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Full Employment, Welfare and a Strong Public Sector - Memorandum for early Signature
by Tausch, Arno
10 November 2003 17:27 UTC
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European Economists for an Alternative Economic Policy in Europe
- Euromemorandum Group*-

Full Employment, Welfare and a Strong Public Sector 
- Democratic Challenges in a Wider Union -

Memorandum 2003

In memoriam Egon Matzner (1938 -2003) 



1. In the face of  stagnation, higher unemployment and social polarization - 
the need for an economic policy initiative 

2. A more favourable economic policy framework to manage enlargement

3. More democracy and less Maastricht needed - Critique of the draft 

4. A strong public sector as a pillar of the European social model - Critique 
of the "Green Paper on Ser-vices of General Interest" 

5. Broad Economic Policy Guidelines and Labour Market Policies 

Prof. Miren Etxezarreta, Universitąt Autónoma de Barcelona, 
Prof. John Grahl, University of North London Business School, 
Prof. Jörg Huffschmid, Universität Bremen,  Huffschmid@ewig.uni-bremen.de 
Prof. Jacques Mazier, Université de Paris Nord, Mazier@seg.univ-paris13.fr


The European Union is at a critical point of development. It faces four big 
challenges, and it is not well prepared to meet them. First it is caught in a 
prolonged economic stagnation with rising unemployment and social polarization. 
Second, additional severe economic social and political problems arise with the 
coming enlargement. Third, the EU is grappling with a draft constitu-tion which 
is intended to consolidate European unity and lead to a specific European 
identity in a time when, fourth, strong geopolitical pressures generate severe 
political dissent and conflicts in the world as well as amongst member states 
of the Union.

The responses of the Union to these challenges are completely inadequate and 
will not resolve these problems but in many respects exacerbate them. The 
Commission maintains its restrictive economic policy orientation and reinforces 
the neo-liberal thrust through a wave of privatisa-tions and a very narrow 
approach to the concepts of the public interest and public services. This 
restrictive framework is an obstacle to growth and employment and it does not 
leave room to manage in an acceptable way the additional problems of 
inequalities and disparities arising with the accession of 10 new members to 
the EU. 

The strong and progressive role which the EU should play in the present world 
of conflicts and tensions cannot be reached through a new military build-up, it 
must be based on the develop-ment of a strong and democratic European Social 
Model, which is a credible and convincing alternative to the model of a 
superpower with poor social standards.  The cornerstones of an all-European 
development strategy with this goal are full employment, a high level of social 
welfare, equity, ecological sustainability and international cooperation.  The 
following are basic elements of such a strategy for the current situation: 

1. The EU should immediately take up and implement the proposal for a big 
public investment programme in infrastructure. It should have at least the size 
of 1% of  EU15-GDP and be com-plemented by a similar programme for the new 
member countries. Finance could be provided through the European Investment 

2. Following such an immediate initiative the EU should take steps to reshape 
the institutions and tools of macroeconomic policy to support full employment 
and sustainable growth (includ-ing gender mainstreaming).

3. With regard to the coming enlargement the discrimination against the new 
member countries must be removed and the financial target for structural 
policies raised from 0.4% to 1% of  EU-GDP to allow more help for the newcomers 
without causing harm to the present members. 

4. The Constitution should give more democratic power to the European 
Parliament and loosen the present restrictive economic policy framework of the 
Maastricht Treaty by at least transpos-ing some positive approaches in part I 
into concrete provisions in part III of the draft. 

5. The narrow view of the public sector as an exception from the general rule 
of markets and competition should be replaced by the concept of a strong and 
accountable public sector as one of the main pillars of a democratic society 
alongside the market sector.  

6. The Broad Economic Policy Guidelines should give full employment, gender 
equality, welfare and ecological sustainability the same weight as growth 
within the general economic strategy and remove all elements of authoritarian 
pressure from the Employment Strategy. 


The European Union is currently facing four severe challenges, and it is not in 
a position to meet them in a convincing, democratic and appealing way. The 
first challenge is the pro-longed economic stagnation with mounting 
unemployment and social polarization. The sec-ond is the European constitution 
which is currently under deliberation and which aims at the formation of a 
democratic European identity. The third challenge is the coming enlargement, 
i.e. the accession of ten countries, which will strongly increase the 
heterogeneity in economic performance, social welfare and political culture 
within the greater EU.  To these three must be added the fourth challenge of 
strong geopolitical pressures which were created by the in-creasingly 
unilateral and hegemonistic policy of the United States and which have 
generated deep political divisions also within the EU. 

The predominant market- and competition-oriented approach to integration and 
unity in Europe has contributed considerably to the present dismal economic and 
social situation in the EU and it is certainly not capable of overcoming these 
problems, which it will further exacer-bate in the enlarged Union. The recent 
Swedish referendum on European Monetary Union (EMU) should be a strong warning 
against the continuation of such one-sided policies, since it highlights the 
difficulties of attracting people in a Europe apparently hostile to welfare 
provi-sion and social solidarity and without a genuine democratic legitimation. 
It is therefore very problematic that the Maastricht and Amsterdam design of 
economic policy is completely locked into the draft constitution and that 
according to this draft the European Parliament would still not have the 
democratic right or authority to change this design by legislative 
ini-tiatives. Instead, the search for European identity and for a strong 
position of Europe in the world focuses strongly on the military side, aiming 
at the build-up of military capabilities which go far beyond the requirements 
for territorial defence and support of UN peacekeeping missions. We think that 
this is an inadequate and dangerous political choice.

In our view a better way to overcome the present problems and achieve a 
European identity which is appealing for the people of Europe is to promote an 
all-European development model with full employment (including gender 
equality), a high level of welfare, social eq-uity, ecological sustainability 
and comprehensive international cooperation as its corner-stones. Such a social 
model could play the role of an appealing and powerful alternative to the US 
model of military power with poor social standards. It does not emerge 
automatically or as the result of liberalised markets and competition. Its 
implementation will be met by resistance from those groups and powers who 
benefit from the present situation. It therefore requires energetic political 
intervention. The quality of such intervention depends on its development in a 
broad social movement and open public debate, that is on its democratic 

This memorandum is a contribution to such a debate. In the first section we 
criticise the lack of an adequate European economic policy response to the 
obvious deterioration of the eco-nomic and social situation and make proposals 
for more efficient and democratic policies which in the short term lead to more 
employment and sustainable growth and in the longer perspective can achieve 
full employment, gender equality and a high degree of social cohe-sion. On the 
basis of an assessment of the additional problems accompanying the enlargement 
the second section makes proposals to loosen the restrictive regional policy of 
the EU to be able to manage these problems in a smooth and efficient way.  The 
third section deals with the democratic deficit and the economic dogmatism of 
the draft constitution and gives recom-mendations for an alternative 
orientation. The current stampede for privatisations and the much too 
restrictive approach of the European authorities to "services of general 
interest" are the object of criticism in the fourth section which contains the 
outlines of an alternative ap-proach to the public sector not as rare exception 
to the rule of competition but as a basic pillar of every democratic society. 
In the last section the recent developments of the Broad Eco-nomic Policy 
Guidelines and the European Employment strategy will be examined and changes 
with regard to predecessors will be evaluated.  

There are many other fields of economic and social policy in the EU which must 
be criticised and for which alternatives must be proposed. We have dealt with 
some of these areas in pre-vious memoranda and other publications. A 
particularly important  area of neo-liberal coun-ter-reform is the ongoing 
"modernisation" of social security systems, which is high on the agenda of the 
EU. The essence of this process is the privatisation of public systems. This is 
wrongly presented as unavoidable under the threat of a "demographic time-bomb". 
In reality it is the withdrawal of employers from the co-financing of social 
security and above all it is a huge subsidy to the insurance industry and other 
institutional investors on the financial mar-kets. We have extensively analysed 
and criticised this process and refer to our declaration: "Privatisation and 
Financial Markets Cannot be the Solutions of the Pension Problem" which can be 
found on our homepage (www.memo-europe.uni-bremen.de). 

