IN THE ERA GLOBALISATION
BA ECONOMICS AND INTERNATIONAL RELATIONS
LONDON GUILDHALL UNIVERSITY
June 2001
The intention of this work is to evaluate the extent to which the European Social Model is un-compatible with globalisation and how these differences depend on whether the euroisation of the political economic system is understood as an effect or a reaction to the globalisation process. Indeed, the debate on the non-compatibility of the “globalisation” with the “European Social Model” depends on what is intended for both terms.
The “modernisation of the European social model” is an ongoing process that has, without doubts, to resist to the pressure from the process of globalisation and, to a certain, from Economic and Monetary Union .
The European Social Models , according to the European Commission, have thus to follow the common framework better described as one in which “social policy is in partnership with economic policy, promoting productivity and competitiveness.” This new social policy frame encapsulates the view that a strong economy and increased employment require a supporting social policy.
Therefore, my analysis will try to evaluate how the euroisation of the political debate will influence the process of modernisation of the ESM in order to guarantee a sustainable social and economic prosperity in an always-changing work environment and to protect the social security system from the disadvantages of the globalisation.
THE EUROISATION OF THE EUROPEAN SOCIAL MODEL
IN THE ERA OF GLOBALISATION
1. Development of a common European Social Model
2. 1990s: Social Policy in Partnership with Economic Policy
3. Europe in the era of globalisation
3.1. Raising mobility of capital and global manufacturing system
4. Europe`s role in the world
4.1 The euroisation of the European political agenda
5 Euroisation: “A `political` euro” .
1. Development of a common European Social Model
The Treaty of Rome left much unsaid on the issue of social policy, as it was assumed that “economic integration…would in time ensure the optimum allocation of resources throughout the Community, the optimum rate of economic growth, and thus an optimum social system”. This approach adopted in the EEC Treaty consecrated and institutionalised the “social policy as an adjunct of the market` frame” (Beigg).
In the 1985 the Delors Commission Presidency with a firm belief in the need for a strong Community social policy led the effort to shift the dominant social policy frame to one focused on support for social rights and industrial relationship. The attempts at reorienting the Community`s approach to social policy became more visible in the Single European Act period, in which in the post SEA era, during which time, the Commission led a 'high profile re-launch of the social dimension'.
Delors' commitment to the drawing up of a Charter guarantying minimum social rights that has been adopted by only 11 of the 12 Member States took the form of a non-binding political declaration. Therefore, the way in which the Community was talking in terms of social rights marked a break from the previous frame and focusing on the collective dimension of an industrial citizenship institutionalising the social dialogue through the introduction of art.118b in the SEA.
Throughout this period, it is possible to discern that attempts were being made inside the Commission to disassociate social policy from its supporting, incidental role to economic integration, and to bring it more centre stage. However, the institutional conditions, which would have favoured the delivery of this frame through policy outputs, were lacking. Whilst a majority of the Member States, and the Commission may have adopted the same normative position to social policy, the existing institutionally framework (unanimity) made it impossible to fully articulate this view. In fact, with the extreme opposition of the UK government to the strong social policy approach, the use of article 235 as a means to consecrate a broad social policy dimension through law was out of the question, as the requisite unanimity in Council would not have been possible.
Most radically, the UK ensured that this frame would not be further institutionalised at the Community level through its opt out from the revised, strengthened, social policy provisions agreed upon at Maastricht.
2. 1990s: Social Policy in Partnership with Economic Policy
It is accepted that one can track, over the course of the past years, the emergence of a new social policy frame. The frame which normatively enjoys widespread support, and which is increasingly procedurally and organisationally institutionalised. This new vision can be described as one in which social policy is in partnership with economic policy, promoting productivity and competitiveness through its role in the formation of an adaptable and flexible workforce. Rather than casting the relationship between social policy and economic policy as essentially one of conflict, the new frame encapsulates the view that a strong economy and increased employment require a supporting social policy. Economic and social policy needs to be developed in partnership with one another. Dynamic, responsive labour markets require labour forces with these same qualities. The transition from the previous frame to the productivity, partnership frame can be seen to have begun with the Commission's 1993 White Paper on Growth, Competitiveness and Employment, which has been interpreted as an attempt to 'shift the emphasis away from employment rights to job creation'.
