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Discontent despite the rebound

Despite buoyant growth rates in all the major European Union countries, popular suspicion seems to be persisting over the plans to reform the entrenched European welfare model which contrasts with the market-oriented Anglo-American model. This is clear from the proposed reversal of key labour market policies in the EU’s biggest economy, Germany. The Social Democratic Party (SDP), the junior partner in the ruling grand coalition, is spearheading a move to turn around the course it had earlier charted in alliance with the Greens to establish a regime of incentives to work, a key element being caps on welfare benefits. It now wants unemployment doles for people over 45 years to be doubled. Chancellor Angela Merkel’s Christian Democratic Union (CDU), which fought the 2005 election on a more radical reform platform, has likewise finalised a deal on minimum wages in the postal sector and parental allowance for child-rearing professionals besides inducements to boost spending. Given the general unpopularity of economic reforms and the emerging cross-party consensus over the roll back, the SDP’s proposals are expected to be made into law soon. Moreover, next year’s regional polls and the 2009 elections to Parliament are sure to weigh in with the decision, as the SDP’s defeat and the CDU’s failure to win a clear majority in the previous elections have been widely interpreted as the price extracted by the painful reforms.

Developments in Germany can be expected to lend political muscle to governments in France and Italy that have decided to put off the 2010 EU deadline for balancing their budgets. The new centre-right government in Paris has unveiled plans to trim the five-million-strong civil service, relax labour contracts, and rationalise pension schemes. President Nicolas Sarkozy has already cushioned his administration against extreme curbs on expenditure by announcing that France would put off by two years the deadline for reducing public deficit to below three per cent of the GDP. Italy’s centre-left coalition has been forced to proceed cautiously towards the threefold objective of reducing public debt, reform of the expensive public sector, and restoring the country’s global competitiveness. The implementation of reforms in the EU’s biggest economies, given their sheer size and political complexity, is a project of vastly different dimensions compared with the transformation seen in the past decade in the smaller Nordic countries of northern Europe. These differences would have to be factored in adequately in the formulation of common EU policies and objectives if integration is to remain a politically sustainable goal.

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