ISSUE 2005/01

NOVEMBER 2005
bruegelpolicybrief

GLOBALISATION
AND THE REFORM
OF EUROPEAN
SOCIAL MODELS
by André Sapir SUMMARY Europe’s labour and social institutions need urgent reform if
Senior Fellow at Bruegel. we are to grasp the opportunities offered by globalisation and avoid the
He is also a professor
of economics at Université threats. But the notion of a single “European Social Model” is largely
Libre de Bruxelles. unhelpful for thinking about reforms. Of the four main models
operating, the “Nordic” and the “Anglo-Saxon” models are both
efficient, but only the former manages to combine both equity and
efficiency. Critically, the “Continental” and “Mediterranean” models,
which together account for two-thirds of the GDP of the entire EU-25
and 90 per cent of the GDP of the 12-member eurozone, are inefficient
and unsustainable. These models must therefore be reformed, probably
by adopting features of the two more efficient models. These reforms
may also involve changes towards more or less equity.
POLICY CHALLENGE
FIGURE 1
THE FOUR EUROPEAN MODELS Combining reforms of product and capital markets
A TYPOLOGY
at the EU level and of labour market and social policies
Equity Efficiency at national levels would be desirable, particularly
within the euro area. So far the Lisbon Agenda has
Low High
failed to deliver this coordination. At present the best
policy strategy to follow would be for the EU to go back
High CONTINENTALS NORDICS to basics and focus all efforts on completing the Single
Market. At the same time, Member States requiring
most urgent reform of their labour and social policies
must take internal action. Failing to do would not only
MEDITER- ANGLO-
Low RANEANS SAXONS run the risk that Europe misses the opportunities of
globalisation, but could even be damaging to both
the Single Market and monetary union.
 GLOBALISATION AND THE REFORM OF EUROPEAN SOCIAL MODELS

1. EUROPEAN RENEWAL of the opportunities we must above all 2. WHY REFORM?

02 The Constitutional stalemate and fai-
reform labour market and social poli-
cies that are stuck in the past. Failure The engine of change that is both dri-
bruegelpolicybrief

1
This Brief is based
on a Bruegel paper
prepared for
a presentation to the
European Union’s
Finance Ministers and
Central Bank Governors
at the ECOFIN informal
meeting in Manchester
on 9 September 2005.
FIGURE 2
SHARE OF DEVELOPING COUNTRIES IN DEVELOPED COUNTRIES IMPORTS
OF MANUFACTURED PRODUCTS (%)
Africa Middle East
lure to agree changes to the budget to reform will not preserve the status ving the need to reform, and threate-
have spawned a new and open debate quo, but could even threaten both the ning some of the past achievements
on the future of the European Union. Single Market and monetary union. of the European economic system, is
In his speech to the European fuelled by a heady mixture of techno-
Parliament on 23 June, incoming Second, the notion of a single logy and politics. The past 25 years
Council President Tony Blair said that “European Social Model” is largely have seen the world economy make
he believed in Europe as a political misleading. There are a number of dif- rapid technological advances combi-
project that offered its citizens strong ferent European social models with ned with political transformations
social protection. But he different performances such as the adoption of market capi-
also warned that Europe in terms of “efficiency” talism by China, India and the former
needed a "social Europe “The priority and “equity”. Models that Soviet Bloc. One measure of the
that worked". at the EU level are not efficient are by change in global trade patterns is the
definition unsustainable increase of the share of emerging
At this month's special should now and must be reformed. economies in manufactured product
summit in Hampton be geared to markets long dominated by advan-
Court Europe's leaders Third, labour market and ced country suppliers. As recently as
will discuss how to
completing social policy reforms are 1970, the share of developing coun-
maintain and strengthen the Single a matter for the Member tries in developed countries imports
social justice and compe- Market.” States alone, while other of manufactured products was barely
titiveness in the context necessary structural 10 per cent. Today, as Figure 2 shows,
of globalisation, a sub- reforms, such as the their share is over 45 per cent.
ject which is now more widely discus- completion of the Single Market for
sed than ever before – and not just by services, are decided at the EU level. Most of this phenomenal rise comes
politicians. There are undeniable benefits to be from East Asia with China a late but
had from coordinating action in a two- fast expanding entrant. China has
In this Policy Brief I attempt to make handed strategy, especially for coun-
1
gone from a share of just 2 per cent at
three points which may shed some tries in the eurozone. This was preci- the start of its economic transforma-
sely the purpose of the Lisbon
light on the current debate: tion in 1985 to 15 per cent today and
Agenda, but it is rapidly failing. The has overtaken Japan as the EU’s
First, the global economy of the 21st priority at the EU level should now be second largest supplier of manufac-
century is characterised by rapid geared to completing the Single tures and of goods in general. The
changes, which create both threats Market. emergence of developing countries
and opportunities. To take advantage as major suppliers of manufactured
goods and services is only just star-
ting. In particular, developing Asia,
including India and China, is expected
to continue growing steadily at more
than 6 per cent per annum for at least
Latin America China Other Asia Total a generation.