We are aware that critique of wrong and harmful policies and the development of 
proposals for better policies aiming at full employment, social justice, 
sustainability and welfare are necessary but not sufficient elements for social 
and political change. The policies we criticise are harmful for the majority of 
people in Europe, but they are beneficial for a powerful minor-ity of 
corporations and high income groups. They will defend their positions and 
interests against any demand for a more equitable distribution of income and 
power. Therefore strong political and social movements are necessary to 
overcome this resistance. We regard our memorandum as a scientific contribution 
to the strengthening of these movements through the clarification of arguments. 

1. In the face of stagnation, higher unemployment and social polarization - the 
need for an economic policy initiative
In the second half of 2003 the European economy has remained in a phase of 
stagnation, and it becomes dangerously close to getting caught in a 
deflationary spiral. Economic activity in the Eurozone even declined in the 
second quarter of this year. The strong ambitions and pro-jections made at the 
Lisbon summit in March 2000 - the EU economy should within a decade become "the 
most competitive economy of the world", with an average growth rate of 3% 
during the current decade - now appear as rhetoric bubbles which were not 
underpinned by equally strong economic policies. 

We have repeatedly criticized the lack of efficient macroeconomic strategies to 
fight unem-ployment and stimulate sustainable growth and we have predicted that 
on this inadequate ba-sis there was no positive perspective for economic 
development and more social welfare. Our analysis has proved to be much more 
correct than that of the EU authorities. In November 2002 the European 
Commission's forecast for growth in the Eurozone was 1.8%. It was re-vised to 
1.0% in the Spring 2003 (cf. table 1) and again corrected downwards to 0.4% in 
Oc-tober. And it still appears that even this modest figure is very optimistic. 
The most sluggish GDP growth component is investment (GDCF), which in fact 
declined in 2002 and will decline in 2003, as opposed to private consumption, 
which registered a positive, albeit low, increase. Trade has also registered 
low rates of growth, and could not give the EU economy a stimulus from the 
world economy.  

Table 1: EU-GDP growth components
(annual % changes)
        EU - 12 (Euro area)     EU - 15
        1991-2000       2001    2002    2003    2004    1991-2000       2001    
2002    2003    2004
GDP     2.1     1.6     0.9     0.4     1.8     2.1     1.7     1.1     0.8     
Private Con-sumption    1.9     1.8     0.5     1.3     1.6     2.0     2.0     
1.2     1.5     1.8
Government Consumption  1.7     2.5     2.9     1.7     1.3     1.7     2.3     
2.7     2.0     1.4
Investment (GDCF)       2.0     0.0     -2.6    -1.0    2.4     2.0     0.6     
-1.9    -0.4    2.7
Exports 7.0     3.1     1.5     0.1     5.2     6.9     2.7     1.2     0.3     
Imports 6.4     0.9     0.0     1.9     5.2     6.3     1.3     0.6     1.7     
2003: estimates; 2004: forecasts
Source:  Statistical Annex of European Economy, Autumn 2003.

Against these developments, government spending in relation to GDP has been 
increasing, and remains relatively high this year due to cyclical factors 
(automatic stabilisers), as well as to the effort made by governments to 
counteract some of the social effects of falling economic activity. As a 
result, however, government budget deficits increased especially in the euro 
area, moving closer to the 3% of GDP upper limit allowed by the Stability and 
Growth Pact (SGP) and away from the "close-to-balance or surplus" medium term 
objective.  Following these trends the rate of unemployment rose for the second 
year running since 2001 to more than 8% in the EU-15 and to almost 9 % in the 
Eurozone, while employment, which had slightly grown in 2002 is expected to 
record zero growth in 2003 and even decline in the monetary union.  The 
sluggish effective demand by the corporate sector, households and gov-ernments 
is reflected in a declining rate of inflation, which is predicted to continue 
to fall fur-ther in 2004.  At the same time, the rate of increase in real 
compensation per employee re-mains low, at less than 1% annually, having 
further declined in 2002.  In fact, the share of wages in GDP is steadily 
decreasing and it is forecasted to decline further to 68,1% of GDP in 2004, by 
comparison to 69,2% on average in the 1990s. Thus, in a climate of overall 
stagna-tion the creeping increase of inequality in income distribution 
Much of the economic decline in the EU-15 and the Eurozone is due to 
developments in Germany, by far the largest economy of the Union. The policy of 
the red-green government has been considerably more fundamentalist in its 
restrictive attitude towards public expendi-ture and the alleged 
"non-affordability" of the welfare state than that in most of the other EU 
members. Consequently the German economy in 2002 realized the second lowest 
growth rate in the whole of the EU, and this had obvious harmful effects for 
the neighbouring countries, particularly the Netherlands and France. For 2003 
zero-growth is now officially expected and also for 2004 the outlook for the 
German economy remains bleak. Through deep cuts in the systems of unemployment 
benefits and social welfare - undertaken under the pretext of boost-ing 
employment and growth through a further reduction of labour costs - even the 
working of the automatic stabilizers will be severely hampered in the future.

Revealing developments have taken place with regard to the Stability and Growth 
Pact. On the one hand the adherence to this pact continued to be one of the 
major obstacles to more employment and growth for most countries in the EU.  On 
the other hand the 3% of GDP limit for public deficits was transgressed in the 
two largest economies of the EU, in Germany and France, and it will again be 
missed in 2004. But this is not the result of deliberate political measures to 
give priority to growth and employment over balanced budgets. It was and will 
be the involuntary result of a policy which on the one hand reduces taxes 
particularly for cor-porate profits, capital gains and higher incomes and on 
the other hand gives deficit reduction highest priority in a situation of weak 
growth and stagnation - thus further curbing growth and prompting even more 
unemployment. The SGP was not renounced - as it should be - it was simply 
broken and it will be broken again in the years to come, as a consequence of  
mis-guided and harmful fiscal policies under the rules of the SGP.   

The Commission has, departing from its previous stance, at last recognized the 
dismal devel-opment of the economy and the refutation of its forecasts and 
projections by the real course of events. However, it has not taken this as a 
challenge to thoroughly re-examine the adequacy of its  economic policy 
concept. Instead the largest part of the difference between forecast and 
reality is attributed to developments in the world economy. While the latter 
has obviously developed at much lower pace in the last three years than in the 
second half of the 1990s, this is not an acceptable explanation of the 
development within the EU. Firstly, the challenge for European economic policy 
is to counter adverse external developments through active eco-nomic policy 
measures, for which there must be a concept and adequate preparation before the 
event. This was and is not the case in the EU. Second, the EU herself is the 
largest and second strongest block in the world economy, and the reference to 
the bad shape of the world economy has strong elements of self-reference. If 
the EU took efficient measures to stimulate sustainable growth and employment 
in Europe, the world economy would be in a much better shape than it is today. 

However, amongst the great number of problematic and backward oriented 
developments we see one positive step in the Italian proposal "A European 
Action for Growth". It is based upon the recognition of the fact that the share 
of public investments in GDP has fallen in the 1990's to 2,3%, half a point 
less than in the previous decade (lagging well behind the US perform-ance). 
Thus an urgent need is seen to accelerate the volume of public investments in 
infra-structure, bringing them to the pace initially targeted by the Delors 
Plan in 1993. The July 2003 Ecofin Council has given a mandate to the European 
Commission and the EIB to present a proposal for implementation and financing 
of such a programme, which should be discussed and adopted at the 2003 December 
We welcome the fact that the Council has at last taken the initiative for an 
immediate emer-gency programme to stimulate growth and employment and to 
finance this through the Euro-pean Investment Bank - both elements of a wider 
economic policy package which we have proposed since many years.  With 
reference to this proposal we make three additional recom-mendations:
1. The size of the programme should at least reach the upper figure of the 
proposal, i.e. 1% of EU-GDP, i.e. about EUR 90 billion.
2. An additional programme should be launched for the new member countries. It 
should be relatively larger than the one for the EU15 to enable new members  to 
catch-up to the current EU members; and it should be financed via the EIB and 
the European Bank for Reconstruc-tion and Development (EBRD) with interest 
subsidies from the EU budget. 
3. In addition to the infrastructure projects in the Council proposal the whole 
area of environ-mental protection, repair and clean-up should be given high 
weight to reconcile economic growth and ecological restructuring and bring the 
European economy onto a path of sustain-able development. 

