Interview with Arnaud Lechevalier on ordoliberalism and his new book "Social Europe: a Dead End"

Artikel
Forschungsgebiete: 
Sozialstaat
Autor_innen: 
Arnaud Lechevalier
Heike Wieters
Dominique Gareis

Interview with Arnaud Lechevalier (Maitre de Conferences, Université Paris 1 Panthéon-Sorbonne, researcher at the Laboratoire Interdisciplinaire pour la Sociologie Economique, CNAM-CNRS and at the Centre Marc Bloch, co-author (with Jan Wielgohs, Europa University Viadrina) of the edited volume Social Europe: A Dead End. What the Eurozone Crisis is doing to Europe’s Social Dimension, on social Europe, the eurozone crisis and the role of German ordoliberalism in it. Conducted by Dominique Gareis & Heike Wieters.

 

HW & DG: Thank you for agreeing to talk to us about your latest book. It is a very interesting read and one of the most comprehensive ones on the social crisis in Europe to date. First of all: What is it you talk about exactly, when you talk about Social Europe? And why has this Social Europe reached a dead end?

AL: We use a precise definition. Social Europe is understood in our book as the direct and indirect consequences of the European integration on social protection and employment systems, on the social cohesion of the EU as a whole and, ultimately, on the well-being of the European citizens. The direct consequences are due to EU activities in the area of social, redistribution and employment policy: legislation, jurisprudence of the EU Court of Justice, “soft law” and redistributive policy (social or structural funds). The indirect consequences are bound to the effect of the EU economic integration through the single market or the governance of the Economic and Monetary Union. In sum, Social Europe is understood not only through the activity of the EU in its – rather limited – field of competences in the social area, but as the social consequences of European integration.

In 2008, Jean-Claude Barbier wrote a book with the title “A long road to social Europe”. Because of the eurozone crisis and its current management, this road appears now to be a dead-end. The crisis of the eurozone has not simply been an economic recession and sovereign debt crisis that can be overcome by fiscal measures and more effective monitoring of national fiscal policies. The collapse of financial markets, which happened 2007-2008 in the United States, has become the worst social crisis ever experienced by several member states of the European Economic and Monetary Union (EMU). On average, unemployment has reached record heights, whereas employment has so far remained under its pre-crisis level, although it has started to rise again since a ???? few months in most countries. Poverty and exclusion have reached unprecedentedly high levels on average, especially in the most highly affected countries. Yet the picture varies depending on the country concerned, and the diversity of social situations among the member states of the Eurozone has been increasing since the onset of the crisis. Crisis management has also widened income and wealth inequalities. As several studies indicate, the convergence process among EU member states, which had begun after Southern European countries had joined the European Community and the Eastern enlargement of 2004/2007, was interrupted and even reversed during the crisis years. A downward spiral of the social dimension of European integration is at work that will have long-lasting effects, also in terms of weaker economic growth and social cohesion. As shown by Jean-Claude Barbier (Sociologist, Centre d’Economie de la Sorbonne) in his contribution to the book, the eurocrisis has become a crisis of legitimacy for the EU. euro-sceptic positions or neo-sovereignist forces have gained tremendous political influence. This has come at an unfortunate time, as the EU is now facing new major challenges to its social cohesion, first and foremost the current wave of migration from third countries. Our edited volume aims at exploring the processes and driving forces at the root of this downward spiral in a comprehensive and interdisciplinary way and at analysing the main lessons which can be learned from the eurozone crisis for the future of Social Europe.

HW & DG: In your essay „Eucken under the Pillow“, you give a broad and detailed account of the development and present state of the German ordoliberal school of thought. To what extent can Ordoliberalism be regarded as part of the neoliberal current, and in what aspects do they differ?

AL: The key point in the present context is the influence of ordoliberal school of thought on the treaty of Rome and later on the treaty of Maastricht. In the same way, most responses to the eurocrisis defended by Merkel’s governments have been marked by the “long shadow of the ordoliberalism”, as emphasized by Dullien and Guérot.[1]  I begin  my own text with a citation from Jens Weidmann, the President of the Deutsche Bundesbank, in 2013 (note that it seems him important in the middle of the crisis to give a lecture at the Walter Eucken institute): “The principles of political economy that underlie our economic order and the monetary union are anything but antiquated. They point out how to sustainably overcome the crisis. I recommend to all politicians that they put Eucken’s Grundsätze der Wirtschaftspolitik under their pillow at night”.