50 This rapid change in the global eco-

nomy creates both opportunities and
Source: Own computation based on WTO data.

40
threats. The opportunities will fall to
30 those able to respond quickly with the
right technology and skills. This will
20 sometimes require the political cou-
rage to take action that hurts in the
10 short-term, but pays off in the long
run. The benefits associated with the
0
1963 1973 1983 1993 2003 opportunities take time to materialise,
since they require investment in new
 GLOBALISATION AND THE REFORM OF EUROPEAN SOCIAL MODELS

activities; the costs associated with balisation has driven much of EU eco- Union of 27+ members into a genuine
the threats are incurred more rapidly nomic policy during the past two Single Market, where goods, services,
since they derive from what we are decades. But important European capital and labour are allowed to
03

bruegelpolicybrief
already doing. Postponing inevitable level institutional achievements such freely circulate, would offer great
changes is not a desirable option as it as the Single Market Programme, the opportunities to old and new Member
would only delay the sponsorship and sup- States alike. But this rosy scenario -
benefits and increase the port of R&D and mone- held by the European elites - where
costs. The challenge to “Postponing tary union have failed to everyone gains can only materialise
economic policy, there- generate greater eco- if national labour market and social
fore, is to conceive and inevitable nomic dynamism. policies become more conducive to
implement, as soon as changes would Progress towards the changes in specialisation. This is
possible, economic and completion of the Single especially true in “Old Europe”, where
social reforms aimed at only delay the Market is too slow; the those losing their jobs in old activities
greater economic adap- benefits and EU budget remains a often find it difficult to obtain employ-
tability and better social relic of the past, alloca- ment elsewhere. There, citizens often
protection. increase ting far too much to agri- tend to view enlargement as a zero-
the costs.” culture and too little to sum game, where the gains for new
research and innovation; Member States come at the expense
and economic stability of the old ones.
3. EUROPEAN STATUS QUO associated with monetary union has
not yet succeeded in generating addi- The pan-European industrial reorgani-
In Europe the needed reforms tional growth. In fact, according to sation needed to take advantage of
concern above all a range of increa- most estimates, the EU’s the opportunities
singly dysfunctional labour market potential growth is now coming from enlar-
and social institutions established in only 2 per cent a year com- gement is too often
the 1950s and 1960s when the eco- pared with almost 3.5 per
“The Single seen by the public
nomic environment was relatively cent in the United States Market is the as a burden coming
stable and predictable. Instead of fos- and 4 per cent for the on top of the weight
tering the necessary adaptation and entire world.
most potent of global competi-
flexible responses to increasingly European tion. A burden,
rapid changes, modern European wel- The simple but difficult instrument which not only
fare states, which had helped fuel choice facing European increases the threat
economic and social progress during policy makers today is not to address the of delocalisation
the ‘trente glorieuses’ (the 30 years the black and white one of challenge of and competition
between 1945 and 1975 when preserving the status quo from imports, but
Europe witnessed an unprecedented versus abandoning the globalisation.” also raises the
period of growth, stability and social cherished European Social spectre of immigra-
cohesion), now often protect the sta- Model. It is instead a choice tion, as seen in
tus quo. of reforming national labour market fears about “Polish plumbers”. Since
and social policies, or continuing to enlargement is now a reality, the
As Nobel Prize winner James hinder change. In the first case the backlash comes in terms of opposi-
Heckman rightly states in his insight- two major economic achievements of tion to the Single Market itself. As the
ful analysis of Europe, “The opportu- the EU in the last decade, the Single debate over the services directive
nity cost of security and preservation Market, and the Euro, will be turned has shown, by greatly increasing
of the status quo – whether it is the into building blocks towards making economic and social disparities and
status quo technology, the status quo globalisation an opportunity. In the the pressure to restructure inside the
trading partner, or the status quo job second case not only will globalisa- European Union, enlargement has
– has risen greatly in recent times.” tion become a major threat, but both certainly complicated the goal of
(Heckman, 2002). the Single Market and the currency completing the Single Market. Yet, the
union will increasingly be perceived Single Market not only constitutes
During the past 25 years Europe has as threats as well. the keystone of European integration,
not remained idle. Indeed recognition but also remains the most potent
of the need to improve Europe’s eco- Consider first the Single Market. European instrument to address the
nomic performance in the face of glo- Transforming the enlarged European challenge of globalisation.
 GLOBALISATION AND THE REFORM OF EUROPEAN SOCIAL MODELS