In this regard, the Commission's 'Employment Agenda for the Year 2000' the Commission presents its vision of a “new world of work...in which the concept of security of workers has been reformulated, focusing more on security based on employability in the labour market than the security in a specific job”.
In broad terms and according to same commentators, the Commission's commitment to 'flexibility' seems not lead it to the unfettered pursuit of labour market flexibility through deregulation of the employment relationship. Instead it has favoured an approach which continues to recognise the desirability of employment protection measures from both a social and economic perspective, recognising nonetheless “the need for a thoroughgoing reform of the labour market, with the introduction of greater flexibility in the organisation of work”.
This employment policy, over the last few years, has been placed high on the European Union agenda. The 1998 Employment Guidelines which were agreed on at this meeting, are grouped around four themes: improving employability, developing entrepreneurship, encouraging adaptability in businesses and their employees, and strengthening equal opportunities policies. A critical feature of 'adaptability' is ensuring that, in promoting a positive response to economic change, the right balance is struck between the flexibility required by businesses, and the security which employees need. As the Commission recognises in its Social Action Programme for 1998-2000, the 'social dialogue has a key role in achieving the right balance'.
The origin and the shape of this approach relays clearly in the differences between the three types of capitalisms that emerged after the end of the Cold War.
According to many commentators, the ESM lies in the between the strong state system of the Japanese version and the Anglo-American model, which search the high economic performance through a socially and politically unregulated market. This last one it can be better described with the key concept of market flexibility, aimed at adapting to the needs of the market rapidly and efficiently.
The ESM is characterised for possessing strong social controls and commitments that favour long-term orientations. Although there are important differences of development between the member states, the general similarity in terms of high social expenditure, the high tax regimes and expensive labour costs allows for the identification of a European social Model.
In the following sections, I will discuss how these similarities could further make the European capitalist model highly un-competitive and how the euroisation, in many ways, could compensate these lacks.
3. Europe in the Era og Globalisation
The European Union today is obsessed with the weakness of the single currency and with the inability to strongly reduce the unemployment level. These issues manifest not only the doubts about the further implications of Economic Monetary Union, but also the “soul-searching about the continuing viability of the European 'social model'” . Besides, the widespread use of taxes on labour to finance social protection is another influential concern that is putting pressure on the European Union `s high labour costs when compared with other global regions such as United States. Thereafter, the “raising international mobility of capital” as global markets become increasingly open, has reinforced these obsessions.
In recent academic researches, most of the attention has been paid towards to different but correlated aspects. The first one is the remarkable unregulated growth of capital mobility across political frontiers, reflected in a scale of international financial flows, also commonly “cited as one of the most visible artefacts of contemporary globalisation” (Cohen, 2000). The second aspect is the emergence of a global manufacturing system in which production is dispersed into a number of developing and industrialised countries and where big corporations become the ruling power around the globe.
3.1 Raising mobility of capital and global manufacturing system
The globalisation of the economy is not a new phenomenon and according to Wallerstain the capitalist globalisation of the world began in the 16th century, with a `golden age `in the 19th. Colonialism, imperialism and in practise the exploitation of raw materials have been in the past the most relevant aspects, as currently is the exploitation of regions with lower labour costs. The neo-liberal `wisdom` of the last two decades, popularly labelled as `Washington Consensus`, reigned unchallenged for a short time because the widespread financial debt crisis in emerging markets put under pressure the market-orientated reforms. The frequency of financial crisis severely put on the spot the necessity to research how the international financial system has to operate to assist and support the effective regulation of foreign capital flows and free trade towards the economy of emerging countries.
