Minimum social standards to be jointly funded

Dr.WSW – 06/2017

Building on the Five Presidents’ Report of June 2015 and its White Paper on the future of Europe, the EU Commission presented its ‘Reflection paper on the deepening of the economic and monetary union’ (EMU) three months later on 31 May.  

Contours of a reformed euro area

It shows possible ways and concrete steps for completing the EMU by 2025. The Commission has stated that the paper is ‘not a blueprint of the future design of the EMU’ but rather an invitation ‘to discuss and agree’ on the most important elements. However, the considerations put forward are already so specific that the contours of a reformed Eurozone – and indeed Europe as a whole – can clearly be seen. The proposed reforms involve steps in three key areas:  


1. completing the Financial Union,  

2. achieving a more integrated Economic and Fiscal Union, 

3. and reforming the European institutions. 

Completing the Financial Union

The completion of the Financial Union consists essentially of completing the Banking Union with a ‘common backstop’ for the Single Resolution Fund. The report also proposes innovative financing solutions which are intended to spread risk and improve bank liquidity, for example with sovereign bond-backed securities. A proposed additional instrument is the ‘common issuance of debt’, commonly known as ‘eurobonds’. This would at least mean that future debt in the euro area would be mutualised.  

Better integration of the Economic and Fiscal Union

In the view of the German Social Insurance the goal of a ‘more integrated Economic and Fiscal Union’ of paramount importance. Although the Commission has stated that convergence does not mean ‘harmonisation’ and it does not envisage a ‘one-size-fits-all’ solution, it no longer has faith in a more or less automatic adjustment of living standards as a result of the benefits of the Single Market and basic freedoms. Instead, it advocates an interventionist strategy, a common approach to strengthening economic and social convergence. Management of economic policy is to be strengthened through the EU and compliance with rules to be financially rewarded. This is to be done, as in principle it is already, within the framework of the European Semester. This will be given a new ‘guideline’ under the European Pillar of Social Rights. The goal of ‘ensuring fairer and more efficient social security systems’ could be linked to European minimum standards. However, in order to make these ‘legally binding’, two conditions must be met: support from EU funds and a stronger link between relevant reforms.  


Further European transfers are foreseen under the ‘macroeconomic stabilisation function’ for the euro area. This would not only be used in the event of ‘severe asymmetric shocks’ but also when monetary policy reaches its limits. The stabilisation function could take different ‘forms’ including a dedicated euro area budget which could be financed through national contributions based on GDP or VAT. Joint capacity to borrow is also under consideration.  


Finally, the plans for establishing a European Unemployment Insurance Scheme are becoming more concrete, albeit no longer in its original form but rather as reinsurance. This means it would not directly provide unemployment benefits but rather provide transfers to the Member States in the event of certain ‘triggers’. An example of such a trigger would be a sudden increase in unemployment. But even in this form, a European unemployment scheme would require harmonisation – the Commission prefers the word ‘convergence’ – of labour and social systems. This is not least because the risk of unemployment has to be delineated from other social risks, such as the risk of invalidity or old age, similar to the issue of age limits. This is not mentioned in the EMU reflection paper but it is mentioned in another reflection paper that the Commission released on 26 April on the ‘social dimension of Europe’. This paper explicitly proposes a harmonisation of retirement age in line with trends in life expectancy (see news: Reflection paper on the social dimension).  

Reform of the European Institutions

Finally, the Commission has presented several models for the third area of its packet: the reform of the EU institutions. According to this, intergovernmental instruments for stability policy could be transferred to European level, in particular the European ‘emergency fund’ ESM. The Eurogroup could be strengthened by establishing it as an official Council configuration in order to have a type of EU Finance Minister (‘treasury’) and be subjected to democratic accountability of the European Parliament, especially as part of economic governance under the European Semester. The paper also talks about the establishment of a ‘European Monetary Fund’. This would, among other things, assumes the tasks of the ESM.  


When presenting the paper, Commissioner Moscovici once again emphasised its ‘reflection character’, ‘legislative proposals’ would come later. However, the action plan contained in the reflection paper would fundamentally alter the functioning of national economies and their social systems. The words used in the report are somewhat more benign; it talks of ‘risk-sharing’ and sharing ‘more competences’. However, in plain terms this means just one thing: transferring power and finances to the European level.