First Published in jimsresearchnotes 21 April 2010
Fear of Federalism
There has been much fear that creating a Federal EU will give the EU too much power. To a large extent both the Maastricht and Lisbon Treaties were intended to avoid the criticism behind the F-word.
But, paradoxically, the EU does not have a Federal polity. What it has instead is an even more centralised power structure, by keeping all power in the hands of the EU Council of member states.
In this research note I want to focus on one consequence of this centralisation, namely that the EU is in the process of eliminating the social market economy in all its variety of forms. Federalism would be much less intrusive, and diversity – let a hundred flowers bloom – would be seen as natural and desirable, not as today something to be eliminated by forcing all countries into the same neoliberal mould.
The Social Market Economy: a prime objective of the Lisbon Treaty
It would be strange if the social market economy did not figure in the basic principles of the EU. Germany has a social market economy and is a founder-member of the EU as well as being the most populous member state and the EU’s largest exporter. Germany and the other Founder-member of the EU with a social market economy, the Netherlands, have since been joined by other countries with a social market economy, notably Austria, Denmark and Sweden, but also in some respects Finland. The whole point about the social market economy is precisely its variety between countries.
So it comes as no surprise that the social market economy is indeed given high priority in the Consolidated Treaty as one of its main objectives.
The wording of the relevant Treaty clause is:
“The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. It shall promote scientific and technological advance.” (Article 2.3 of the Consolidated Version of the Treaty on European Union, emphasis added)
Yet the consolidated Treaty on European Union is no written constitution that guarantees basic rights. Nor is there a system of checks and balances, such as any Federal system worthy of the name has, that can provide the means of defending basic rights in a court of law. Worse still, the EU court system – the Court of Justice of the European Union (CJE) – makes no provision for appeals against its judicial decisions to higher courts. There is only one EU Court and all its decisions involving the social market have been – and continue to be – to dismantle the social market economy, country by country, and replace it with a uniform neoliberal free market.
So sadly, pious statements concerning the EU commitment to the social market economy are empty words not worth the paper they are written on.
ABOLISHING THE SOCIAL MARKET PIECEMEAL AND BY STEALTH
The Case of Housing
The EU has no housing policy as housing is not a policy area the EU is concerned with. But Doling (2006) showed how the EU was following the lead of the USA and that this involved pursuing a housing policy by stealth to increase “home-owership” at the expense of cost-renting. Elsinga et al (2008) developed this further, referring in the article’s abstract to a threat “mostly by stealth”, an article that analyses the struggle by the Netherlands to keep its unitary rental market.
Both articles are worth careful study. Elsinga et al (2008) is particularly important as it is a detailed case study of a country trying to defend and maintain its unitary rental market, and in the process having to fend off EU Council critique and arrive at a compromise that keeps the Dutch unitary rental market as intact and as undamaged as possible. This makes Elsinga et al., (2008) a key contribution to understanding how hard it is to prevent a well-established social rental market policy from succumbing to sustained EU hostility to anything other than increasing home-owership and residualising non-profit renting. The authors conclude, ominously:
“But what may be more important for the future of the unitary model is the implicit encouragement of home ownership by the EU and the explicit support for home ownership in member states. If home ownership is the majority model and the most preferred one, the rental sector will become a last resort. This policy can be seen as dismantling the unitary model by stealth.” Elsinga et al., (2008 p. 35)
It would seem that subsidies may be given to “home-owers” in the form of tax-deductible mortgage interest, so the higher one’s tax-rate, the bigger the subsidy. Indeed, tax-deductions, however large they are, whether on mortgage interest or on anything else, are not even “counted” as a subsidy by the EU. This “creative accounting” is – and always has been – the classic approach followed by political parties and governments favouring home ownership.
Yet as if to underline the difference in the EU, an amount paid directly to non-profit rental providers is counted as a subsidy and is only allowed for trusts and other non-profit providers if, and only if, they can demonstrate that they give preference to low-income earners. Again, a classic home ownership monotenural policy. So those paying higher tax rates receive the biggest subsidies to become “home-owers” while the disadvantaged unable to afford to buy are referred to an increasingly residualised and stigmatised rental sector where they are defined as being “on welfare”.
