Europe’s notions of solidarity crumble under pressure

By Tim King

Date: 14/04/05

The welfare state in Europe has been closely identified with the nation state. The development of publicly funded welfare services, though they took various guises in Western Europe, tended to follow the rise of the nation state.

As state organisations developed, welfare provision became the business of large bureaucracies in largely urban areas. Indeed the switch in populations from rural to urban life was a strong impetus to the development of welfare provision. In 19th century Scandinavia, for example, agrarian landholders saw advantages in developing welfare for their workforce, particularly if the costs could be shifted in part to the growing urban populations of urban, bureaucratic and mercantile classes.

What policymakers and academics have been agonising over for more than a decade now is whether the welfare state can survive. Has the confluence of circumstances which prompted people to pool their money and their risks in an act of social solidarity now dissipated irretrievably?

Sociologists point out that it becomes increasingly difficult to encourage people to make sacrifices for 'the national good', or the welfare state, when their interests are no longer so clearly national. The combined effect of globalisation and localisation is to weaken allegiance to the nation state.

Flows of both money and of people across national borders become increasingly difficult to control. Which in turn makes it more difficult to obtain the national resources necessary to support welfare state provisions. Changes in the composition of the population, which have shifted the balance between workers and non-workers, have put a still greater strain on the public purse.

The EU is playing its part in weakening the nation state and straining the sinews of the welfare state. It is guaranteeing citizens rights to free movement and rights to work across national borders. Such movements will show up differences in the provision of social benefits, whether in education, health, housing or income support.

But faced with jealously protected national traditions and widely differing levels of welfare provision, there is no question of the European Commission proposing harmonisation.

Welfare has become a classic example of where EU action is confined to "the open method of co-ordination". National administrations compare notes, they discuss common problems, they seek model solutions.*

What this open method shows is that Europe is rethinking what constitutes welfare and who should provide it. The balance between public and private delivery has shifted in some member states. The mix between public and private funding is also shifting.

So too is the definition of what constitutes welfare. A study published by the European Central Bank this month took a very broad view of what constituted the welfare of European citizens.

It argued that new member states need to reduce their debt and curb spending in order to improve their medium-term welfare.

The authors, graduate researchers at the European University Institute in Florence, studied the relationship between fiscal policy and socio-economic development. They wanted to see whether welfare in the new member states would be damaged by the fiscal restrictions imposed on them by the convergence criteria needed for their eventual adoption of the euro.

The authors found that in fact if new member states brought their budget books back to balance - known in the finance world as 'fiscal consolidation' - it would lead to economic growth and stability and therefore better overall welfare.

"As a policy implication, in order to increase their level of socio-economic development the new member states should pursue fiscal consolidation and pay attention to their government debt levels," the paper states.

The paper also found improved socio-economic development as a result of lower government debt in the 'old' 15 member states, although the effects were less marked than in the new ones.

As a result, the study also recommends "maintaining the Stability and Growth Pact or an equivalent intergovernmental fiscal rule to curb public spending and debt".

To carry out the study, the authors looked at the examples of Portugal, Spain, Greece and Ireland, which they claim were at "approximately" the same level of socio-economic development when they joined the EU as the new member states were in 1999.

If restructuring is undertaken too quickly, the report warns, this will make it difficult to keep their fiscal balances in order, which would be "detrimental in terms of welfare".

But as convergence with EU fiscal criteria has already advanced in most of the new member states, the report found that further advancements would "decrease unemployment, improve the fiscal balances and, according to our results, have a positive impact on welfare".

• The Open Method of Co-ordination in Action, Jonathan Zeitlin & Philippe Pochet (eds), PIE-Peter Lang, Brussels, 2005.

Analysis feature in which the authors look at the development and the current state of the European welfare model and the European Union's policy-making in this field. They refer to a recent study published by the European Central Bank on the relationship between fiscal policy and socio-economic development.

• Primary Source

European Central Bank; Working Paper Series, No. 467 / April 2005: Socio-economic Development and Fiscal Policy http://www.ecb.int/pub/pdf/scpwps/ecbwp467.pdf

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