At the same time we wish to underline our recommendations with regard to 
further steps to free economic and social policies in the EU from inadequate 
and harmful restrictions and to transform the emergency programme into a 
consistent economic policy pattern for steady and sustainable growth with the 
aim of full employment, social cohesion and general welfare. There are at least 
six cornerstones for such a necessary macroeconomic policy change:
First: The mission and structure of the European System of Central Banks should 
be broad-ened to include the objectives of sustainable growth, full employment 
and social cohesion. 
Second: The Stability and Growth Pact should be abandoned or at least be 
changed in a way that leaves fiscal policies of member states the flexibility 
to act in a way which promotes these agreed objectives.  
Third: The EU budget should be considerably increased to give the EU room for 
manoeuvre to counteract asymmetric shocks and strong regional inequalities 
within the EU. In order to finance this expansion European taxes should be 
introduced, e.g. a tax on financial market turnovers or ecological taxes.   
Fourth: Tax competition should be terminated and replaced by a high level of 
tax harmoni-sation and strong tax policy co-operation where and as long as 
complete harmonisation is not possible.  
Fifth: Economic policy co-ordination should acquire a more systematic, broader 
and more binding character than today; therefore we advance the concept of a 
legitimate European eco-nomic government as a counterpart to the ECB. The 
European Parliament should play a greater role in decisions about economic 
policies including fiscal policies. 
Sixth: The ongoing formation of a single European financial market must focus 
on ensuring systemic financial stability and consumer protection as main 
objectives and in this sense en-hance the scope of financial supervision on the 
European level through harmonisation, closer co-operation and regulation. 
These reforms are all the more necessary with regard to the upcoming 
enlargement of the EU. Without a more expansionary monetary policy the new 
members will have no chance to catch up. Their obligation to fulfil the 
convergence criteria on their way to monetary union becomes a plain absurdity 
and an unacceptable discrimination against the new members in view of the fact, 
that the majority of the current EU and Eurozone members does not fulfil these 
criteria. The SGP will strongly contribute to the continuation of the economic 
backwardness of the new members, and the simple opening up of their very weak 
financial markets has on the one hand already brought the majority of financial 
institutions under foreign control and on the other hand has made these markets 
extremely vulnerable without strong supervision. 

2. A more favourable economic policy framework to manage enlargement

In May 2004 the EU will have ten new Member States, eight of them Central and 
Eastern European Countries (CEECs).  They have managed the transformation 
process more or less successfully, but still suffer from major macroeconomic 
imbalances, in particular high unem-ployment (from 6% in Slovenia and Czech 
Republic to 19 % in the Slovak Republic and 20 % in Poland), growing poverty 
and regional disparities. The entry of the new members will in-crease the 
population of the EU by 75 million persons, i.e. one fifth of the current 
population. The per capita income of the newcomers (in purchasing power 
parities PPP) is less than half (47,7%) of that in the old EU. The share of 
agricultural employment in total employment is more than one fifth (21.5%) 
against less than one twentieth (4,3%) in the EU-15, and the pro-ductivity of 
the agricultural sector of the EU-15 is five times higher than in the CEECs. 
Even if one assumes the very favourable but rather unlikely case of growth 
rates of 2% per year in the EU-15 and 4% in the CEECs the new members would 
need about two decades to reach on average 60-70% of EU-15 per capita income, 
with greater or lesser differences between the countries.  
After enlargement (including the accession of Bulgaria and Romania in 2007 or 
2008) three groups of countries will exist in an EU of 27 in terms of GDP per 
head:  The present EU-15 members without Spain, Greece and Portugal, form the 
first group of 12 countries with GDP per head of 120% of the EU-27 average, 
i.e. one fifth above the new average (which is about 90 % of the present EU-15 
average). The second group of seven countries will consist of the three 
remaining countries of the current EU plus Cyprus, the Czech Republic, Slovenia 
and Malta, with GDP per head between 68% (the Czech Republic) and 95% (Spain) 
of the EU-27. The third group will be formed by the remaining eight accession 
countries, with a GDP per capita on average of 40% of EU-27 (56-58% for 
Slovakia and Hungary). Enlargement will more than double the population living 
in regions with GDP per head of less than 75% of the present EU average from 71 
million to 174 million, or from 19% of the EU-15 total to 36% of the EU-27 
total. So regional disparities will double with enlargement. 

From these data it should be obvious that enlargement will change many 
parameters for eco-nomic policy in the larger EU, and these changes affect not 
only the new but also the old members. But the EU is not prepared to deal with 
these changes by a corresponding adjust-ment of its economic policy 
orientation. Instead it is maintaining the current very restrictive 
macroeconomic policy framework and is set to impose an even more rigid and 
restrictive pat-tern for structural policies. This marks  a complete change 
from previous enlargement rounds which were accompanied by a substantial 
expansions of the Structural Funds. Similar meas-ures were also taken after the 
adoption of the Maastricht Treaty: A Cohesion Fund was cre-ated to help the 
poorest countries mitigate the pressures of increased competition on the way to 
monetary union. Nothing of this kind will happen this time, although the scale 
of the enlargement is the largest ever. Not only will the Structural Funds not 
be expanded to cope with rising disparities; the German government has even 
proposed to reduce the upper limit for the EU budget from the presently 1.27 % 
to less than 1.1 % of EU-GDP. This extremely restrictive approach is likely to 
generate deep economic, social and perhaps even political crises in large parts 
of the EU. 

Two further scandalous forms of discrimination against the new members 
aggravate the situa-tion: Firstly, it was decided by the "old" EU that new 
members would, at the beginning of their membership, only receive 25% of the 
agricultural subsidies to which they were entitled as regular members of the 
EU, and that this share would be increased slowly to reach 100% after ten 
years. At the same time, however, the new members are required to pay the full 
amount of their contributions to the EU budget as regular members from the 
first day of their membership onwards.  Secondly, in order to participate in 
the European Monetary Union (EMU), new members must fulfil the Maastricht 
Treaty's convergence criteria, although the majority (seven out of twelve) of 
the present members of the EMU currently fail to meet these criteria. This is a 
plain absurdity - which nevertheless will generate very severe and harmful 
economic consequences for the new members. 

To cope successfully with the challenges set by this enlargement thoroughgoing 
changes are necessary in both the macroeconomic and structural policies of the 

The requirements for a more democratic and more efficient macroeconomic policy 
have been discussed in the previous section of this memorandum. With particular 
regard to the new members it should be added that the nature of the exchange 
rate regime EMS 2 in which they will find themselves also will be of 
considerable importance. It would be most undesirable for the new member 
countries if they were obliged to buy themselves into the Eurozone through the 
pursuit of deflationary measures designed to meet the Maastricht convergence 
criteria on budget deficits and inflation. The real appreciation following such 
a policy would make such a policy unsustainable in the long run. Because entry 
into the EMS 2  at a too high exchange rate would bring considerable economic 
difficulties to the new members, the ability to adjust the exchange rate in the 
light of evolving economic conditions (notably differentials of infla-tion) 
must be retained. Therefore it seems reasonable to regard entry to EMU as a 
medium target  and link it to convergence criteria in real terms. To protect 
themselves against massive short-term currency speculation the new members 
should have the right to impose temporary capital controls. Furthermore, to 
avoid currency crises in the new countries a common govern-ing body - an 
economic government - should be responsible for exchange-rate policy with the 
purpose of smoothing the necessary and ongoing adjustment in the productive 
structures of the CEECs. 

