Restoring popular support for integration in the EU

By: Daniel Gros (CEPS) and Stefano Micossi (Assonime)

Across the European Union, fears about globalization 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 EU’s inability to meet the challenges of integration is due to rigid economic structures and inadequate human capital – weaknesses that according to conventional wisdom can only be tackled by national policies, with little role for the  Union and common policies. On the contrary, substantial policy spillovers across the EU justify strengthened policy coordination for labor-market, immigration 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Outdated labor-market rules are the key reason why the full benefits of the internal market and monetary union have failed to materialize – above all in France, Germany, and Italy. 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 good involved in fostering national policies that are consistent with integration in the internal market. With its policy commitments, the European Council could foster adoption of the right polices.

 

The critical ingredient of reform is terminating dual labor market arrangements whereby some workers have social security and pension rights and cannot be fired, and others enjoy no protection. The key to overcoming resistance to reform is to give workers whose jobs are at risk grounds to hope that they can find a new job through paid retraining and active labor market polices, as successfully tried in Nordic EU countries. The relaxation of employment protection should be accompanied by the establishment everywhere of a minimum wage – determined as a proportion of the statutory wage for regular long-term employment. With such a comprehensive policy package, resistance to change is likely to 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. Policy coordination can provide effective remedies to these negative spillovers. First, the old member states should immediately lift remaining restrictions on the freedom of movement for workers from new member countries, and the minimum wage should also apply to immigrant workers, mitigating “unfair” competition for low-skilled jobs. And, second,  the EU should adopt a rigorous common policy to admit migrants from third countries that should include  a “point system” for selecting applicants for residence and work permits – assigning each applicant a score based on objective criteria, typically including language ability, education, and experience, as successfully tried in Australia, New Zealand, and Switzerland. Thus, equal rights within the EU would go along with reduced flows of unskilled immigrants.

 

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.

 

Daniel Gros is Director of the Centre for Economic Policy Studies, Brussels, and Stefano Micossi is Director General of Assonime, a business association and think tank in Rome, and a former Director General for Industry at the European Commission.

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