Globalisation and the Reform of European Social Models/Executive Summary
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Globalisation and the Reform of European Social Models
André Sapir
Executive Summary
André Sapir, Senior Fellow at Bruegel and Professor of Economics at Université Libre de Bruxelles, presented his paper at the ECOFIN informal meeting of EU Finance Ministers and Central Bank Governors. The meeting was held under the British Presidency of the EU in Manchester on 9 September 2005. A related Bruegel Policy Brief is scheduled for publication in October 2005.
The full paper is available for download at:
http://www.bruegel.org/Repositories/Documents/publications/working_papers/SapirPaper080905.pdf
Enlarged single market and euro: Part of the solution or part of the problem in the era of globalisation?
The enlarged single market and the euro can and should be part of the solution as the
countries of Europe strive to reap the full benefits and avoid the pitfalls of globalisation.
However, there is a serious risk that the enlarged single market and the euro are instead
becoming part of the problem. This is illustrated by the poor economic performance in the
core of Eurozone, the stalling of the Lisbon process, and the failure to agree on how to open
up services markets. Only if a serious reform of inefficient European social models is
undertaken, will the enlarged single market and the euro contribute to making Europe
economically successful in the era of globalisation.
Policy Recommendations
For the EU to emerge from its present economic problems, three ingredients are needed:
1) At the national level, the “Continental” (Germany, France etc.) and “Mediterranean” (Italy,
Spain etc.) countries need to reform their inefficient labour regulations. This need not come
at the expense of social cohesion and equality, as the “Nordic” countries (Sweden, Denmark,
and Finland, but also the Netherlands) are demonstrating. To assure political feasibility at the
national level, coordinated and complementary efforts at the European level (EU, Eurozone)
are needed to increase the benefits of labour market reforms and to reduce their cost.
2) At the EU level, the Lisbon process needs to be streamlined to focus on the completion of
the Single Market and on increased financing for research and innovation. In particular, the
creation of a single market for services will be crucial for growth as services account for 70
percent of economic activity in the EU. The single market for services will be strongly
complementary to labour market reforms. A commitment at EU level to create the single
market for services will act as an incentive to complete overdue labour market reforms at the
national level.
3) At the Eurozone level, such credible and coordinated reform commitments at the national
and EU level would reduce the lag between reform impetus and monetary response. This
would bring monetary policy closer to the ideal where it moves in parallel with reform, thereby
reducing the economic and political costs of reform.
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Analytical Underpinnings
The notion of a “European social model” can be misleading—in fact, there is no such thing.
Europe is home to different social models, with different features and different performance in terms of efficiency and equity. The paper presents an analysis of the different models which leads to four broad categories (EU-15 countries indicated):
EFFICIENCY
Low High
High “Continentals”
(BE, DE, FR, LU)
“Nordics”
EQUITY (AT, DK, FI, NL, SE)
Low “Mediterraneans”
(ES, GR, IT)
“Anglo-Saxons”
(IE, PT, UK)
This analytical approach leads to two deviations from traditional, strictly geographic categories in this classification: Austria is a high-equity model but its high employment rate makes it more part of the “Nordic” than the “Continental” group ; similarly, Portugal, while sharing low equity features of the Mediterranean countries, is closer to the “Anglo-Saxon” group when employment performance is considered. Empirically, it is found that the position of countries on the equity axis is largely determined by the inclusiveness of their secondary education systems and the generosity of their redistribution systems both of which are more generous in the Nordic and Continental countries than in the Anglo-Saxon and Mediterranean countries. The position of countries on the efficiency axis in turn depends largely on the flexibility of their labour markets.
Notably, the labour markets of the Nordic countries are significantly more flexible than the labour markets of the Continental countries without compromising equity. Therefore, the Therefore, the popular portrayal of labour market reform in Continental and also Mediterranean countries as one of efficiency versus equity is probably flawed at a fundamental level. But while this knowledge by itself can help the Continental and Mediterranean countries to reform, it may not be enough. As with most sensible reform that have not yet been accomplished, even if the long term benefits are clear and overwhelming, the short term political cost may still be able to prevent reform.
To be successful with reform, Europe’s policymakers need focus. The absence of clarity in respective policy aims is a main reason for the failure of the so-called Lisbon Process, whose inability to deliver measurable outcomes has become increasingly evident. What is needed is a consistent and credible reform approach, which adequately takes into account the reality of decision-making powers of the various players.
In the EU system of economic governance, labour market and social policy reforms are a matter for the Member States, not for the European Union. However, there is a necessary complementarity between national reform of social models and progress in the completion of the single market, which can only be achieved at EU level. Therefore, the most promising – and possibly only successful – reform strategy for Europe is one which combines the reform of inefficient national social models with renewed commitment for building a single market for products, services, capital and labour among the 25 (and soon 27) members of the EU. The EU level must also foster better higher education, research and innovation by making better use of the EU budget.
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