Such a macroeconomic policy would make it possible to expand the structural 
funds and to resolve the problems and conflicts that are being generated 
between some of the EU-15 and the new members, as a result of the eligibility 
threshold for so-called Objective-1 regions, for which per capita income must 
lie below 75% of that for the total EU. It would ease the di-lemma that some 
regions for example in Southern Spain or East Germany will find them-selves 
above this threshold and the support they receive will be reduced, or phased 
out, with-out any change in their real problems or the absolute value of GDP 
per capita. According to the Cohesion Report the number of EU-15 regions below 
the threshold will drop from 46 to only 19. Many of the present Objective-2 
regions and cities, especially old industrial areas like the Ruhr or Pay de 
Calais, must retain the chance to get funds in the future, too, because their 
economic and social problems are not really resolved until now. 

According to available information for the next period of interinstitutional 
agreement on the EU budget (2007-2013) the Commission proposes to assign a 
share of 0.45 % of EU-25 GDP to the Regional Funds. In this case a total of  
EUR 344 billion for the EU-25 (in 1999 constant prices) would be available 
assuming an annual GDP growth of 2.5% in the EU-15 and 4.0% in the CEEC-10 plus 
Bulgaria and Romania. The EU-15 regions would then get EUR 197 billion, i.e.  
EUR 14 billion less than in the present period. The German government seems to 
prefer an even more restrictive model, in which only about 0.4% of EU-GDP is 
made available for Re-gional Funds. In this case the EU-15 regions would get 
about EUR 87 billion less than in the pre-sent period! 

Against these unacceptable scenarios we propose the following three 
(1) The most modest proposal is that Regional Funds should be set at 0.5% of EU 
GDP.  This would generate EUR 382 billion (in 1999 constant prices) for the 
EU-25 during the period 2007-2013. The EU-15 regions would get the same amount 
as in the 2000-2006 period (EUR 211 bil-lion), whereas the new Member States 
would get EUR 171 billion. In this case the provision that Structural Fund 
resources should not amount to more than 4% of GDP of the recipient country 
would have to be relaxed. 

(2) The more ambitious but still moderate 1.0% approach would result in EUR 764 
billion (2007-2013) for the EU-25 and would resolve the problem of regional 
disparities much better.  In this case it would be necessary to change the 
funding process by not only abolishing the 4%-rule but also by assigning 
subsidies partly as a general subsidy to the national budgets of the accession 
countries rather than the present procedure whereby all projects have to be set 
out in a "single programme document" that has to be presented by the regions 
and accepted by the European Commission.

(3) In a still more favorable perspective the total EU budget could be 
progressively raised to around 5% of EU-25 GDP in the medium term. This would 
give the EU considerably more room for maneuver and enable it, for instance, to 
change the eligibility threshold for the Struc-tural Funds and to raise the 
subsidies for agriculture in the CEECs to the regular level. A lar-ger number 
of less developed regions could benefit from transfers, including some in the 
more advanced countries of the EU-15.

Due to the political environment the second and third proposals are not the 
most likely ones. New interim compromises could be sought in various 
directions. Firstly, new Structural Funds could be created and dedicated to the 
new members, with financing by borrowing through the EIB and the EBRD. The 
present Structural Funds could be shared between the EU-15 mem-bers and the new 
entrants with a re-negotiation of the eligibility threshold, in order to ensure 
that both groups of countries receive a sufficient amount of funds. Another 
measure to support the CEECs could be a reduction in the necessary share of 
cofinancing. Also the procedure of applying for Structural Funds could be 
reformed in order to improve their efficiency. More autonomy could be given to 
the local, regional and national development plans with the Struc-tural Funds 
playing a complementary role, without too tight examination from Brussels. High 
levels of support for poor countries should be linked to public investment 

3. More democracy and less Maastricht needed - A Critique of the draft 

The EU is currently deliberating - and renegotiating - the draft constitution 
which the Euro-pean Convention has elaborated. It is the ambition of the 
president of the Convention that the result of the negotiations should be 
signed by all member governments before the coming enlargement in May 2004, and 
that it should govern European unity for a very long period, i.e. for 40 to 50 
years. In this view the constitution marks a decisive leap forward in the 
definition of the "finality" of European integration. Although we recognise 
that the draft contains some progressive elements, it is our view that it is 
very insufficient, first, with regard to the democratic character of the 
institutions and decision making processes, and second, in the area of economic 
and social policies where it largely reproduces the design of the Treaties of 
Maastricht and Amsterdam which we have criticised repeatedly. This constitution 
is not a step forward towards a social Europe.

With regard to the democratic character of the Union we see some progress but 
also some big deficiencies in the current draft. We welcome the proposal that 
the charter of fundamental rights will be part of the constitution.  We also 
welcome the fact that the draft  increases the number of Council procedures 
where qualified majority voting is introduced and more than doubles the 
procedures requiring co-decision with the European Parliament. By abolishing 
the distinction between obligatory and non-obligatory expenditures in the EU 
budget, the Euro-pean Parliament achieves final co-decision power over the 
whole range of the budget. These are progressive provisions. On the other hand 
the basic democratic deficiency remains that the European Parliament still 
lacks two powers which are fundamental for any democratic par-liament: It has 
no right to initiate EU legislation, and it has no right to select the 
president of the European executive power, the European Commission (EC). 
Although it does formally elect the President of the EC, this is in reality no 
more than a formality, since it is the Euro-pean Council who proposes the 
respective candidate and the Parliament can only accept or reject this 
proposal. In our view the draft should not try to avoid any "politicisation" of 
the European Commission, with the President of the Commission having to come 
from the politi-cal majority in the European Parliament as expressed in the 
results of the various European elections. Such politicisation is the essence 
of the democratic process. The downgrading of the election of the Commission 
president at the European Parliament level to a confirmation of a pre-selected 
candidate amounts to a continuing contempt or at least suspicion of all 
Euro-pean democratic structures and procedures - and it is a phenomenon which 
the EU quite cor-rectly criticises in other parts of the world. 
We are also concerned about the increasing degree of militarization which the 
draft envisages. It provides for the establishment of a European Armaments, 
Research and Military Capabili-ties Agency and obliges Member States 
"progressively to improve their military capabilities". These provisions 
(Article I-40, Articles III-210 to III-214 on Common Security and Defence 
Policy) tend to propel the Union towards an increased reliance on military 
means to resolve conflicts or to protect and enforce the Unions assumed 
"strategic interests". We think that this would be a politically dangerous 
development. Apart from this the orientation towards im-proving military 
capabilities will lead to higher expenditure for armaments in Europe, and as 
all experience shows much of such an increase will be financed through deep 
cuts in social spending and public investment by the Member States.

As a network of European Economists, our main focus is on the provisions for 
economic, em-ployment and social policies of the Union. In spite of some 
encouraging provisions regarding the Union“s objectives we find that the draft 
lacks the necessary progress towards a Social Europe. It is not sufficient to 
invoke - as in Article I-2 -  the traditional bourgeois-democratic values of 
the French Revolution (respect for human dignity, liberty, democracy, equality 
and the rule of law).The principles of the welfare state - solidarity and 
social responsibility - and the more recent value of ecological integrity of 
our planet should also be included in the basic values and objectives of a 
modern Union. This is not the case.

We welcome the fact that "sustainable development" and "a high level of 
protection and im-provement of the quality of the environment" are maintained 
as objectives of the European Union, which shall be "based on balanced growth" 
(instead of simply "non-inflationary growth", as in the current Treaty). We 
also welcome the objectives of "equality between women and men" and "full 
employment and social progress", although "full employment" should be further 
specified with regard to the quality of work.

In spite of these positive elements, however, there persists a strong and 
harmful imbalance between the principle of the internal market and free 
competition on the one hand and the need for democratic policies that serve the 
public interest, including the provision of public goods and public services on 
the other hand: Whereas the former constitute the overarching rule of European 
integration, the latter, although recognized, play a clearly inferior and 
subor-dinate role. We find this imbalance unjustified and unacceptable. We 
therefore recommend that the objective "efficient and high-quality social 
services, public services and services of general interest" should be listed in 
Article I-3, as demanded by the Social Europe working group of the Convention. 
We also regard the replacement of the current formulation "a high degree of 
social protection" (Article 2), by the new formulation "social justice and 
protection" (draft, Article I-3) as an unacceptable regression, which urgently 
needs to be corrected.