The issue has been coming to a head in the case of the Dutch unitary rental market. The Dutch reaction to the attempt by the European Council to impose European Court of Justice rulings on its non-profit rental stock has been to negotiate a special arrangement with the Council. See 20 September jimsresearchnotes especially under the sub-heading “The Dutch Struggle with the EU over its unitary rental market”, and elsewhere in the same research note a discussion of Sharpf’s (2009) critique of the EU (I am in the process of copying and pasting this to EU:RamshackleEmpire).
The struggle, however, is far from over, as tax deductions for “home-owers” remain in place and the steady drain of higher income earners from renting to “home-owership” is set to continue, leading to greater social segregation.
The case of Collective Bargaining
Another cornerstone of the social market economy is collective bargaining, including the hard-won right to strike by trades unions, recognised in the consolidated treaty. This recognition is being consistently limited by the judgements of the Court of Justice of the European Union.
The Saltsjöbad Agreement of 1938 underlies Swedish collective bargaining
For the last 70 years Swedish industrial relations between the national organisations of employers (SAF) and trades unions (LO) have been governed by the Saltsjöbad Agreement an historic compromise between labour and capital that is a keystone of Sweden’s welfare system.
Lex Laval and other Collective Bargaining Judgements made by the European Court of Justice
The Latvian construction company, Laval un Partneri, won a bid to build a school in the Moderate-governed archipelago local authority of Vaxholm in Stockholm County, using Latvian labour employed at Latvian wages (some 60 percent of Sweden’s) and Latvian working conditions. The construction was blockaded by two Swedish unions, Construction and Electrical on the grounds that it was in violation of Swedish collective bargaining. The unions argue that the Latvian workers brought to Sweden to work should be paid Swedish collective bargaining rates. The conditions of work and safety for Swedish construction and electric workers should also apply to Latvian workers while working in Sweden.
The issue was taken by Laval un partneri to the European Court of Justice and the Latvian company won. So the EU has chosen to support the employers’ intent to pay workers wages that are well below the rates of the country they were temporarily brought to work in – a leveling down rather than a leveling up. See this article: “The Laval Inquiry: a deathblow to the Swedish Model”. For later developments see: “Post-Lisbon Laval Judgement destroying the Swedish model”.
European Court of Justice Judgements cannot be appealed
But the conflict in Sweden was no one-off fluke. It was in line with a series of EU Court of Justice Rulings in similar cases, all with the same result, the decisions of which cannot be appealed. There is no higher court to appeal to. Not even the highest court of a member state can overturn an EU Court of Justice ruling applied to its country. Laval (Sweden), joins Ruffert (Germany), Viking (Finland) and Luxembourg, all of which in true neoliberal spirit were won by the respective employing companies against the unions.
The European Court of Justice operates as if the EU were a Unitary State. The free market ideology is applied indiscriminately to all member states, whether they have a social market economy or not. This would be unthinkable in a genuinely Federal EU (see Jabko, 1999 and 2006).
The anti-EU alliance TEAM conclude that the Rulings: “have restricted the right to take action to prevent transnational contractors using cheap labour; and over-ruled national laws and agreements on pay and conditions. In all cases the right to operate a profitable business across borders have been given priority over workers rights. Lisbon and the Charter of Fundamental Rights, would not change this anti-worker tendency.”
For a British viewpoint supporting the Swedish and Finnish positions see this web version of a Tribune article, two extracts quoted below:
“It is no coincidence that both the Viking and Vaxholm judgements in the European Court of Justice attack trade union collective bargaining rights in Scandinavian countries, where they are enshrined both in law and in the constitution. This is the social model which is most at odds with the EU where the “smooth operation of the market” overrides any other rights or considerations.”
Further on the Tribune article points out that the struggles in Britain over a century ago now have to be refought at the European level, so putting the clock back more than a hundred years:
“Such rulings are reminiscent of the infamous judgement in 1901 in favour of the Taff Vale Railway against the Amalgamated Society of Railway Servants for having the audacity to go on strike. The “crime” then was known as being “in restraint of trade”. Today, it is called “freedom of establishment”.
This article in Swedish discusses the role of the Swedish Employers Association, The Confederation of Swedish Enterprise in supporting Laval un partneri by paying the legal costs of taking their case – against the Swedish unions – to the EU Court. The Confederation of Swedish Enterprise was, of course, delighted with the outcome. Its Director, Urban Bäckström, stated that “To have the legal situation clarified has been the Confederation’s motive for being involved in the case. We now have a very clear precedent judgement, which is very satisfying.” (my translation from the Swedish article cited in the web-link at the start of this paragraph).
