Introduction: EMU and the European social model

Abstract

The political structure of the European economy has been fundamentally transformed by the two decades of monetary integration culminating in Economic and Monetary Union (EMU). Centuries-old national currencies were replaced by the Euro and monetary policy, a core function of the modern state, was transferred to a supranational European Central Bank (ECB). The ECB was endowed with more autonomy from EMU's member states than any other European Union (EU) institution except the European Court of Justice (ECJ) and greater independence than any other central bank in the world. The Stability and Growth Pact (SGP), also applicable to member states remaining outside EMU in addition limited member states' discretion over fiscal policy, their remaining macroeconomic policy instrument. There is no other policy domain where centralization of power in EU institutions has gone so far. In contrast, the EU's treaty/constitution leaves authority over welfare state and employment relations institutions in member state hands. These institutions largely shape individuals' relation to the economic life of their societies throughout the life course, before, during, and after participation in the labor market. Despite important national differences, these institutions have enough in common in European countries, Britain excepted, to be understood as variants of what Europeans typically refer to as a “European social model.” This model is distinguished from the American, or Anglo-Saxon, model by its greater protection against economic insecurity, inequality, and unilateral employer power. Much domestic political conflict and partisan competition is focused on the distributive and normative issues raised by these social models.