Article I-14 provides for the coordination of economic and employment policies 
(by the tradi-tional channels of the Broad Economic Policy Guidelines and the 
European Employment Strategy) and opens the door for a coordination of social 
policies. No mention is made of the European Sustainability Strategy. Here the 
Convention has missed the opportunity to explic-itly establish a coherent 
design for the coordination of economic, employment and social poli-cies - 
putting them all on an equal footing and reconciling conflicting targets 
between them instead of giving priority to the Broad Economic Policy Guidelines 

We strongly criticize the fact that positive and progressive formulations about 
objectives of the EU in part I of the draft are in no way given concrete 
expression and developed  in part III.  Instead, the anachronistic and harmful 
design of the Maastricht and Amsterdam Treaties remains fully intact: economic 
and monetary policies are set in the framework of an "open market economy with 
free competition". Employment policy aims at a "high level of em-ployment" 
instead of full employment; the BEPG keep their primacy over the European 
Em-ployment Strategy (EES). The very restrictive provisions regarding the ECB 
and the priority given to price stability, the deficit rules and the 
convergence criteria for EMU etc. - all re-main unchanged. The position of the 
European Parliament in matters of socio-economic gov-ernance is as weak as 
before: It only has the right of "information" with regard to the BEPGs and of 
"consultation" in employment and social policy coordination processes. 

Based on this critical evaluation and on the recommendations of our previous 
memoranda, we propose to include into the current negotiations on the draft the 
objective of the European So-cial Model and make the following amendments to 
enable progress towards this goal.

Social and economic policy objectives:

- The protection of public goods and the provision of high quality public 
services and services of general interest (socio-cultural, economic) should be 
included in the objectives of the Un-ion (Article I-3); serving the public 
interest and democratic decision making should have pri-ority over the 
principles of the Internal Market and competition rules as guiding principles 
for the provision of services of general interest (Article II-6);
- The specification of the single market in Article I-3 should be changed to "a 
single market with a high degree of economic efficiency, an adequate level of 
competition, a high degree of social standards and of environmental and 
consumer protection";
- "Full employment with high quality of work" should be an objective of the 
Union (Article I-3) and carried forward to Part III of the constitution, 
replacing "high level of employment", e.g. Articles III-99, III-103); 
- The goal of a "high level of social protection" should be reinstated as an 
objective (Article I-3);
- The objectives of a  "social market economy", "social progress" and "balanced 
growth" in part I should be carried on into part III replacing that "open 
market economy with free compe-tition", etc. Articles III-69, III-70, III-77);
- The objective of high social standards should be included in the constitution 
and it should explicitly be declared that no measure by the European 
authorities could reduce the current social rights in member countries. 

Social and economic policy coordination:

- Employment and social policies should have the same weight and status as 
economic and monetary ones in the constitution. Also, there should be 
provisions for the coherent coordina-tion between them with economically, 
socially and ecologically sustainable development as an overarching objective 
(Article I-14). 
- With regard to the European Central Bank (ECB) the objectives of monetary 
policy (Arti-cles I-29, III-77) should be extended to include "price stability, 
balanced growth, social cohe-sion and full employment".  The democratic 
accountability and transparency of the ECB must be clearly pointed out: as an 
institution of the European Union it should be bound by the "principle of 
participatory democracy" like all other institutions listed in Part I of the 
constitu-tion. The independence of the ECB should be operative independence, 
while in the definition of price stability and in the assessment of the 
respective economic situation and need for po-litical action the ECB should act 
in co-ordination with other policy actors.    
- The EMU convergence criteria should be redrafted towards real economy 
convergence crite-ria (Article III-92) and the definitions of an excessive 
deficit (protocol on the excessive deficit procedure) should be dropped.
- For the adoption of international agreements on commercial treaties, 
especially those con-cerning trade in services and agreements on investments 
(Article III-217) the previous princi-ples of "shared competencies" and 
unanimity voting should be re-introduced.  
- The proposals of European environmental organisations on the insertion of the 
objectives of sustainable development in the provisions of Part III should be 

4. A strong public sector as a pillar of the European social model - Critique 
of the "Green Paper on Services of General Interest" 

In the past few years a growing number of people and social groups throughout 
Europe have become increasingly concerned about the continuing thrust of the EU 
towards the liberalisa-tion and privatisation of the public sector including 
core parts of public services such as the provision of water, health and 
educational services. In some EU countries this concern has developed into a 
protest and resistance against plans for further privatisation. This is also 
true for the CEECs. Comprehensive and precipitated privatisation, which was one 
of the main lev-ers of the systemic transformation process has often resulted 
in the destruction of whole in-dustries and the takeover of others by foreign 
corporations. Further privatisation particularly of public services is 
therefore regarded with caution and sometimes scepticism by an increas-ing part 
of the population - as in the present EU. 

The European Parliament has on various occasions taken up the matter and asked 
the Com-mission to formulate a concept of public interest for the EU. At last 
the Commission has re-sponded to this demand and in May 2003 published a "Green 
Paper on Services of General Interest" (SGI). We welcome the publication of 
this paper, because - although it represents not an official position of the EU 
- it clarifies the main lines of thinking within the Commis-sion and exposes it 
to public debate. This debate should extensively take place and is to be 
expected that during its course many different views will be formulated and the 
challenge will be to bring the elements together which are the basis of the 
European Social Model. With re-gard to the Green Paper we wish to stress and 
explain our view that the position laid down there is not an appropriate basis 
for the development of a concept for a European public inter-est and a public 
sector corresponding to this interest. The reason for this is the very narrow 
and biased approach of the Commission to the notion of "general interest".

Although the paper mentions the "European model of society" and it even 
deplores the ab-sence of an elaborated concept it does nothing to overcome this 
deficiency. Instead it becomes very clear in the course of the Commission's 
line of argumentation, that the internal market and the rules of competition 
are the driving principles of European integration and unity. It is conceded 
that there are and should be exceptions to these rules, and therefore "services 
of general interest" have a right to exist. But this right is that of an - 
increasingly contested - exception, which requires specific justification with 
regard to the overall rule. This is a very biased position. A more balanced and 
more helpful alternative approach would be to define public services and the 
public interest as an area of genuine own rights and strengths and give it 
equal weight and status with the rules of markets and competition. Such 
parallel develop-ment of public and private areas has been characteristic of 
the historical formation of the pub-lic sector, public services and the 
constitution of the "general interest" in most European wel-fare states, and 
much of the outcome of this process has been preserved until today. 

Although many of the areas thus defined as areas of public interest are the 
same or very simi-lar in most countries of the EU, this has not led to the 
formulation and formation of a corre-sponding European public interest and a 
development model based thereupon. Instead, Euro-pean integration has taken 
place mainly by way of the removal of tariff and non-tariff barriers to markets 
and the rules of competition have become the framework and governing principles 
of integration. With the launch of the internal market project these rules have 
started to back-fire against the hitherto strong and mostly unchallenged status 
of public services in the mem-ber states and they have dominated the 
negotiations for the upcoming enlargement. It is ac-cepted that such services 
may continue to exist on the national base - but only as long as no 
cross-border activities and no enterprises are involved. Because there is no 
"hard" and consti-tutionally or legally binding European general interest 
beyond rhetoric all cross-border activi-ties become subject to competition. And 
since competition refers to all types of enterprises all public services 
carried out by (public or private) enterprises must be exposed to competition, 
too. Although public administration in every country may exempt certain 
undertakings from this rule, these exemptions must be justified and are subject 
to continuous monitoring and scrutiny by the internal market and competition 
directorates within the Commission. The ob-jective of this scrutiny is to 
terminate the exceptional character of the service and to transfer it to the 
area of competition. The stampede towards privatisation during the last decade 
is the consequence of this lack of a strong definition and of implementation of 
a European general (or public) interest. With enlargement it will not become 
easier to overcome this deficiency.