There is growing awareness that the EU is much more powerful than a Federal State and, moreover, that its accountability is “an illusion” (Gustavsson et al, 2009),
As Höpner and Schäfer (2010) put it, EU varieties of capitalism is being replaced with a uniform liberal market capitalism.(1)
Fritz Scharpf, (2009a, 2009b, 2010(2)) Emeritus Director of the Max Planck Institute, expresses the frustration felt with the ECJ by many social market supporters, even going so far in Scharpf (2009b) as to argue that the only recourse would be to ignore the ECJ judgements. Germany, as one of the founder members of the European Iron and Steel Community, also by virtue of its size and economic importance is probably the one country in the EU that might just get away with doing this, though since the resounding defeat of the German Social Democrats in the Federal election of late September 2009 this is even less likely.
There are those who still believe that the EU will reflect important elements of diversity and differentiation. This is a line of thought, following Polanyi, that is represented by Caporaso and Tarrow (2009), and it is also reflected in The Social Europe Journal, despite what we know about the centralised power structure of the post-Lisbon EU and the consistent erosion of social market economies resulting from the imposition of neoliberalism.
What such a position fails to recognise is that, consistently, the two main power-centres of the EU – the Council of Member States and the Court of Justice – work hand-in-glove to ensure that neoliberalism permeates and determines every aspect of EU policy. This is particularly striking in my own subject of special interest, housing, which is an area of social policy the EU has no explicit, stated policies towards. Doling (2006) and Elsinga et al (2008) both refer to EU housing policy “by stealth”. The latter also refers to correspondence from the Council to the Dutch Government on how housing loans and subsidies should be treated, the clear message being that the Netherlands should residualise its non-profit cost-rental sector and encourage “home-owership”.
The EU as an Authoritarian Neoliberal Supranational State
Superficially, the EU is a weak co-operative effort. It took many years to negotiate the Lisbon Treaty, country by country, referendum after referendum before it was finally ratified by all the member states, the last being the Czech ratification in late 2009. But the Maastricht Treaty already had most of the essentials in place.
One might ask why bother spending years quibbling over the details of the Lisbon Treaty, holding referendum after referendum when the EU Court of Justice can unilaterally and consistently ignore the wording of the treaty and in so doing take a stance that is supported by the EU Council in direct contradiction to the commitment to the social market economy.
Perry Anderson on the EU
At a general level, Perry Anderson (2009) has part of the explanation. The New Old World is a collection of previously published works, revised and reworked into a book of some 550 pages.(3) The book ranges widely, even including very interesting chapters on Cyprus and on Turkey.(4)
Anderson points out early on – in Chapter 2 – (pp. 64-65, originally in the London Review of Books, 20 September 2007) that the structure of the EU is neither Federal nor Intergovernmental but something in between. Its prime characteristic, following Friedrich Hayek (1948), is to allow co-operation and co-ordination between member countries within a liberal market framework, while structuring the relationship in such a way so as to minimise the risk of any popular sovereignty from below impinging on either intergovernmental decision-making or the untrammeled workings of the single neoliberal market:
“Put simply, a federal Europe in this sense, would not mean as Conservatives in Britain fear, a super-state but less state. Hayek was the lucid prophet of this vision…Maastricht, in this account, leads to an obliteration of what is left of the Keynesian legacy that Hayek deplored, and most of the distinctive gains of the West European labour movement associated with it.” (Anderson, 2009 pp. 30-31, italics in original).(5)
The Lisbon Treaty ratified after Anderson these words confirms these fears. The dismay and frustration of those, like Fritz Scharpf, a senior and highly-respected academic who finds the liberal market is ousting the social market despite the Lisbon Treaty’s commitment to it, leads Scharpf to suggest that ignoring ECJ rulings is the only way countries with a commitment to the social market can deal with it. This reflects the dawning realisation that there will be neither the diversity of social markets nor the popular sovereignty to prevent them being outlawed piecemeal by ECJ.
The Council of the European Union is All-Powerful
The checks and balances of a genuinely federal system have been eschewed with the development of a profoundly undemocratic system of decision-making. The EU home-pages are under reconstruction at time of writing to make changes after the Treaty of Lisbon, but they are still worth careful study to see clearly where lies the power.
And the power lies with the Government of Governments – the Council – which takes all strategic decisions as well as holding a monopoly of the power of appointment of all 27 members of the European Commission, all 27 Judges and 8 Advocates General of the EU Court of Justice, plus all three non-voting advisory members of the Council (President van Rampoy, Foreign Representative Ashton and Chair Barrosa).
