Has Europe’s social model disappeared?

‘Do more with less. Not just now but permanently.” This message from David Cameron was delivered in his speech to the lord mayor’s banquet in the City of London last November. It articulates a common theme among conservative leaders throughout Europe: state indebtedness and expenditure commitments are completely out of line and must be resolved by cutting social budgets which can no longer be afforded.

Their determination to pursue this political agenda helps explain why the austerity policies put in place to resolve the financial and euro zone crises are still there, despite evidence they are ushering in economic stagnation and deflation. As European leaders return from holidays they are having to confront this reality. It has been acknowledged by many well-known economists, by European Central Bank president Mario Draghi, by the sacking and replacement of the French cabinet and forceful advocacy of the Italian prime minister.

The political economist Mark Blyth quotes Cameron in his case against austerity policies. Blyth calls on the ECB to provide a credit line for 80 per cent of the European Union’s taxpayers to stimulate spending and kickstart growth, rather than activate the more orthodox quantitative easing Draghi is flagging.

He invokes Keynes against neoliberal opposition to public expenditure, German ordoliberal hostility to inflation and their common balanced-budget fundamentalism. As Chris Johns put it in these pages, these positions have become fixed ideologies rather than evidence-based arguments.

They are rooted in a longer-term conviction the health, education, pension and social expenditure budgets characteristic of European welfare states since the 1950s can no longer be afforded and must be curtailed. This belief was affirmed by John Bruton in a speech to New York financiers, backed up by a European Commission paper he cites on demographic trends.

Austerity and class

But Blyth argues that most of the recent indebtedness arises from taxpayer bailouts and recapitalisation of banks and quantitative easing to support economic recovery, not from social spending. He sees a class-specific aspect to this austerity, in the UK and elsewhere in Europe, which loads the cost of recovery on ordinary taxpayers and not on the banks and their shareholders. Sociologically this is all the more important because of growing inequalities which undermine the solidarities on which national welfare states are based.

This is a left/right debate which overlaps with a rich/poor one between states and social groups. Within the EU policy setting, it overlaps further with the economic debate on stimulating demand (code for Keynesian policies) versus supply-side or structural reforms (code for austerity).

And since the EU economic debate is inescapably bound up with that on consolidating and deepening the euro zone, it overlaps with another one on creating a deeper political union to give the project legitimacy. This pits political and bureaucratic elites against mass publics unwilling to trust such leaderships with these tasks and who turn increasingly to Eurosceptical populist parties on the right or to Eurocritical ones on the left to voice their concerns.

Transnational integration

Although they share a commitment to defending existing welfare spending, these parties divide on whether it is best done by returning to national sovereignty or deepening transnational integration. The Eurocritics say deeper political union must be accompanied by a redistributive social union between richer and poorer states and classes if it is to be accepted. But liberals argue this is not needed now that banking union agreements load the future costs of bank collapses more on the financial sector itself and that more differentiated coalitions of the willing should take the lead on political or social union.

Thus systemic needs to reboot the European economy and the euro with new institutions and structures are at odds with the social and political actors capable of giving it legitimacy. Recent polling evidence from France shows how disillusion with political elites, the EU and the euro feed into working-class support for the National Front and rejection of the euro.

According to James Wickham of TCD, the problem arises from the whole thrust of European integration which has systematically prioritised market competition over social bonds. In a paper for Dublin think tank Tasc, he quotes a Draghi interview with the Wall Street Journal in 2012: "The European social model has already gone." Wickham concludes: "The neo-liberals appropriated the European project for their own purposes and in so doing now risk destroying it completely. Today only a social Europe can rescue Europe."

That debate needs to be aired more alongside those on economic and political union.

pegillespie@gmail.com