Dysfunctional labour market and 4.THE FOUR EUROPEAN entitlement and the amounts recei-
04 social policies are not only a threat SOCIAL MODELS
to the Single Market, but also endan-
ved. The social welfare systems typi-
cally draw on employment protection
bruegelpolicybrief

ger the currency union. Any Although they all share certain com- and early retirement provisions, and
European country is bound to suffer mon values, there are so many diffe- in the formal sector, the wage struc-
from structural changes if its mar- rences among national welfare state ture is covered by collective bargai-
kets are inflexible and do not allow systems that the very notions of a ning and is highly compressed.
the necessary transfer of resources “European Model” or “Social Europe” Protection against uninsurable labour
across firms, sectors are rather dubious at market risk can either be provided by
or regions. For mem- least for analytical pur- employment protection legislation
bers of the eurozone, “The debate over poses. I prefer to use (EPL), which protects workers
market-led flexibility the now familiar grou- against firing, or by unemployment
is even more impor-
the eurozone 7
ping2 of national sys- benefits (UB) . The differences bet-
tant as they share a will continue tems into four different ween the two systems are clear:
common monetary social policy models in legislation protects those who
policy, which preclu-
to surface
order to examine their already have a job and does not
des the use of the as long as relative performance impose any tax burden, whereas
exchange rate as an markets remain along a number of benefits provide insurance to the
instrument of change dimensions. population at large and are typically
– albeit an inade- inflexible.” financed by a tax on those who work.
quate one. The lack of Nordic countries fea- Since the two instruments are des-
3

appropriate market ture the highest levels igned to achieve a similar purpose
mechanisms is bound to lead to of social protection expenditures and there is a clear trade-off between
attempts to use fiscal policy as a universal welfare provision. There is them. Having a generous unemploy-
temporary remedy. However, such extensive fiscal intervention in labour ment insurance system reduces the
attempts would not only conflict markets, and strong labour unions need for restrictions against getting
with the Stability and Growth Pact ensure highly compressed wage fired, and vice versa.
(SGP), but could even threaten its structures.
survival. This threat could come The four European social policy
either from countries adopting Anglo-Saxon4 countries feature relati- models behave very differently. The
unsustainable fiscal positions, or vely large social assistance of the last Mediterranean model has generally
from public discontent over the cur- resort. Cash transfers are primarily strict employment protection legisla-
rency union itself as a result of oriented to people in working age. tion (at least for permanent workers)
unpopular measures taken to res- Active measures to help the unem- and a rather low coverage of unem-
2
This type pect the SGP. ployed get jobs, and schemes that ployment benefits. In contrast, the
of grouping used by link access to benefits to regular Nordic model provides unemploy-
many economists Although the demise of the eurozone employment are important. This ment benefits that are generous and
is based on earlier
work by or the exit of some of its members is model is characterised by a mixture of comprehensive, but the strictness of
Esping-Andersen certainly not as close as some pro- weak unions, comparatively high dis- their EPL is quite low. The Continental
(1990) characterising claim, the debate will continue to sur- parities in wages and a relatively high model also provides generous unem-
welfare systems
as “liberal”,
face as long as members remain pla- incidence of low pay. ployment benefits, but its
“conservative” or gued by inflexible markets – particu- EPL is stricter. Finally, the
“social democratic”. larly labour markets – that prevent Continental5 countries “Rewards for Anglo-Saxon model has
3
them from making the necessary rely extensively on insu- labour market comparatively less
Denmark, Finland,
Sweden, plus the economic adjustments. rance-based benefits employment protection
Netherlands. and old-age pensions.
participation legislation but as much
4
Ireland and the United Although union member- vary a great unemployment insu-
Kingdom. ship is in decline, the rance as the Continental
5
Austria, Belgium, unions remain strong.
deal.” and Nordic models.
France, Germany and
Luxembourg. Finally, Mediterranean6 countries Rewards for labour market participa-
6
Greece, Italy, Portugal concentrate their social spending on tion vary a great deal across the four
and Spain.
old-age pensions – though there are models. Employment rates are far
7
See Boeri (2002) wide differences in both the degree of higher in Nordic and Anglo-Saxon
 GLOBALISATION AND THE REFORM OF EUROPEAN SOCIAL MODELS