Parliament is by popular election and so its membership is the only patronage not held by the Council. This is probably not a major problem as the national electorates of each country only elect a tiny slice of the total membership and barely half the electorate exercises its vote. And their own current national governments are elected by the same electorate. However, in case this should be insufficient to keep Council’s total grip on every aspect of EU decision-making, the legislation passing through Parliament is closely controlled by the Council, so that every step of the way is agreed in close consultation with the Council. This is an effective backup means of bypassing popular influence on EU decision-making, as a safeguard in case Parliament should show any independent thinking. It would never do for Parliament to be in a position to repeat in the EU what so many parliaments in western countries have done down the centuries and challenge the power of its authoritarian rulers.
Apart from the Council, the Court of Justice is the only other major power centre, with unchallenged and unchallengeable power to enforce the implementation of a neoliberal internal market and in so doing to eliminate the social market economy in all its varieties, even in policy areas over which the EU claims no jurisdiction.
The ruling out of a system of appeals to higher courts is the most remarkable EU invention of all, quite unlike anything in democratic countries, though common enough in totalitarian dictatorships. But it shows the determination of the Council to ensure that whatever elements of the social market economy any member state may have will be replaced with an unregulated market economy.
For warning voices against the EU from the USA, see Paul Craig Roberts in GlobalResearch.ca, and, of course, Perry Anderson (2009). See also McNamara (1998), Jabko (1999 and 2006), and Scharpf (2009a, 2009b, 2010) for their warnings not to turn a blind eye to the way neoliberal economics and EMU colours the whole of social policy.
Conclusions: Centralised Authoritarianism by Stealth
It is not just housing policy that the EU is implementing “by stealth”, as both Doling (2006) and Elsinga et al (2008) clearly show. The entire EU governance is changing by stealth into something that few outside the world of research have yet recognised and that the EU Council makes no mention of: a centralised and oligarchic authoritarianism, remote from its subject peoples and bent on turning the EU into a standardised replica of US neoliberalism, while taking over Britain’s role as deputy empire writ large in furtherance of US global interests (Anderson, 2009 p. 547).
Acknowledgement: I would like to thank Sverker Gustavsson for several invaluable references and for very helpful comments on a pre-publication draft of this research note. However, the responsibility for any errors in this Research Note is entirely mine.
(1) Höpner and Schäfer (2010) has wider ramifications for other issues in my work, and cannot be done justice except by separate treatment. Suffice it to say in this research note that they deal with issues concerning convergence and divergence and models of welfare.
(2) Scharpf (2010) is a collection of his previous publications critical of the EU and going back 25 years.
(3) See also 2 Feb 2010 Research Note republished in www.ordoliberalism.wordpress.com written before I had read The New Old World, and before the Lisbon Treat was finalised. The Lisbon Treaty changes are most notable for appointing a Briton as EU Foreign and Security Representative. I’ve discussed this in 6 December 2009 Research Note (in preparation for coping in this website) including the way this brings US bases leased from the UK in Britain’s colonies, most especially Diego Garcia, Gibralta and sovereign bases in ex-colonies like Cyprus and Ascension Island.
(4) The chapters on Cyprus and Turkey will need separate research notes, though I now have a long backlog of research notes in preparation or planned.