The supply-side reforms in the United Kingdom, United States and the Williamson 10 policy prescriptions, for countries willing to reform their economies, are the neo-liberal international economic reforms that radically shaped the global economic and ideological shift. The neo-liberal international economic order became the predominant policy prescription in the International Monetary Fund and the economist John Williamson reflected in `ten-best` prescriptions his interpretation of the `Washington Consensus`. Three of the prescriptions, namely financial and trade liberalization and deregulation, are at the centre of the debate when analysing the incidence of the financial crisis in Mexico 1994 and South-East Asia 1997 . These countries made an effort to benefit from the opportunities provided by the international financial markets after 1989. Therefore, under the influence of the global shift, they liberalized their capital accounts in order to accelerate their growth rates by capitalising on cheap foreign direct investment and by lowering worker costs.
The removal of national capital controls and deregulation of the financial sector in the 1980's has encouraged the growth of global financial markets. This has reduced national sovereignty, shifted power from governments to financial markets and made all national markets susceptible to global developments . The crisis in Asian financial markets in October 1997 and its spread worldwide is a geographic illustration of this process.
It would be unfair to blame East Asia policy makers for events related with shifts in global manufacturing conditions. In fact, the Asian financial crisis has been also pondered as a “multidimensional process” when Mexico entering NAFTA became, with China, the leading challenger in electronics production (semiconductor) in the US market further deteriorating the Asian export performance. As exported orientated manufacturing became less profitable due to global competition, the Asian economies started to experience a loss of confidence from the foreign investors. Therefore, the weakening control over short-term capitals and the disappearance of the previous `support and discipline` state model have certainly enhanced the crisis and degenerated into a lack of confidence from the international financial markets.
The IMF approach, so far, is likely to re-produce large social costs long before there is any significant element of debt reduction, all due to uncoordinated borrowing and to the short-term run by mobile capital. Indeed, the Fund, in the high acclaimed “Asian Miracle” in the 1993 World Report, did not mention the lack of financial institutions` control in those countries because this was the only guarantee to easy entry and exit of foreign capital. As James Tobin, the Nobel laureate in economics, observes, “the Asian countries- like Mexico in 1994-95- are victims of a flawed international exchange system that, under the United States leadership, gives the mobility of capital priority over all other consideration.”
Although the economic globalisation has provided enormous opportunities for growth, investment, transfer of know-how, technology and an unprecedented economic expansion, the extreme income inequalities and the exploitation of lower labour costs between nations are threatening to become a major source of political instability in the world. That about half of the population of this world has to get by with less than two dollars per day must be taken by no one as an acceptable state of affairs. Quite paradoxically, the State or Supra-national institution are the `new relevant aspects’ that can and have to redirect the process of economic transformation , ensuring that the prosperity is shared between the civil societies avoiding the social costs.
In fact, the Mexican and South-East Asia experience certainly highlighted a paradoxical situation suggesting that the State intervention is not a redundant and irrelevant aspect. The reinforcement of the State intervention is a fundamental factor to make it more effective and adequate to the international financial and trade systems. Anti-trust regulation to increase corporate transparency and in particular regulations over banking system with a connected reduction of short-term speculative international inflows via direct controls would be the fundamental starting points.
The globalisation of markets plays an ever more central role in economic and social life. Multinational companies, banks and financial institutions play a vital part in a process characterised by the free flow of capital and the pursuit of short-term profits. Indeed, the recent crises in Russia and parts of Latin America have shown the inherent dangers in the development models of these countries, which have taken no account of social aspects or of the need to control speculative movements of capital. At the same time, this approach of exaggerated competition is putting constraints on wages and conditions of employment. In this context, those who wish to roll back workers’ rights and downgrade social and labour standards constantly use the “needs” of the global economy as an alibi.
This cannot continue. If globalisation is pursued on the present basis of greater freedom for owners of capital, with no balancing rules, then the result will be ever-greater inequalities both within and between countries. The challenges for democratic governments are to avoid the exploitation of environmental resources taking no account of future generations, and the undermining of social and labour standards in a competitive race to the bottom. In this case the victims will be those directly exploited such as child-labourers and the women workers whose rights to equality will continue to be denied.