accounts for this difference? The

FIGURE 3
EMPLOYMENT RATES AND PROBABILITY OF ESCAPING POVERTY
extent of redistribution via taxes and
transfers is important, but it cannot be
05

bruegelpolicybrief
the major explanatory factor. A better
CONTINENTALS Lux NORDICS explanation is the difference in the dis-
90 (AVERAGE) Fin Swe (AVERAGE) tribution of human capital. The propor-
Fra
88
tion of the population aged 25-64 with
1- Poverty rate (%)

Ned Den at least upper secondary education is

86 Bel Ger Aus highest in “Nordic” (75%) and
“Continental” (67%) countries and
84 EU AVERAGE lowest in Anglo-Saxon (60%) and
UK Mediterranean (39%) – a ranking that
82 Ita Spa Por perfectly matches the position of coun-
80 MEDITERRANEANS Gre try groups in terms of poverty risk.
ANGLO-SAXONS
(AVERAGE) Ire (AVERAGE)
78 The Table below compares the four
55 60 65 70 70 80 Models in terms of efficiency and
Employment Rate (%) equity.

This typology is the product of the

countries (respectively 72% and 69% legislation of a model, the lower its illustrative definition of “efficiency
in 2004) than in Continental and employment rate. By contrast, the and “equity” chosen here. Different
Mediterranean countries (respecti- generosity of unemployment bene- definitions might affect somewhat
vely 63% and 62%), with much of the fits only plays a secondary role. This the exact allocation of individual
difference attributable to the two means that protecting jobs with countries but the typology itself
ends of the age spectrum. The employment legislation is definitely would broadly remain.
Nordics and Anglo-Saxons are more detrimental to employment, whereas
successful in keeping the employ- protecting workers with unemploy- Examination of these models
ment rate for older workers high and ment insurance is potentially useful prompts the following conclusions:
l The
the unemployment rate for young for employment. “Mediterranean” model,
workers low. characterised by relatively
All Nordic and Continental countries low levels of employment and
This comparative analysis of the four rank above average in terms of the pro- a high risk of poverty, provides
models can usefully be summarised bability of avoiding poverty, while all neither equity nor efficiency.
Anglo-Saxon and Mediterranean coun-
l With the “Anglo-Saxon” and
using two criteria: “efficiency” and
“equity”. For illustrative purposes a tries rank below average. What
model will be considered efficient if it “Continental” models there
provides sufficient incentive to work, appears to be a trade-off
therefore generating relatively high FIGURE 4 between equity and efficiency.
l Only the “Nordic” model, with
THE FOUR EUROPEAN MODELS
employment rates. It will be deemed A TYPOLOGY
equitable if it keeps the risk of high employment rates, and a
poverty relatively low. The Figure low risk of poverty combines
Equity Efficiency
above plots the probability of esca- both equity and efficiency.
ping poverty against the employment Low High

