by Daniel Gros and Stefano Micossi
Across the European Union, fears about globalization and antipathy to
integration and immigration have produced massive political fallout,
including the failed French and Dutch referenda on the Union""s draft
constitutional treaty and a de facto moratorium on accession talks
with
Turkey. The European Council and the Commission have watched helplessly, as
if the matter was not in their hands.
by Daniel Gros and Stefano Micossi
Across the European Union, fears about globalization and antipathy to
integration and immigration have produced massive political fallout,
including the failed French and Dutch referenda on the Union""s draft
constitutional treaty and a de facto moratorium on accession talks with
Turkey. The European Council and the Commission have watched helplessly, as
if the matter was not in their hands.
Conventional wisdom suggests that the EU""s inability to meet the challenges
of integration is due to rigid economic structures and inadequate human
capital - weaknesses that can only be tackled effectively by national
policies, where the Union has little role to play. But substantial policy
spillover across the EU justifies strengthened policy coordination for
labor-market and welfare reform.
Outdated labor-market rules are the key reason why the full benefits of the
internal market and monetary union have failed to materialize. Labor-market
rigidities - above all in France, Germany, and Italy - impede adjustment to
the increased competition of integrating markets. Those who lose their jobs
cannot find new ones because of barriers to entry, while high long-term
unemployment makes those who do have jobs feel threatened. Viewing
immigrants and internal market integration with alarm, both groups thus have
increasingly turned against Europe.
If they cannot reform, France or Italy eventually may be tempted to renege
on free movement of goods, services and labor - and perhaps even abandon the
euro - with disruptive consequences for all members. Therefore, there is a
common interest in fostering national policies that are consistent with
integration in the internal market.
The benefits of coordination are likely to be reinforced by policy
"learning," as confirmed by evidence that reforms tend to spread in waves.
Structural reforms are usually resisted because of uncertainty about the
costs and their distribution. One way to weaken this resistance is to
involve not only ministers and heads of government in exchanging information
on policy design, but also those who resist change, notably trade unions.
After all, a clear message by the European Council would have a much
stronger effect if it expressed not only the wishes of heads of governments,
but also broad acceptance at all levels of society. Only then can one hope
for full implementation of reforms and the virtuous circle of improved
expectations and economic performance that should have been set in motion by
the European Council""s Lisbon summit seven years ago.
The experience of successful reform in the Anglo-Saxon and Nordic countries
shows that Europe need not be condemned to stagnation, provided that it
renounces rigid employment protection. The key to overcoming resistance is
to give affected workers grounds to hope that they can find a new job. The
European Council might also recommend that any relaxation of employment
protection be accompanied by the establishment of a minimum wage -
determined as an agreed proportion of the statutory wage for regular
long-term employment. With such a comprehensive policy package, resistance
to change would likely diminish.
Immigration poses even greater policy challenges, since newcomers are widely
perceived as threatening jobs and crowding out natives from social services.
There is ample evidence that restrictions on immigration in one country
divert migrant flows to other EU countries, and that migration is attracted
by generous welfare entitlements. Moreover, well-functioning labor markets
attract migrants with higher qualifications, while countries with rigid
employment protection are targeted by the low-skilled and those willing to
work illegally. Labor migration also presents challenges for source
countries, for it diminishes their pool of young and educated workers.
Policy coordination can provide effective remedies to these negative
spillovers. Two measures would be particularly useful. First, the old member
states should immediately lift remaining restrictions on the freedom of
movement for workers from new member countries. Any minimum wage would
automatically also apply to immigrant workers, mitigating "unfair"
competition for low-skilled jobs.
Second, the EU should enact a common scheme for admission of immigrant
workers from outside the Union. Such a scheme should include a "point
system" for selecting applicants for residence and work permits, which would
assign each applicant a score based on objective criteria, typically
including language ability, education, and experience. This approach has
been successfully implemented in Australia, New Zealand, and Switzerland;
Germany and Great Britain are following suit.
By establishing a common "welfare floor" throughout the EU, providing an
effective safety net to native workers whose jobs are threatened by
integration, and adopting a coordinated policy on immigration, European
citizens would be reassured. This, in turn, might reduce their hostility to
migrant workers while offering migrants an equitable and fair legal
framework.
These labor-market and immigration policies should become the focus of
policy coordination within the EU. By concentrating on policies to sustain
integration while at the same preserving the European social model, the
European Council would again become a relevant policy forum where the real
needs and hopes of citizens could find effective responses.
Copyright: Project Syndicate, 2007.
www.project-syndicate.org
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| Daniel Gros |
| StefanoMicossi |
Daniel Gros is Director of the Centre for Economic Policy Studies,
Brussels. Stefano Micossi is Director General of Assonime, a business
association and think tank in Rome, and a former Director General for
Industry in the European Commission.
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