4. Europe` s role in the world
Although there are a number of common features - the liberalisation of trade and the free circulation of capital - European economic integration and globalisation, in my view, are not the same. The European Union is different in that it has political institutions capable of regulating the market. Even if this regulation remains incomplete, it has nevertheless “made possible a more balanced integration process, which includes the social dimension than anywhere else.” Thus, Europe has already begun to respond to the problems which globalisation brings to its citizens.
Furthermore, the European Trade Union Confederation is convinced that Europe has a positive role to play in developing a response to globalisation through “promoting a benchmark social model for other regional groupings” for economic integration which are emerging in the world economy.
In a world wide perspective the EU with a united and single European Social Model should continue to play its full role, commensurate with its economic weight, in shaping the rules for the global economy and speaking `with one voice’ in the international arena. As a priority, the EU should use its weight to push for the reform of the Bretton-Woods institutions (the International Monetary Fund and the World Bank), so that they are firmly able to oppose short-term speculative investment and bring order to international capital markets.
The modernisation of the European Social Model should consider that one of the most urgent tasks is to work out new rules for dealing with the flows of speculative capital, which vastly outweigh the capital flows associated with trade and investment. The introduction of the Tobin tax on short-term capital flows, or some similar regulation, would be a major contribution. There must also be proper supervision and regulation of the activities of multinational companies, banks, and financial institutions. A strong multilateral instrument is needed to regulate international direct investment flows in order to the respect of fundamental workers’ rights.
Finally, the modernisation of the ESM should continue to pursue a consistent approach in favour of balanced economic and social development, and environmental clauses must therefore be included in all the EU’s trade and economic co-operation agreements.
4.1 The euroisation of the European political agenda
In a continental and internal perspective, the ESM has to deal with the further implications of the EMU. Although it would be difficult not to see how the EMU is playing as a shield against the foreign short-term speculative investment, the further development of a single ESM has to be confronted with the economic theory of the “optimal currency area”. In fact, interesting insights about the conduct of national fiscal and social policies in a monetary union are offered in the traditional “theory of optimal currency area”. The theory claims that in order to minimise the costs associated with relinquishing control of national monetary policy, the area in question must have: (1) flexible wages and prices, (2) a high degree of labour mobility and (3) centralisation of budgetary transfers. Therefore, without budgetary centralisation, adjustment to asymmetric shocks could only occur through declining wages and prices in one country and/or labour emigration to another. Thus labour mobility and wage flexibility could significantly reduce the need for budgetary transfers between regions or countries.
How and to what extent this will happen it remains a matter of macro-economic policy factors and of structural factors affecting the labour markets. The clear economic implications, according to the “optimal currency area”, are that the welfare state needs radical surgery and that major labour market reforms have to be undertaken.
Thus far, it is evident that the euro area does not satisfy the criteria of the optimum currency area, and consequently may face severe difficulties in adjusting to economic downturns, particularly those of asymmetric nature. The lack of wage flexibility, labour mobility and budget centralisation, combined with the loss of exchange rate and interest rate controls, will increasingly place the burden of adjustment on national fiscal policies.
A fundamental question for the EU is how to develop and sustain the EMU policy framework (in a optimal currency area) to ensure that the efficient conduct of macroeconomic policy does not clash with social policy objectives. Although the social protection will remain primarily a competency of the Member States for the next few years, the `euroisation` will have a wide-ranging effect on the social and economic landscape that will demand new solutions to the challenges of cohesion and redistribution of welfare.
At this point is fundamental to frame the debate of the social model in the context of the transition from an industrial society to an information society that puts education and training policies high on the national and European agenda. A central objective of education policy must therefore be to enhance the individuals’ opportunities in society. Access to qualified education and training, at universities and colleges, must be broadened in order to respond to the demands of both young people and adults seeking further training. It is important that access policies can counteract present socio-economic imbalances in the recruitment to higher education.
In the first instance, this depends on high quality basic education, accessibly and freely available to all. Further education and training opportunities must be extended to encompass continued enhancement of personal and general qualifications, as well as technical skills, which are adapted to specific career paths and occupations in line with the demands of the market and the needs of workers.