rate for the four country groupings Obviously equity has a price and
and each of the 15 members of the tends to be higher, therefore, in coun-
High CONTINENTALS NORDICS 8
Figure 3 shows that
old EU-158. tries with relatively higher levels of
the four country
taxation. By contrast, efficiency groupings are far from
There is a strong connection between appears not to be related to levels of homogenous. Austria
the employment rate generated by a taxation. What is perhaps the most seems to be more
MEDITER- ANGLO- “Nordic” than
social system and the instrument it Low RANEANS SAXONS
striking is the comparison of models “Continental”, and
uses to protect workers from the with the same level of equity but dif- Portugal more “Anglo-
vagaries of the labour market. The ferent levels of efficiency. The Nordic Saxon” than
stricter the employment protection model combines higher taxation (51% “Mediterranean”.
 GLOBALISATION AND THE REFORM OF EUROPEAN SOCIAL MODELS

of GDP in 2004, including social
06 contributions) and higher efficiency
than the Continental model (46%),
bruegelpolicybrief
Continental model to become more
like the Nordic one and for the
Mediterranean model to become
tion. In the macroeconomic sphere,
the Member States are responsible
for fiscal policy, but monetary policy

while the Anglo-Saxon model combi- more like the Anglo-Saxon model. for the eurozone is managed by the
nes lower taxation (36%) and higher Nonetheless, one cannot reject the European Central Bank (ECB).
efficiency than the Mediterranean possibility that a reform towards
model (42%). greater efficiency may also unleash a The question about the potential role
change towards more or less equity. of Europe in the process of reforming
Another reading of the last Table national labour markets raises seve-
(Figure 4) emphasises the sustaina- The message, however, is not that the ral questions about coordination:
l Should labour market reforms
bility of social models. Models that Continental and Mediterranean
are not efficient, and have the wrong models are going to disappear and among EU countries be
incentives to work, are simply not that only the Nordic and Anglo-Saxon coordinated?
l Is there a case for coordinating
sustainable in the face of growing models will survive. It is simply that
strains on public finances the former must
coming from globalisation, reform in order to labour market reforms with
technological change and
“There is no become more effi- reforms of product and capital
population ageing. On the reason cient, probably by market regulation?
other hand, models that are adopting some fea- l For eurozone countries, is
not equitable may be sustai-
a priori to tures of the latter. there a case for coordinating
nable. assume that structural reform and
Reforms of the macroeconomic policy?
In the current historical
such reform Continental and
phase, the case for reform is must go Mediterranean Despite commitments to coordinate
therefore strongest, in the hand-in-hand countries are crucial employment policies at the European
Continental and Mediterranean not only for them- level, the fact of the matter is, labour
countries where the welfare with changes selves. The reason is market and social reforms need to be
state has become highly inef- in terms simple arithmetic – conceived and engineered by each
ficient. By relying on strict their combined GDP Member State according to its own
employment protection laws of equity.” accounts for two- economic, social and political reality.
it discourages adaptation to thirds that of the To the extent that it clearly and solely
change and preserves the status quo. entire EU-25 and 90 per cent of the 12- focuses on benchmarking and
The system therefore reduces overall member eurozone. The economic and exchange of best practices, coordina-
employment and raises unemploy- social health of these countries is the- tion can be useful. Beyond that, coor-
ment. For a long time “median voters” refore of paramount importance for dination of labour market and social
were largely spared from growing the smooth functioning of the entire policies is probably an obstacle rather
unemployment – the burden falling European Union and of the eurozone.
mainly on the young and immigrants,
while older workers exited the labour FIGURE 5
market mainly through generous ASSIGNMENT OF ECONOMIC
POLICIES IN THE EU SYSTEM
early retirement schemes. Today, 5. POLICY CHALLENGES
however, the political equilibrium has Level
changed. Median voters are no longer Since countries with inadequate
insulated from the ever-growing pres- labour market and social policies National Union
sure of globalisation and also realise account for such a large proportion of
that the combination of population EU and eurozone GDP, the question Labour Market
Product and
Micro Capital Market
ageing and low employment rates arises as to what can and should Regulation
Regulation
jeopardises their future pension “Europe” do to help promote the
benefits. necessary reforms. As shown in the
8
Taken from von Table8 (right), in the microeconomic
Hagen and Pisani-Ferry There is no reason a priori to assume sphere, labour market regulation is Fiscal Monetary
(2002) but originally Macro Policy Policy
suggested by that such reform must go hand-in- largely decided at national level, whe-
Tommaso Padoa- hand with changes in terms of equity. reas the EU level deals mostly with
Schioppa. It is perfectly possible for the product and capital market regula-
 GLOBALISATION AND THE REFORM OF EUROPEAN SOCIAL MODELS