(5) Since Perry Anderson wrote these words we have seen the Euro plunged into crisis with the Greek economy needing rescuing, and other high home ownership rate EU countries – Ireland, Portugal, Spain and even Italy – also struggling to avoid the need to be bailed out. Anderson’s discussion of the problems of monetary union that worried Hayek is uncanny in its prescience, especially in view of his discussion concerning Germany. This is not the place to consider that issue, as here I am concerned only with the EU intolerance towards the social market economy. However, it is a matter I may return to if the current Euro crisis results in a domino-effect and escalates into an even greater economic disaster. Suffice it to say for now that, as Anderson points out, Hayek (1976, 1978) had second thoughts about monetary union, and began to argue for a decentralised solution based on “private banks issuing rival currencies in the market place.” (Anderson, 2009 p. 32)
Let a hundred flowers bloom: HYPERLINK “http://en.wikipedia.org/wiki/Hundred_Flowers_Campaign” http://en.wikipedia.org/wiki/Hundred_Flowers_Campaign
Viking: HYPERLINK “http://www.euractiv.com/en/socialeurope/eu-court-upholds-right-strike-sets-limits/article-169045” http://www.euractiv.com/en/socialeurope/eu-court-upholds-right-strike-sets-limits/article-169045
Confederation of Swedish Enterprise’s role supporting Latvia: HYPERLINK “http://www.nejtilleu.se/artiklar/2010/10_01_15_svenskt_naringsliv_tillfreds.htm” http://www.nejtilleu.se/artiklar/2010/10_01_15_svenskt_naringsliv_tillfreds.htm
Urban Bäckström: HYPERLINK “http://en.wikipedia.org/wiki/Urban_B%C3%A4ckstr%C3%B6m” http://en.wikipedia.org/wiki/Urban_Bäckström
Scharpf Interview: HYPERLINK “http://www.social-europe.eu/2009/04/interview-the-only-solution-is-to-refuse-to-comply-with-ecj-rulings/” http://www.social-europe.eu/2009/04/interview-the-only-solution-is-to-refuse-to-comply-with-ecj-rulings/
Sverker Gustavsson: HYPERLINK “http://www.statsvet.uu.se/PersonalInfo.aspx?UserId=38” http://www.statsvet.uu.se/PersonalInfo.aspx?UserId=38
Anderson’s article in LRB: HYPERLINK “http://www.lrb.co.uk/v29/n18/perry-anderson/depicting-europe” http://www.lrb.co.uk/v29/n18/perry-anderson/depicting-europe
2 Feb Research Note: HYPERLINK “http://jims-research-notes.blogspot.com/2010/02/new-eu-and-its-embroilment-in-global.html” http://jims-research-notes.blogspot.com/2010/02/new-eu-and-its-embroilment-in-global.html
Other English-language EU-hostile and EU-critical links:
(Anachronistically, some of these still call themselves anti-Federal. I have included a mixture of the shrill and the more soberly analytical, including work from “think tanks”)
Centre for Research on Globalization (Europe):
A Swedish/English Bilingual website No to EMU:
Open Europe: an independent think tank:
Centre for European Reform (Think Tank):
Rome, Habsburg and the EU:
The Joint-Decision Trap:
Anderson, Perry (2009)
The New Old World Verso, London, New York
Caporaso, James A. and Sydney Tarrow (2009)
“Polanyi in Brussels: supranational institutions & the transnational embedding of markets” International Organization (Fall) Vo. 63 pp. 593-620
Doling, John (2006)
“A European Housing Policy?” European Journal of Housing Policy Vol. 6 No. 3 pp. 335-349 (December)
Elsinga, Marja, Marietta Haffner and Harry van der Heijden (2008)
“Threats to the Dutch Unitary Rental Market” European Journal of Housing Policy Vol.8 No.1, pp. 21-37 (March)
Gustavsson, Sverker, Christer Karlsson and Thomas Persson (eds) (2009)
The Illusion of Accountability in the European Union Routledge, London
Hayek, Friedrich (1948)
Individualism and Economic Order Chicago
Hayek, Friedrich (1976)
Denationalisation of Money Institute of Economic Affairs, London
Hayek, Friedrich (1978)
Denationalisation of Money: the argument refined Institute of Economic Affairs, London
Höpner, Martin and Armin Schäfer (2010)
“A New Phase of European Integration: Organised Capitalisms in Post-Ricardian Europe” West European Politics (March) Vol. 33 No. 2 pp. 344-368
Jabko, Nicolas (1999)
“In the Name of the Market: how the European Commission paved the way for monetary union” Journal of European Public Policy Vol. 6 No. 3 (September) pp. 475-495
Jabko, N. (2006)
Playing the Market: a political strategy for uniting Europe: 1985-2005 Cornell University Press, Ithica
McNamara, Kathleen R. (1998)
The Currency of Ideas: monetary politics in the European Union
Scharpf, Fritz W. (2009a)
“The Double Assymetry of European Integration: or why the EU cannot be a social market economy” Max Planck Institute for the Study of Societies” MPIfG Working Paper 09/12, (November) Köln
Scharpf, Fritz W. (2009b)
“The only Solution is to refuse to comply with ECJ Rulings” The Social Europe Journal 2009 Vol. 4 Issue 1
Scharpf, Fritz W. (2010)
Community and Autonomy: Institutions, Policies and Legitimacy in Multilevel Europe Campus Verlag, Frankfurt/New York