In the current context of advancing globalisation it is particularly vital that the idea of lifelong learning for all gains practical ground. Changes in the demand for skills imply that workers will be faced with the challenge of developing new skills several time during their working life.
The European Social Model – based on high skills, high productivity and quality products and services – will carry positive conviction and strength only if the enhancement and renewal of workers’ qualifications and skills is effectively turned into a lifelong process.
The national employment plans first submitted in 1998 on the basis of the employment guidelines once more provide a clear illustration of the deficit in lifelong further training. The modernisation of the ESM, agreed by the European Commission, promotes and demands a formal and guaranteed right to further training time throughout working life. Only in this way will it be possible to ensure the “effective achievement of lifelong further training processes and their incorporation into an overall concept of flexible lifelong working time.” Access to further training measures must be recognised as an individual and collective right at national and European level.
So far, another point of incompatibility between the globalisation and the ESM is evident when are taking into consideration the “temporal-perspectives.” The economic globalisation is more focused on short-term speculative investment and on the exploitation of lower labour costs in different regions of the world. On the contrary, the ESM is more concerned of long-term perspectives of sustainable prosperity and economic growth.
In fact, over the course of the past eight years it can be tracked the emergence of a new social policy described as one in which “social policy is in partnership with economic policy, promoting productivity and competitiveness” through its role in the formation of an adaptable and flexible workforce. The key is to give priority to what has loosely been called positive flexibility: upgrading skills, enhancing opportunities for staff to work less conventional hours or to shift between jobs. Therefore, rather than casting the relationship between social policy and economic policy as essentially one of conflict, the new frame encapsulates the view that a strong economy and increased employment require a supporting social policy. Economic and social policy need to be developed in partnership with one another and a dynamic, responsive labour markets require labour forces with these same qualities.
The Commission's 1993 White Paper on Growth, Competitiveness and Employment has been interpreted as the first an attempt to 'shift the emphasis away from employment rights to job creation'. Consequently, in the Commission's Employment Agenda for the Year 2000', the Commission presents its vision of a “new world of work...in which the concept of security of workers has been reformulated, focusing more on security based on employability in the labour market than the security in a specific job”.
In broad terms, the Commission's commitment to 'flexibility' does not lead it to the unfettered pursuit of labour market flexibility through deregulation of the employment relationship. Instead it has favoured an approach which continues to recognise the desirability of employment protection measures (from both a social and an economic perspective), recognising nonetheless “the need for a thoroughgoing reform of the labour market, with the introduction of greater flexibility in the organisation of work...[and] reduced labour costs...,” as a basis for the Community's emergent employment policy.
Over the last few years, this employment policy has been placed high on the European Union agenda. The 1998 Employment Guidelines which were agreed on at this meeting, are grouped around four themes: improving employability, developing entrepreneurship, encouraging adaptability in businesses and their employees, and strengthening equal opportunities policies. Indeed, as the Commission recognises in its Social Action Programme for 1998-2000, the 'social dialogue has a key role in achieving the right balance' because economic growth and social cohesion are mutually reinforcing.
The Treaty of Nice and the Stockholm European Council have re-confirmed the same long-term perspectives in which the reinforcement and modernisation of the ESM is characterised by the indissoluble link between economic performance and social progress.
Thus, there must also be doubts about whether Europe can hope realistically to compete on the basis of cutting labour costs. Even if social charges were eliminated completely, European wages would remain an order of magnitude above those in many of the emergent industrial competitor countries. Instead, it can be argued that what Europe needs to do is to upgrade its labour so that unit labour costs fall. This alternative strategy for international competitiveness relies on enhancing productivity and it can be argued that it is this approach which has underpinned the development of European economies up to now. Shifting the tax base for social charges, allowing greater scope for individual choice or control of pensions and better monitoring of welfare policies are options that could improve the efficiency and accountability of social policy. But such reforms will not alter the fact that there are fundamental and complicated political choices to be made about redistribution and indeed the reform of the social protection has to undertaken with the greatest of care because of its central role in society.
