welfare states also needs to have an active European industrial policy. Airbus is the best-known example of this. It is an important growth factor and driver of innovation for the regions of Toulouse and Hamburg. This shows that local industrial clusters can be promoted through targeted investments. In a similar spirit, I would like to see projects for the regions on the EU’s external borders in order to strengthen the periphery and spread growth. In this way we can achieve a convergence of living conditions through value creation in the regions. Redistribution can help in a complementary way. This is why, for me, minimum social standards and the promotion of investment go hand in hand when it comes to targeted policies for cohesion, recovery and growth in Europe.