EMU: The Social Dimension

John Morley,
Advisor to Director General DG-V, European Commission
(Employment, Industrial Relations and Social Affairs)

Most of the debate on European Monetary Union has concentrated on economic issues. However, since its foundation the European Union has always had a strong social dimension. The coming of the euro at the beginning of 1999 will not change this.

The biggest fear that many have of Monetary Union is that it will worsen Europe?s unemployment situation. Certainly, when compared to the performance of the United States since 1970, Europe has had less success in generating new jobs in recent years. With the exception of a strong spell of job creation between 1984 and 1990 Europe has found it difficult to match the United States when it comes to creating new jobs.

However, while relative rates of employment creation are an important factor when comparing Europe?s economic performance with that of the United States, it is important not to ignore other matters. Even more importantly, past job creation performance is not necessarily the best indicator of future performance.

The extent to which the European economy has changed in recent years has often not been fully understood. Increasingly the EU must be seen as one economy rather than as a collection of national economies. The coming of the euro will hasten this move towards considering Europe as a single market for goods and services.

Whereas most individual EU Member States have a high dependence on exports ranging from 75% of GDP in the case of Ireland, 54% in the case of the Netherlands, 41% for Sweden, 28% for the UK, 27% for Italy, 24% for France and 23% for Germany, most of those exports are of course to other Member States. A totally different picture emerges when one analyses the EU as a whole. Total EU exports represent just 8% of its GDP.

The progress which the EU has made towards preparing for a single market with a single currency has often been under-estimated. While US real unit labour costs have remained virtually unchanged since 1980 and Japanese real unit labour costs have declined by less than 5%, the improvement in the competitiveness of EU labour costs has been far more dramatic with EU real unit labour costs declining by 14% over the same period.

In recent decades Europe has put in place far higher levels of social protection than the United States. Indeed Europe?s economic success has been largely built on these social foundations.

Comparing one EU Member State, Sweden, with the United States gives some idea of the different social policies pursued on opposite sides of the Atlantic. In fact the percentage of total private household expenditure spent on social protection (health, education, pensions, unemployment payments etc) was broadly similar in both countries (41.2% in Sweden and 39.6% in the United States). However, the manner in which such social protection was funded was radically different. While taxes paid for 89% of Swedish social protection spending with just over 10% of it being privately funded, the situation in the United States was almost the exact opposite with taxes paying for just 26% of social protection and 74% being privately funded.

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