A labour market policy that equates flexibility purely with cutting wages is unlikely to offer more than short-term gains for stressed employers. It will prevent skill enhancement and upgrading, key determinants of improved productivity, and do little for social cohesion.
In conclusion, the establishment of new social frame, characterised by the indissoluble link between economic performance and social progress, represents probably less a radical change of the ESM, and more a shift in emphasis in the way in which this model is going to be delivered at the Community level. However, the Community providing a framework for the social dialogue and collective bargaining -both crucial aspects of the European Social Model- has a fundamental and positive role to play in developing, on the regional and international level, a pragmatic response to globalisation through promoting a benchmark social model for other regional groupings.
Euroisation: “a `political` euro”
The project of euro has always involved much more than an economic challenge to the dollar, “it also represents the re-emergence of politics alongside economics, of state (or super-state) along the market.” (S. Haseler, 2000)
The tangible introduction of the single currency, euroisation, will markedly launch a new political framework and reality into the world of the international financial markets. Although the European social and economic models continue to work differently, the euroisation, intended as the influences of the single currency, will have further implications for the entire European economic and financial systems, and as well for the modernisation process of the ESM.
The euro have the potential to become the world` s leading reserve currency and therefore “could become a foreign policy instrument that would more effective than import duties”. SH
At the start, the euro project was about geopolitics, about the need to integrate Europe further with a unifying symbol that would sustain strongly the place of Europe in the world.
In my view, the European Economic Monetary Union is the `single most important event` since the collapse of the Bretton Woods agreement and the euro can gradually become a major international currency challenging the dollar, and its financial market has the potential of becoming a pole of attraction (strong currency) for investors and borrowers.
How and to what extent this will happen it remains a matter of structural factors and macro-economic policy factors. Therefore, the analyses of the structural developments that are taking place in Europe’s social reforms, because of EMU, are crucial to determine the strong ness and international status of a currency. Secondly, how the fundamental variables` analysis that helps to determine if the euro will be a strong international currency and how the government debts and deficit analysis have to be satisfied in order to guarantee the long term financial stability.
Thus, in the absence of a budgetary unification (Federal Budget) a crucial aspect is the importance of the European financial markets integration, which can be relevant for the overall evaluation of the European economic performance .
Heads of State and Government in Stockholm 2001 by agreeing to the Financial Services Action Plan (FSAP) by 2005, and the Risk Capital Action Plan by 2003 came to the decision to complete the major missing piece of the European Union’s single market.
The further integration of the euro financial markets will certainly give a “potentially much bigger market in securities than the sum of all pre-existing European financial markets” (Portes, 2000). This in turn, according to Portes, has strong implications for foreign currency markets. The euro securities markets becoming deeper and more liquid, transaction costs will fall and the euro assets will become more attractive. International investors, attracted by the opportunities of a large bond and equities market, will start to invest in euros assets selling dollars in the foreign exchange to by euros.
Therefore, the “attractiveness” is considered as a synergy between the use of a currency as a vehicle and as a currency of denomination for financial assets. Thus, for this reason private invoicing behaviour, official reserve holding behaviour and the use of a currency as an anchor (pegging) are all secondary to these financial and foreign exchange market interactions.
It is important to mention that if the euro achieves the status of international currency, the “monetary hegemony”, that goes with this role, will confer substantial political benefits. According to Portes, the `hegemony` of the international financial system is better protected “from outside influence or coercion in formulating and implementing policy” and it is better able to follow foreign objectives with fewer limitations. Besides, issuer of the international currency has the privilege of financing its debts in its own money: this not only shields its debts from exchange-rate risk but also, up to a stage, means that movements in the current account of the balance of payments are of less concern to policy-makers (Portes 2000). Moreover, the maker of international money is the only true international lender of last resort, and that confers further power in the international economy.
