At high-level gatherings of the European Union elite, oneoften hears the following type of statement: “Europe must integrate andcentralize economic governance in order to defend its social model in an age ofglobalization.” European Commission President José Manuel Barroso and hiscounterpart at the European Council, Herman van Rompuy, are particularly keenon this argument.
But the claim that only deeper EU integration can save the“European” social model from the onslaught of emerging markets is not true.Yes, globalization represents a challenge to all EU member states; but it isnot clear how more integration would help them to confront it. More Europeaneconomic governance is not a panacea.
In fact, it is not even clear which European social modelneeds to be saved. There are enormous differences among EU members in terms ofthe size of their public sectors, the flexibility of their labor markets, andalmost any socio-economic indicator that one can think of. The common elementsthat are usually identified with the “European” social model are a quest forequality and a strong welfare state.
But neither of the main problems confronting Europe’ssocial-security systems – slow economic growth and aging populations (afunction of low fertility) – can be addressed at the European level. This isobvious for fertility, which is determined by deeper social and demographictrends that cannot really be influenced by government action. And, while agingcould be transformed into an opportunity if the elderly could be made moreproductive, this requires action at the national and societal levels, not moreEuropean integration.
It is understandable that European leaders talk so muchabout globalization, given that the European economy is rather open for itssize, with exports amounting to about 20% of GDP, compared to just 12% in theUS. The (re-)emergence of big economies like China is thus bound to have agreater impact on Europe than on the US.
Economists long ago recognized that it is theoreticallypossible that the emergence of new growth poles abroad does more harm than goodto an economy. This can happen if the new economic powers are more important ascompetitors than they are as customers. But this does not seem to be the case,even with respect to China. The EU does have a bilateral trade deficit withChina, but it also exports a lot to the Chinese market – much more than the USdoes.
More important, even if one accepts the view thatglobalization constitutes a threat to Europe’s social model, there is littlescope for further integration, given that trade policy is already fully unifiedat the EU level. In any case, the EU has generally contributed constructivelyto all major rounds of global trade liberalization.
With the EU helping to keep global markets open, Europeanexports have held up rather well, with the EU maintaining its market share.Although it has lost ground relative to the emerging markets (especiallyChina), it has far outperformed other developed economies like the US andJapan. This is true even in services, despite slow productivity growth inEurope. It is thus wrong to assume that economies based on cheap labor aremassively outcompeting the EU. Moreover, thisrelatively good trade performance has been achieved with a much lower increasein wage inequality in Europe than in the US.
The various European social models have thus been, onaverage, quite robust – most likely because of the absence of a master planfrom Brussels on how to respond to globalization.  Each member country hashad to adapt in its own way, knowing that it could not bend the rules of thegame in its own favor. Not all succeeded; but the successes (Germany, forexample) far outweigh the failures (see Greece).
The key to ensuring the future of Europe’s social-securitysystems, and thus its social model, is faster growth. And, again, it isdifficult to see how more Europe would improve the situation. The obstacles togrowth are well known, and have existed for a long time without being removed.The reason is quite simple: if there were a politically easy way to generategrowth, it would have been implemented already.
Moreover, most national policymakers have a tendency toblame “Brussels” for all of their difficult choices, thus creating theimpression at home that the economy would improve if economic affairs could bemanaged without EU interference. More integration is preached at the Europeanlevel, but implicitly portrayed at home as an obstacle to growth.
This double-speak on thepart of national political elites is perceived as such by voters, whose trustin both national and EU institutions is naturally declining. The claim thatEurope needs more integration to save its social model has long lostcredibility. Integration is irrelevant to that question, and, in those areaswhere deeper integration really would benefit Europe, it appears to be the lastthing that national leaders want.