The Social Dimension of EMU – Socialising Economic Governance

Prof. Kenneth A. Armstrong

On 2nd October, the European Commission published its anticipated Communication on Strengthening the Social Dimension of the Economic and Monetary Union. Yet barely had Commissioner Andor finished his press conference to launch the Communication than EP President Schulz intimated that the proposal was not ambitious enough. Observers of the EU will be familiar with the tendency of the Commission to refer to EU social policy as a ‘dimension’ of something else and with the criticism that its initiatives lack ambition. The ‘renewed’ social policy agenda of 2008 and more recently, the belated Europe 2020 ‘flagship initiative’ of the European Platform Against Poverty, were all greeted in more or less muted terms. In part, the rather underwhelming feeling about the Communication is a continuation of a disenchantment with the capacity of the European Union to develop a stronger social identity. But it is also a product of concerns with where EU social governance fits in the new governance architecture for economic and fiscal policy coordination given the political energy which has flowed into reforms to that architecture.

Compared to the flurry of activity associated with the adoption of the “six pack” and “two pack” as a legislative means to reinforce EU economic governance, the social dimension of EMU is to be strengthened primarily by tweaking existing mechanisms for policy coordination. As will become apparent, this involves the continuing use of social indicators as a tool of governance, but with closer ties to three distinct policy coordination processes – employment policy coordination; social policy coordination; and the control of macroeconomic imbalances. Building on these discrete processes, the ambition is also to socialise the ‘meta’ coordination framework of the European semester. The aim of the European semester is to coordinate distinct coordination processes within a common timetable with input coming from the European Commission in its Annual Growth Survey (AGS); with political leadership coming from the European Council; and resulting in Country Specific Recommendations (CSRs), compliance with which is subject to on-going monitoring. But in order to make sense of the ways in which the social dimension of EMU might be reflected within the European semester, it is to the distinct policy coordination processes that we must first look.

The first example is the use of employment policy coordination processes and instruments. It will be recalled that employment policy coordination was formalised by the Amsterdam Treaty and was modelled on the structures for economic policy coordination put in place to support monetary union. In the context of the Lisbon strategy, while retaining their distinctive legal bases in the treaties, economic and employment policy processes were synchronised and integrated with Member States producing National Reform Programmes (NRPs) for evaluation by the Commission and Council in line with integrated guidelines. This approach has been carried forward within the Europe 2020 framework – the successor to the Lisbon strategy – with domestic policy reforms evaluated by the Commission and the Council. The evaluation of the employment situation is contained in the Joint Employment Report (JER) which now forms part of the Annual Growth Survey as the Commission’s major policy contribution to deliberations at the Spring European Council. The Commission’s new Communication proposes a ‘scoreboard’ of social and employment indicators through which to monitor social and employment developments and reported within the JER and AGS. These indicators refer to changes in employment levels; youth unemployment and the number of young people not in education or training; real gross disposable income of households; the at-risk-of-poverty rate in the working age population and income inequality. Of course, the EU has been using these and similar indicators in its employment and social policy coordination processes for years. Indeed, reforms undertaken within the context of Europe 2020 are evaluated by reference to five headline targets measured by eight indicators (including indicators on working age employment rates and the at-risk-of-poverty rate). The ambition is less to do something new and more to give greater political prominence to these indicators through the JER and AGS, and to relate them directly to the monitoring and evaluation of economic policy developments within the context of the European semester.

The second dimension of policy coordination is what is colloquially known as the social OMC. The open method of coordination (OMC) was itself modelled on the employment coordination process and was initially applied to combating poverty in the EU, then subsequently applied to pensions and long-term care. From this emerged the OMC on Social Protection and Social Inclusion based again on cyclical reporting and monitoring informed by a suite of social indicators. By the beginning of the economic crisis, the utility of producing national and EU reports was questioned and for a time the social OMC went into abeyance. Nonetheless, monitoring of the social situation was still undertaken within EPSCO, supported by the Social Protection Committee. Indeed, out of the experience of the OMC came the Social Protection Performance Monitor (SPPM): a ‘dashboard’ of twenty indicators that include indicators represented within the Europe 2020 indicators as well as within the Commission’s newly proposed ‘scoreboard’. So the Communication is not proposing a new analytical or monitoring framework but rather seeks to make a connection between the high-level political messaging of the JER/AGS as supported by the new scoreboard, and the thematic and country-specific monitoring carried out via the SPC using the SPPM and translated into political messages by EPSCO.

As described thus far, it might be fair to say that the ambition of the Communication is to improve on the rather negligible level of ‘feeding in/feeding out’ that occurred between the economic and social policy coordination processes in the context of the Lisbon strategy. Utilising the new meta-coordination framework of the European semester, the aim is clearly to improve the capacity of social and employment messages to flow through the political arteries of policy deliberation up to, and including, the European Council itself as the heart of the decision-making process. What is proposed is not, therefore, radical surgery, but something more akin to political angioplasty. Where the Communication does hint at something more radical is in respect of the newest dimension of EU policy coordination in the form of the Macroeconomic Imbalance Procedure (MIP). Again, using a scoreboard of indicators, surveillance is undertaken to warn against the emergence of imbalances which threaten the conduct of macroeconomic policy. The result is the Alert Mechanism Report which then forms the basis for further in-depth reviews and for preventative recommendations which form part of the CSRs adopted under the European semester. In the event of an extreme imbalance being detected, a procedure analogous to the Excessive Deficit Procedure may be opened with Eurozone states required to adopt corrective plans with sanctions being applied in the event of non-compliance. In essence, the Commission proposes that this analysis include an evaluation of employment and social issues by including certain employment and social indicators within the group of indicators used to inform the Alert Mechanism Report. What is not clear is whether the Commission is proposing to formally amend the regulation establishing the MIP, adopted as part of the “six pack”. The regulation itself is clear that the scoreboard shall consist of a small number of macroeconomic and microfinancial indicators, with the Commission undertaking an “economic reading” of the scoreboard (Article 4). To be sure, the regulation tasks the Commission with keeping the indicators under review and where necessary modifying the indicators; indeed, the Commission seems to have a wide measure of discretion here that is not proceduralised by reference to the adoption of delegated acts under Article 290. Nonetheless, with a legal basis of Article 121(6) TFEU within the ‘economic policy’ provision of the Treaty and with the clear focus on economic indicators and their economic interpretation, it may be problematic to widen the focus to formally include social indicators. While it is clear that the intention is to bring the social dimension directly into the operation of a key instrument of economic governance and so go beyond simply transmitting social messages within the overarching architecture, it will be interesting to see what reaction this gets from the ECOFIN council.

In summary, the emphasis of the Communication lies on making changes within the scope of existing structures and instruments – including financial instruments – and within the existing treaty structure. But it does float more long-term ambitions to enhance EU fiscal capacity in ways that could be solidarity enhancing, but which would require greater political and legal integration. For the moment, the Commission is contenting itself with seeking to socialise the European semester through an enhanced role for social indicators within the distinct processes coordinated within its framework. On the one hand, this builds upon the lessons learned from past attempts to draw together mechanisms and processes for social and economic policy coordination. But in respect of the proposed use of social indicators within the MIP, there may be a more interesting but also more problematic social dimension of EMU.

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