The European Central Bank, although appears to have accepted Portes`s analysis of the synergies between the integration of euro-area capital markets, falling transaction costs, and international currency use of the euro; it has defined this view a ‘virtuous circle’ (ECB 1999, p. 39). “In conclusion, the international role of the euro is mainly determined by the decisions of market participants in a context of increasing integration and liberalisation of product and capital markets world-wide. The Eurosystem therefore adopts a neutral stance, neither hindering nor fostering the international use of its currency.” (ECB 1999, p. 45)
In this context, probably despite the process of consolidation of the stock exchanges is stalled, Lamfalussy adopts a different stance. In fact, the issue on how to achieve consolidation between the leading financial institutions has now come to the top of the policy-makers agenda too.
The European Securities Forum , although the recent failure for an agreement between the London Stock Exchange and the Deutsche Borse, wants the remedy to be provided by the market. The Wise man` Committee, on the contrary, sustains that if the financial institutions do not succeed in the consolidation process, governments might have to intervene.
So far, the Committee obtains the European Council `s full political agreement at Stockholm in March 2001 to a list of priorities so that these priorities can be effectively operational from 2003 at the latest.
Besides, further concerns will have to focus on whether the European citizens will benefit from the financial markets integration or if this is going to be at the exclusive advantage of institutional investors and big companies. In this context, the “Wise man` s Committee” urges governments and the European institutions (European Parliament in particular) to pay particular attention to guarantee that there is an adequate environment for the “development of the supply of risk capital for growing small and medium sized companies, given the crucial importance of this sector for job creation”. In macroeconomic terms, the productivity of capital and labour without doubt will increase jobs creation and enhance the potential for stronger GDP growth.
The competitiveness of the European economy, and consequently the evaluation of the euro, will certainly depend on how the policy-makers will re-think the “modernisation of the European Social Model”. In fact, the benefit of the single market for financial services and risk capital has certainly to be confronted, at the same time, with the `high demanded and complementary` reforms on pension funds and the “rigidities” of the labour market.
For a number of European policy makers and commentators, resolution of the alarming demographic crisis may be found through the medium of funded pension entitlements. In this perspective, we may well see the development of (partially or fully) funded European pension systems intended to take benefit of global financial markets while retaining characteristics in harmony with the principles of social solidarity. Following this logic, it is probably better to suppose that pension reform will be a “form of accommodation with the Anglo-American model rather than significant convergence to its dominant features”(Clark, 2001).
In my view, “the `political` euro” could progressively leading to an enhanced political integration which will eventually result in the emergence of a Federal Europe (German model) or a Federation of Nation States (French model) and from this outcome a common consensus about a common social system will be inevitable. However, here I am dealing with a contentious issue, as it is now not foreseeable, in the short term at least, that the different European nations will agree into the development of one of such systems.
However, it is this point that the complexity of the question can be devised. Without further political integration or better without a European Union evolving into a federal state, a true European Social Model cannot be reached. Therefore, if the so-called social model that currently exists will remain a defacto government of the European Central Bank, this government will certainly be compatible with globalisation. The EU will become only a low area of inflation with huge possibilities for foreign investments and growth -due to the size of the market- but the governments will have no practical tool to deal with some negative effects of globalisation. National governments without control over their monetary policies have no power of taking out their countries of a recession through expansionary policies. Therefore, if the EU does not develop a parallel organism of economic governance to the ECB through which to deal social problem at the European level, the European Social Model embodied in the ECB and in other isolated social measures like those of the European Structural Funds, will be again compatible with globalisation.
Finally, if the EU considers the monetary union as a tool through which to create more growth in response to global transformations, but admits the need of further co-ordinating political efforts, then the “ESM” will not be compatible with globalisation. The euro will certainly shape -euroisation of- the political debate and without doubt will put these issues at centre stage promoting a benchmark social model for other regional grouping.
Nonetheless, the ESM will become an adequate shielding response to globalisation and if a gradual shift from market building to state building takes place, it will not be considered as a loosely articulated concept. And eventually at this stage, this might ultimately involve the need of sustaining further federal political institutions.
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