This Green Paper implicitly states that the European Union, as currently 
conceived, has em-barked - and should remain - on a path likely to lead to a 
world characterised by a uniform set of institutions. Contrary to its repeated 
proclamations that variety and diversity are welcome and will even be promoted, 
the Green Paper is set to prevent the continuation or development of those 
qualities, for example by imposing on "public undertakings" the same rights and 
ob-ligations as on private businesses. This precludes the creation of 
institutions specifically de-signed to fulfil a well?defined public purpose. 
The "respect" for "diversity and the roles of national, regional and local 
authorities in ensuring the well-being of their citizens and in guar-anteeing 
democratic choices regarding, among other things, the level of service quality" 
(Green paper, p. 5) is, by the virtue of this conditionality, eliminated. The 
authority of the respective electorates is thus transferred to the evaluation 

To correct the overwhelming bias towards competition in the current approach to 
European unity and to establish a more balanced approach between markets and 
the public sector it is essential to consider what the basic components of such 
a European model should be. They must be derived from the values and 
commitments which all member states - including the new ones - share. According 
to available and expert opinion, the essence of such a model lies in the 
private/public dimension. Europe, i.e. all European regions and cultural 
traditions, have at least four elements in common, which differ in an important 
way from the EU's currently preferred benchmark model, namely present-day US 

(1) Private property, a basic institution in any contemporary society, has in 
European history been closely associated with social obligations and 
responsibility. This linkage was essential to feudal property and it is 
inherent both in catholic social philosophy and in socialist thought. In the 
CEECs private property had been largely abolished with the ambition of 
introducing social responsibility without any linkage to private property. This 
attempt failed for many reasons. In the USA, by contrast, private property is 
essentially conceived as the basis of indi-vidual autonomy; it is without any 
restriction available to rational, industrious person and precluded to the 

(2) In the European tradition the social contract encompasses every citizen. 
The weak, the poor and the helpless must be taken care of and their 
unconditional legal entitlement to this support is the basis of the European 
welfare state. In the USA, on the other hand, the idea of a redistribution of 
income or wealth contradicts "true American values"; these rather favour 
voluntary charity. 

(3) The public sphere, also known as res publica,  is a feature more or less 
common to all European nations, and the development and preservation of a 
public space against the dynam-ics of private markets for instance in the area 
of media, education and science is seen as one of the basic requirements for a 
democratic society. In the USA it is traditionally less impor-tant; today, most 
of it has been whittled away. 

(4) The role of the state carries greater weight in Europe than in the USA. 
While in the USA the state is often perceived as an adversary, if not an enemy, 
of the citizen, the European tradi-tion rather views the state as supportive of 
a "public purpose". This attitude was in many cases not matched by the quality 
and actions of the states themselves, some of which have engaged in external 
aggression and internal suppression, culminating in fascism. To prevent this 
from happening again it is therefore necessary to underpin a traditionally 
positive attitude towards the state by strong social movements and public 
control of state activities. 

All these particular features of a European development model as different and 
opposed to the US model are currently under heavy neo-liberal attack in the 
"old" EU, and privatisation, lib-eralisation and deregulation are amongst the 
most efficient weapons of this attack. In the CEECs the idea of the public 
sector and public interest has been discredited by the over-whelming importance 
and the often bureaucratic and non-democratic character of this sector which 
ignored and often suppressed individual aspirations and freedom. In the decade 
follow-ing the collapse of this model the pendulum has often struck towards the 
opposite extreme of complete privatisation and unfettered competition in all 
areas of life. 

Historical experience, not the last in the CEECs has clearly shown that for the 
constitution of a genuine public interest and public sector the mere 
transformation of private into public property is not sufficient and even not 
the decisive factor. The decisive criterion is whether the society is organised 
democratically. This requires on the one hand strong employees par-ticipation 
in enterprises and it requires on the other hand that the public sector is 
set-up and organised in a democratic way, supported by broad and continuous 
public discussion with transparent decision procedures. The challenge for a 
progressive all European development model is now to re-instate a balance 
between private interests and activities including eco-nomic and 
entrepreneurial activities on the one hand and on the other hand the 
formulation and formation of a public space and general interest which 
regulates basic areas of social life and at the same time defines the framework 
and rules for private activities. Such a challenge cannot be met through rapid 
technocratic measures, it requires an intense and concrete discus-sion about 
social values and priorities of a European social model which is appealing and 
strong enough to resist the neo-liberal attacks and temptations. We believe 
that the principles mentioned above could serve as cornerstones and guidelines 
of such a common search for a progressive, democratic and social European 
development model in which the public sector is no exception to the rule of the 
markets but a strong pillar of democratic society alongside with markets. 
Therefore it is our view that all aspects of social security and education, 
culture etc. should be governed by the public sector. In addition large parts 
of the provision of infrastruc-ture - roads, railroads, school transportation 
services, etc. - as well as public utilities - elec-tricity, water, gas etc. - 
and network sectors like telecommunication and mail services should belong to 
the public space in the sense that they are regulated by political discussions 
and decisions and not by the pursuit of private profit. Public regulation 
should also be largely ex-tended to the pharmaceutical sector, and other areas 
which are basic suppliers to the direct public providers of health and care 

The draft constitution opens (in Article III-6) a perspective for European laws 
with regard to services of general economic interest. This perspective should 
be taken up in three ways. Firstly a very broad interpretation of services of 
general economic interest should be applied so as to include the public space 
mentioned above. Secondly a European law should provide that certain areas of 
social life, mainly those mentioned above should belong to the area of public 
interest and should not be submitted to the rules of competition. Thirdly the 
same law shall under the principle of subsidiarity allow member states to make 
further exemptions ac-cording to national, regional and local traditions and 

5. Broad Economic Policy Guidelines and Labour Market Policies

We have at many occasions criticized  the Broad Economic Policy Guidelines 
(BEPGs) and the European Employment Strategy (EES) for the following main 
reasons :
Firstly it is not acceptable that the EES is clearly subordinated to the BEPGs 
instead of having the same weight and importance for a European strategy to 
enhance economic development and welfare.
Secondly neither the BEPGs nor the EES contain a genuine and explicit 
macroeconomic em-ployment strategy. Instead it is assumed that the opening up 
of markets, wage moderation and higher flexibility and adaptability of the 
labour force would automatically lead to more growth and employment. This 
assumption is false for theoretical reasons and it has been re-futed by the 
factual developments.
Thirdly the BEPGs and the EES contain in varying degrees authoritarian and 
disciplinary elements which would, if realized, deteriorate the situation for 
the weakest parts of society. 

This critique remains valid also with regard to the recent streamlining of the 
BEPGs and the EES. On the other hand, certain changes pertaining to the shape 
and the content of both con-ceptions can be observed, some of which are to be 