than a catalyst for reform, because it Is No Alternative) process. The other losses by incumbents are imme-
tends to blur the responsibility bet- is to act simultaneously at both diate while new entities take time to
ween national and EU authorities. levels. The advantage of the second develop and grow. This is why
07

bruegelpolicybrief
Placing responsibility solution is that it reform is easier when accompanied
where power lies is cru- would, in principle, be by monetary expansion and fiscal
cial for good functio- “Labour more efficient and less relaxation.
ning of the EU system. market and painful, as labour mar-
The failure to do so has ket reforms would For understandable reasons the ECB
resulted in the public social reforms benefit from product is unwilling to engage in formal coor-
becoming utterly need to be and capital market dination with governments and to
confused about who is reforms, and vice cut interest rates ahead of structu-
responsible for what – conceived and versa. The Lisbon ral reforms. Members of the euro-
a sure recipe for voter engineered by Agenda can be viewed zone, therefore, need to act first.
dissatisfaction. This is as an attempt to solve Coordinated structural reform by the
not to deny however each Member this “coordination fai- main players in the eurozone would
that some labour mar- State.” lure” between EU and be a powerful signal to the ECB. It is
ket and social policies national reforms. also essential for the countries of
(such as those concer- Unfortunately, Lisbon the eurozone where progress with
ning migration) must be handled at has not delivered. structural reform has been particu-
the EU level. larly slow.
The lack of interest displayed by EU
So far the concentration in this countries in coordinating their struc- Summing up, Europe cannot and
Policy Brief has been solely on tural reforms via the Lisbon process should not have a strategy for refor-
labour market reforms. Yet it is well may be due to uncertainty concer- ming national labour market and
known that the structure of product ning the extent of the spillover bene- social policies. It is up to each natio-
and capital markets affects the per- fits generated by reforms in other nal government to devise its own
formance of the labour market and Member States, as a result of the strategy.
vice versa. Reforms of product and Single Market. There is, however, a
capital markets tend to increase the subset of EU Member States for Yet, a two-handed approach, combi-
demand for labour and thereby ease which spillovers, and therefore the ning product and capital market
the pain of labour market reforms. case for coordination, are undenia- reform at the EU level with labour
Reforms of labour markets encou- ble. To the extent that structural market and social policy reform at
rage new firms, thereby assisting reforms in one eurozone country the national level would be superior to
reforms of product and capital mar- affect the average inflation rate of a strategy seeking to reform national
kets. For an individual country to the zone, there is a case for coordi- labour and social policies alone, espe-
take advantage of this potentially nating structural reforms since they cially for the countries in the euro-
virtuous circle makes economic affect the common zone.
sense. But the positive effect of interest rate.
such coordination would be streng- “Labour The Lisbon Strategy
thened still further if Member States, As Jean Pisani-Ferry market reforms was an attempt to
who share the Single Market, were to (2005) argues, the implement this kind of
coordinate reforms. case for coordination is may increase two-handed approach,
especially important unemployment but the Lisbon method
There are two ways of solving the when it comes to was simply too weak
chicken-and-egg problem between implementing reforms before they to deliver. Five years
product and capital market reforms that are costly in the lower it.” after its launch in
at the EU level on the one hand, and short term. Labour 2000, it has delivered
reforms in national labour markets market reforms may neither a major thrust
on the other. One is to concentrate increase unemployment before they towards completing the Single
all energy on the EU level, secure lower it, because they create anxiety Market nor significant labour mar-
product market and capital market and lead firms to shed redundant ket reforms.
liberalisation, and hope that this will labour faster than they create new
eventually trigger labour market jobs. Product market reforms may
reforms through some “TINA” (There also depress growth because the
 GLOBALISATION AND THE REFORM OF EUROPEAN SOCIAL MODELS