The Broad Economic Policy Guidelines (BEPGs) 2003-2005 
The Commission's Recommendation with regard to the BEPGs for the 2003-2005 
period was endorsed by the Thessaloniki European Council in June 2003. They are 
considerably more comprehensive than previous BEPGs in two respects: For the 
first time they cover a three-year-period, and they represent an attempt to 
provide a comprehensive, consistent and more balanced  policy framework, built 
around the central policy objectives set by the Lisbon Agenda.  To this effect, 
23 guidelines are specified.  These are divided into 3 groups:
Ž       Macroeconomic or short-term policies (3 guidelines);
Ž       Structural or medium-term policies  (11 guidelines); and
Ž       Sustainability or long-term policies (9 guidelines).
Furthermore, the Report contains a special section devoted to the Euro area.  
Four policy guidelines are recommended in this respect, in response to what are 
seen as the "central chal-lenges" for the 12 countries which have joined the 
Economic and Monetary Union.  On the other hand, no special reference is made 
to the particular problems of the new EU member-states. For the Commission it 
seems sufficient to deal with these problems in the 2004 up-grade of the 
present guidelines. In our view this is highly inadequate. 
As far as forecasts are concerned, for the first time since the beginning of 
the current reces-sion the Commission not only acknowledges the problem, but it 
also takes a guarded view with regard to future developments.  Having noted, 
for the second year running, that "eco-nomic growth has turned out to be 
significantly weaker than anticipated" (BEPG 2003-05: p.4), the Commission then 
goes on to predict 'sluggish' growth for 2003, picking up only to-wards the end 
of the year, if at all.  No predictions are made regarding the rest of the 
3-year period.
With regard to the Euro area, the economic slowdown is rather obscurely 
attributed to its "low rate of potential growth, which limits the scope for a 
sustainable high rate of economic growth" (p. 14).  In addition, this is taken 
to be the result of weak domestic demand, the re-vival of which however does 
not figure in any significant way amongst the Commission's recommendations.  
Such recommendations pertain to 3 policy areas: macroeconomic policy mix,  
inflation differences between Eurozone member-states and policy co-ordination.
Contrary to the aspirations of the Commission the new BEPGs do not represent a 
more bal-anced approach to the economic and social problems of the Union by 
comparison to the pre-vious BEPGs. They remain   characterized by a strong 
asymmetry between the economic as-pects of policy on the one hand and the 
social and environmental ones, on the other. In par-ticular, "confidence" 
appears to be a key concept, directly related to the need to secure a stable 
environment, fostering investment and therefore growth. According to this 
linear type of ar-gument, business and consumer confidence constitute 
significant determinants of policy. This concern leads to a constant 
preoccupation with price stability and that, in turn, to the recom-mendation 
that wages adjust downwards, as productivity falls. The downward adjustment of 
wages is further deemed necessary for employment to increase.  Lastly, 
long-term sustainabil-ity is linked to the so-called "impact of ageing", which 
is expected to exert "increasing pres-sure on public finances" (p. 10).  Hence, 
the need for the reform - i.e. downsizing and privati-zation - of pension 
systems appears to be more or less unquestionable.
On the other hand, the social aspect of policy is explicitly mentioned only in 
relation to the long-run.  In this respect, the main concern seems to be about 
poverty and social exclusion, linked to unskilled and low-skilled workers and 
to less-developed regions.  The relevant guidelines are however very general in 
nature, as no specific thresholds or measures are pre-sented.  Thus, what 
constitutes an "adequate level of social protection", how this is to be 
fi-nanced, or what kind of public support should be given to regions lagging 
behind are some of the issues left unspecified.
In particular, no reference is made to the gender mainstreaming issue, i.e. a 
strategy that aims to make gender equality, a regular part of the mainstream 
policy process. Underlying the con-cept of mainstreaming is a recognition that 
women and men do not have the same situations, needs and resources and that 
these differences can affect the way in which women and men can access 
everything from labour market participation to public services. A further 
implicit acknowledgement is that while real gains have been made in terms of 
legislation outlawing gender discrimination, the achievement of equality 
requires a shift or transformation in the policy-making process, recognising 
how gender as a factor structures opportunities and ac-cess. By taking account 
of the different needs and situations of women and men, policy-makers can 
ensure better policy targeting, more effective delivery and greater equality. 

The recommendations made in relation to environmental sustainability are 
equally general in nature, although they are expressed in largely, if not 
exclusively, market terms.

Overall, the 2003-2005 BEPGs attempt to develop a more comprehensive approach 
to policy formulation remains unsatisfactory. On the one hand the recognition 
that social and environ-mental sustainability issues should be included in 
policy formulation on the same footing as economic sustainability ones is 
significant from the point of view of a more balanced ap-proach.  On the other 
hand, the prevalent considerations are still economic in nature, defined in 
market terms and oriented towards stability, to be obtained mainly through 
greater labor market flexibility.  Furthermore, the concern with social 
sustainability is not accompanied by any social norms or thresholds to make it 
practicable, or funds to support it.  In this sense, the mid-term plan of 
action outlined by the BEPGs has many loose ends, while economic 
consid-erations clearly prevail in terms of policy formulation, issues 
discussed, objectives pursued and means proposed for their implementation.   

European Employment Strategy (EES) 
For five years the European Union has been involved in the labour market 
policies of member states through the working of the "European Employment 
Strategy" (EES). The EES leaves competence for policy in the hands of the 
member states but interrogates and seeks to coordi-nate national policies by an 
iterative process: each year policies are examined at EU level; recommendations 
for improvements are made in the form of "National Action Plans" (NAPs); member 
governments are required to report back and the cycle is then repeated. This is 
a key example of what has become known as the "open method of coordination". 

Coordination objectives are expressed in various targets for the EU labour 
market as a whole, as well as for individual countries. These targets centre on 
overall employment rates but also include employment rate targets for women and 
other groups and for the levels of intervention in support of the unemployed. 
Several dimensions of labour market policy are included - such as employment 
regulation, job placement services, the interaction of employment and social 
protection regimes. However, a great deal of emphasis has been placed on 
"active employ-ment measures", the engagement of the unemployed in work 
experience, subsidised employ-ment, training courses and so on.

The open method of coordination is intended to build up a policy community in 
which deci-sion-makers, social partners and experts from different countries 
interact in order to improve the design and the efficiency of labour market 
policies. The EES is seen here as a model which might be extended to other 
domains, achieving greater coherence and greater success in various policy 
fields even when these remain under member state control.

Five years after the launch of the EES in 1997, the Commission undertook a 
comprehensive review which has led to certain changes both in its objectives 
and in its procedures. From now on there is supposed to be more emphasis on the 
implementation of national action plans, which will only be subject to basic 
revision every three years. The number of recommenda-tions is to be reduced, 
with 18 guidelines being replaced by 10. The quantitative targets asso-ciated 
with the EES have been reformulated.

The first basic point to make about the EES is that it is misnamed. This is by 
no means an "employment" strategy; it is concerned only with employment and 
labour market regulation. Only on the untenable assumption that Europe's 
unemployment is entirely due to labour sup-ply problems, to "rigidities" and so 
on, could this series of measures be described as an em-ployment strategy. 
Similarly, the assessment made of the strategy in the five year review is 
deeply unrealistic; a decline in unemployment and a rise in employment over 
these years is, in complete disregard of macroeconomic realities, attributed to 
"structural" improvements in the functioning of la-bour markets. In fact, it 
was the partial recovery of aggregate demand over these years which improved 
the employment situation, just as the current economic slowdown puts all these 
improvements at risk. The appeal to the concept of a NAIRU (non-accelerating 
inflation rate of unemployment), a kind of equilibrium level of unemployment 
supposedly brought down by supply-side reforms, rests on completely 
unconvincing empirical foundations since, in statis-tical terms, the NAIRU is 
little more than a moving average of actual unemployment rates.

From the start the EES has involved intense conflicts and major differences of 
interpretation. Some member state governments, notably that of Britain, 
supported by most employers' rep-resentatives and by economic policy-makers in 
the Commission, have favoured a regressive approach to labour market reform, 
where the basic objective is to tighten both administrative and market 
disciplines on the most vulnerable workers and to promote employment on the 
basis of lower labour standards, increased job insecurity and widening wage 
inequalities. Such views seem to have been particularly influential when the 
EES was launched at the Lux-embourg summit of 1997 in the wake of Labour's 
electoral victory in Britain.

These approaches have been resisted by trade union representatives, by 
governments such as those of the Scandinavian countries concerned to raise 
labour standards and by forces in the Commission and the European Parliament 
determined to enhance the concept of social Europe. The outcome is that the EES 
is marked by deep ambiguities. Some of the targets it has promulgated are to be 
welcomed. These include the improvement of child care provision in order to 
reduce gender inequalities in the labour market and many of the measures 
pro-posed to secure a better integration of immigrant workers into mainstream 
employment. In other areas the language of the EES is so ambivalent that the 
strategy cannot be assessed without a detailed investigation of the actual 
policy practice with which it is associated. An example is provided by the 
employment targets themselves. An increase in labour market participation rates 
is not in itself an unqualified good, independent of the ways in which 
par-ticipation is promoted or of the quality of the employment which is 
achieved. Participation promoted by reduced levels of social protection, by 
tighter eligibility rules for unemployment indemnities or by the sacrifice of 
established working conditions represents a threat to Euro-pean social models. 
Similarly, while it is highly desirable to prevent labour market discrimination 
against older workers, the reduction of pension entitlements for less qualified 
workers can only increase social inequalities, especially in the light of the 
major differences in life expectancy between more and less advantaged workers.