6. WHAT SHOULD BE DONE? Second, the conception and imple- flexible services. Additionally, as the
08 mentation of the SMP were rooted in
At this stage, the best strategy would yesterday’s thinking. They were based
discussion about the “Polish plum-
ber” demonstrates, the stalling of
bruegelpolicybrief

be to go back to basics and focus all on the assumption that Europe’s fun- progress on services illustrates the
efforts at the EU level on completing damental problem was the absence of fundamental tension between the
the Single Market. a large internal market that would goals of creating a genuine single
allow companies to achieve big eco- market among 27+ countries with
The single market and an active com- nomies of scale. It has now become vast economic and social disparities,
petition policy are the cornerstone of clear that the problem lay elsewhere. while at the same time preserving
efforts at the EU level to improve the In the modern world, what European the “European Social Model”.
functioning of markets, and thereby, industry needs is more opportunity
Europe’s capability to respond to the to enter new markets, more retrai- It is not the Single Market that threa-
challenges of globa- ning of labour, grea- tens the “European Social Model”, but
lisation and techno- ter reliance on mar- the inability to reform that model, or
ket financing, and some of its incarnations, in the face of
logical change. “The conception higher investment in rapid global changes. With or without
By removing barriers and implementation both research and the services directive, the rise of
to the mobility of of the Single Market development and manufacturing in China and the exo-
products and capital higher education. dus of back-office services to India
and by fostering com- Programme were are inevitable. With or without it, the
References petition, the Single rooted in yesterday’s Third, the SMP natu- addition of 12 new Member States is
Market Programme rally excluded the bound to affect the services market
(SMP) was expected thinking.”
Tito Boeri, (2002),
“Let Social Policy Models liberalisation of either in the open or in shadow.
Compete and Europe to raise productivity, labour markets, since
Will Win”,
paper presented at a employment and this falls within the Completing the integration of the 27-
Conference hosted by the growth in the European Union. Yet, competence of the Member States. plus economies of the European
Kennedy School of
growth has been mediocre, with Yet, without such reform and greater Union must be the utmost priority of
Government,
Harvard University, Europe’s performance deteriorating labour mobility within and across efforts at EU level to revitalise the
11-12 April. both absolutely and in comparison to companies, the liberalisation of mar- European Economy. But Member
Gosta Esping-Andersen,
the United States during the past 20 kets was unlikely to trigger the reallo- States must also carry out parallel
(1990), “The Three years since the launch of the SMP. cation of resources necessary to pro- reforms of national labour market
Worlds of Welfare Besides German reunification and duce higher growth. and social policies that are geared
Capitalism”, towards improving the capacity of
Princeton University other shocks, there are three main
Press: New Jersey. reasons for this. Following the rejection in March 2005 their economies and citizens.
by the European Council of the servi-
James J. Heckman,
(2002), “Flexibility Job First the SMP was never fully imple- ces directive tabled by the Poised at this new crossroads in
Creation and mented. Since 1993, the Single Commission in January, the creation Europe’s economic history, policy
Globalization: The Market has been a reality for goods, of a single market for services – a makers must choose the path of
Case of Italy”, paper
presented at the Third but service markets, including finan- crucial component of the Lisbon reform at both EU and national levels.
Millenium Colloquia cial markets, remain highly fragmen- Agenda - remains uncertain at best. Only then will we be able to reap the
organised by the Instituto ted. Yet the efficient provision of ser- opportunities offered by globalisation
di Studi Economici
et per L’Occupayione, vices - which account for about 70 This lack of progress on services is and technological change, and fulfil
Venice, 2-3 December. per cent of European economic acti- bad news for the competitiveness of the promise of the Single Market and
vity and offer the greatest opportuni- the European manufacturing sector, monetary union.
Jean Pisani-Ferry,
(2005), “Only Teamwork ties for employment growth - is cru- which is more and more intertwined
Can Put the Eurozone cial for a modern economy. with the provision of modern and
on a Steady Course”,
Financial Times,
31 August.
Bruegel is a European think tank devoted to international economics, which was created in
Jürgen von Hagen and
Jean Pisani-Ferry and
Brussels in early 2005 with the support of European governments and international corporations.
(2002), “Why is Europe Bruegel aims to contribute to the quality of economic policymaking in Europe through open, fact-
Different from What based and policy-relevant research, analysis and discussion.
Economists Would Like?”,
paper presented The Bruegel Policy Brief series is published under the editorial responsibility of Jean Pisani-Ferry, Director.
to the LI Congress of Opinions expressed in this publication are those of the author(s) alone.
the French Economic
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