In all these areas the EES can be interpreted in completely opposite ways. The 
same applies to "labour market activation". According to some of the US models 
which have inspired the British government, activation is essentially a method 
of social discipline, or even social pun-ishment - placing huge pressures, for 
instance, on single parents for whom social protection is curtailed. In the 
Nordic countries, by contrast, activation measures, although they certainly 
involve certain disciplines, are essentially solidary interventions in favour 
of disadvantaged groups.

In the conflicts over the content of the EES, progressive reforms and the 
pursuit of social jus-tice are held back by the fact that a dense policy 
community, involving interactions and de-bates among all the parties involved 
has not yet developed. The coordination process in prac-tice has been little 
more than an interchange between each national government and the Commission, 
and even this interchange has been distorted by the subordination of NAPs and 
employment guidelines to the neo-liberal priorities of the BEPGs. 

Nevertheless, the recent review of the EES has led to significant improvements 
- for example, in a stronger emphasis on the quality of jobs and on the 
involvement of social partners in la-bour market policy. Although the EES has 
not yet had a major impact on actual labour market practice, it is, quite 
rightly, regarded as potentially of great significance by employers and trade 
unions alike.

In our view, the strategy should be developed in two complementary ways. As 
regards its pro-cedures, it is necessary to make the strategy more democratic 
by a much wider involvement of social actors and by promoting a genuine 
European debate within which those countries with highly developed social 
models can increase their influence. In terms of its content, the EES can 
evolve by removing any possibility of regressive or inegalitarian 
interpretations of its ob-jectives and by making a much more explicit 
commitment to high labour standards and ad-vanced social policies.        
To: European Economists for an Alternative Economic Policy in Europe

Declaration of support

I support the general direction and main arguments and proposals in the 
Memorandum 2003:
Full Employment, Welfare and a Strong Public Sector
- Democratic Challenges in a Wider Union -

        Yes     No                      

Name: _______________________________________________________   
Street: _______________________________________________________ 
City/Country: _________________________________________________                 
Phone/Fax: ___________________________________________________                  
e-mail: _______________________________________________________

Signature: ________________________                             

I would like to be informed about the regular work of the working group and be 
invited to their meetings.

        Yes     No

Please return this form as soon as possible - not later than 30th November 2003 
- by fax or e-mail to: Prof. Dr. Jörg Huffschmid, fax: +49-421-218-4597,  
e-mail:Huffschmid@ewig.uni-bremen.de or Jacqueline Runje, fax: 
+49-421-218-4597, e-mail:jrunje@ewig.uni-bremen.de .

        Ministerial Counselor Dr. Arno TAUSCH,
        Associate Visiting Professor 
        of Political Science at Innsbruck University

        Department of European and International Affairs 
        Federal Ministry of Social Security, Generations and Consumer 
        A-1010 Vienna, Stubenring 1 
        Republic of Austria

        Tel. (++ 43 - 1) 711 - 00 - 2272; Facs. (++ 43 - 1) 711 - 00 - 6591 
        e-mail: Arno.Tausch@BMSG.gv.at

        website: http://www.bmsg.gv.at

        Austrian Foreign Policy: http://www.bmaa.gv.at

        personal academic websites: 

        (Innsbruck University, Austria)

        (MyLITsearch, Canada)

 (Global Development Network, IDS Sussex)

        Bank account: 

        IBAN AT826000000079526065 at PSK/BAWAG, BLZ 60000 (EU BIC code: 

        recent articles in scholary and political journals

        *Alternatives. Turkish Journal of International Relations (Istanbul) 
        *Collections. The Polish Institute for International Affairs (Warsaw) 
        *Die Zukunft (Vienna) 
        *Evropa (Polish Institute for International Affairs, Warsaw; in Russian 
        *International. Die Zeitschrift fuer Internationale Politik (Vienna) 
        *Oesterreichische Monatshefte (Vienna) 
        *Wiener Zeitung (Vienna)

        Recently published books: 

        1) (Editor) The Three Pillars of Wisdom? A Reader on Globalization, 
World Bank Pension Models and Welfare Society. Hauppage, New York: Nova Science 
Publishers. Contributors: John Turner, Robert Holzmann, Franz Rothenbacher, 
Jeja Pekka Roos, Walter Cadette, Goran Normann, Daniel J. Mitchell, Martin 
Rein, Gemma Abio, Joan Gil, Concepcio Pattxot, Gerhard Buczolich, Bernhard 
Felderer, Reinhard Koman, Andreas Ulrich Schuh, Eva Belabed, Stephen J. Kay, 
Syed Mansoob Murshed, Gordon Laxer, Frank Stilwell, Ted Wheelwright, Kunibert 
Raffer, Arno Tausch, The Twelve Theses of New Delhi. ISBN 1-59033-327-41. 
Amazon: 69 $; 59.29 $ (3 copies); classroom discounts: up to 40 % from the 

        2) (Contributor) The European Union. Global Challenge or Global 
Governance? 14 World Systems Hypotheses and Two Scenarios on the future of the 
Union. In: Gernot Kohler and Emilio Jose Chaves (Editors) 'Globalization: 
Critical Perspectives' Hauppauge, New York: Nova Science Publishers. Other 
contributions: Samir Amin, Immanuel Wallerstein, Christopher K. Chase Dunn, 
Kimmo Kiljunen, Arno Tausch, Patrick Bond, Petros Haritatos, Andre Gunder 
Frank, Ernesto Gantman, Robert J. S. Ross, Sadik Unay, Hardy Hanappi, Edeltraud 
Hanappi-Egger, Emilio J. Chaves, Gernot Kohler. ISBN 1-59033-346-2. Amazon: 69 
$; classroom discounts: up to 40 % from the publishers

        now available from major Internet book sellers like:


        Books in stock

        at Blackwell:

        Towards a Socio-Liberal Theory of World Development. Saint Martin's 
Press New York and Palgrave/Macmillan, London, ISBN 0312062109. 49.31 British 

        at Amazon and Barnes & Noble:

        (Editor, with Andreas Muller OFM and Paul Michael Zulehner; Eds.) 
Global capitalism, liberation theology and the social sciences: an analysis of 
the contradictions of modernity at the turn of the millenium. Nova Science 
Publishers, 2000; paperback. Essays by Samir Amin, Jung Mo Sung, Alberto da 
Silva Moreira, Krystyna Tausch, Andreas Muller, Steffen Flechsig, Arno Tausch, 
Syed Mansoob Murshed, Kunibert Raffer, Severin Renoldner, Robert J. Ross, Paul 
M. Zulehner, Luis Zambrano. ISBN 1-56072-6792. Amazon: 84 $, 3 copies at 44,61 
$. Classroom discounts: up to 40 % from the publishers

        (with Peter Herrmann, Eds.) Globalization and European integration. 
Nova Science Publishers, 2001. ISBN 1-56072-9295. Amazon: 59 $, 3 copies at 
40,16 $. Classroom discounts: up to 40 % from the publishers. 

        (with Gernot Kohler, Eds.) Global Keynesianism: unequal exchange and 
global exploitation. Nova Science Publishers, 2002. Amazon: 69 $, 4 copies at 
34,99 $. Classroom discounts: up to 40 % from the publishers. ISBN 1-59033-0021 


        (with Peter Herrmann, Eds.) Dar al Islam. The Mediterranean, the world 
system and the "wider EUrope". Nova Science Publishers, 2004. With 
contributions by Samir Amin, Syed M. Ahsan, Pat Cox, Andre Gunder Frank, Johan 
Galtung, Peter Herrmann, Gernot Kohler, Victor Krassilchtchikov, Rabbi Michael 
Lerner, Syed Mansoob Murshed, Hans-Heinrich Nolte, John R. Oneal, Kunibert 
Raffer, Bruce Russett, Clara Mira Salama, David Skidmore, Arno Tausch, The 
First Declaration of Alexandria, Alfred Tovias, and Patrick Ziltener


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