Ordoliberalism is indeed an original stream of neoliberalism. Most German ordoliberals (like Eucken or Röpke) were members of the Mont Pélerin society.  Nevertheless, ordoliberalism is a heterogeneous set of ideas. As formulated by Eucken,it  is based on a concept of economic order promoted and monitored by the state, in opposition to both planned economy and laissez-faire. In this respect, ordoliberalism departs from the classical liberal approach, which emphasizes the self regulation of the market and “spontaneous order”. This evoked strong criticism. From the ordoliberal perspective, the state must take the responsibility to organize competitive markets within a policy framework (Ordnungspolitik) that applies and protects key principles. Eucken repeatedly stressed the importance of a “strong state”constrained by a political constitution beyond the reach of social conflict that creates and preserves the competitive order.Thus, the constitutional principles of ordoliberalism mandate that the state sets the institutional framework in which economic activities take place, but that it refrains from driving the economic process itself. In other words, the state sets the the rules of the game(Spielregeln) but does not determine the players’ moves (Spielzüge ). These constitutional principles, in turn, are strengthened by regulatory principles (regulierende Prinzipien) meant to ensure the sustainability of the competitive order. These principles include the regulation of monopolies and cartels, an income policy and corrective measures to mitigate negative external effects. The role of the state consists in intervening each time the economy departs from the preset model or each time deficiencies appear that compromise its functioning. Infringement on the rules of competition must be sanctioned by the state.

In his lecture at the College de France in 1978-79, Michel Foucault’s examination of the genesis and development of ordoliberalism in 20th century Germany laid bare another, less obvious feature of ordoliberalism. In his analysis of ordoliberalism in the context of his work on the change of the forms of governmentality, he demonstrated that market economy as shaped by ordoliberalism serves as an “internal regulatory principle of the state throughout its existence and in all its actions”.[2] In opposition to classical liberalism, for the ordoliberal, competition is not natural and thus ordoliberalism can never hoist the banner of laissez-faire. Indeed, competition requires high vigilance, permanent interventions and regulation of the material, cultural, technical and legal bases of economic activity so as to create an enabling environment for the smooth functioning of the market. For ordoliberals, the functioning of markets is a matter of political engineering.

Beyond the recognition of the state’s role, one other relevant peculiarity of German ordoliberalism’s contribution to neoliberalism was an attempt to resolve what the German ordoliberals themselves conceived as the “social question” (soziale Frage). The socially embedded character of the market economy and the “interdependence between (economic, cultural, societal) orders” (Eucken) explain the attention they paid to the social question. Yet, there is no unified ordoliberal school of thought regarding social policy or more broadly regarding the ‘social market economy’.  Eucken’s position is not perfectly articulated. An early death prevented him from finishing his ”Grundsätze der Wirtschaftspolitik”, in which he also discussed social policy. What is clear, however, is that Eucken does not start with a unified concept of justice. Rather, he conceived social policy within the framework of order. Market processes that adhere to ordoliberal principles are fair, and this explains why the competitive order is so important: Not only because of its efficiency, but also because it offers the optimal solution to the 2soziale Frage“. For Eucken allocation and redistribution are always linked and the competitive order ensures that the formation of income is subject to the right rules of the game. This is the key issue: The ordoliberal state has to intervene not for discernible social ends, but for undistorted competitive relations! Not the redistribution of wealth but the free market is social because it allows the increase of productivity and the trickle-down effect. As Ludwig Erhard summarized, “[t]he concepts ‘free’ and ‘social’ are congruent ...; the freer an economy is the more social it is and the greater will be the macroeconomic utility created”[3]. This statement clearly showcases the approach adopted in the “social program” of the Treaty of Rome, but there is more to it. One of the main features of our book is to show how this approach  has had a decisive – albeit not exclusive – influence on the entire European integration and thus on social Europe.

Following these pathways, the implementation of a community of solidarity has remained impossible. The EU cannot simply use public expenditure from federal programs or organize transfers between the member states. Member states have never provided the EU with the power of raising taxes, which might have enabled the latter to make significant social policy by other means than legal regulation. The EU cannot resolve jurisdictional conflicts between different levels of government by simply outsourcing their costs to third actors, as some federal states have done in the past, e.g. with the creation of social insurance systems. So far, the EU has mainly exercised a regulatory authority through the creation of basic social norms (e.g. in the fields of health, working conditions), directives against discrimination (e.g. nationality, gender) and on the representation of workers (e.g. directive supplementing the statute for a European company). Social dialogue at the EU level has produced some agreements (e.g. on parental leave, part-time work, etc.), yet employers are not conducive to negotiate at this level. Voluntary coordination mechanisms designed to facilitate the diffusion of “good practices” have at best played the role of a “selective amplifier” for neoliberal reforms.

In their comparative analysis of Canada and the EU, Axel van den Berg and Jasen O. Jensen, sociologists at McGill University Montreal, tackle this issue of the relationship between a specific form of federalism and the development of the welfare state within the European context. By doing so, they aim at shedding light on the question what kind of resources and power the central institutions of the EU would need in order to move towards a Social Europe.

HW & DG: Would you regard Germany’s approach to the eurozone crisis as a significant shift in the country’s socio-economic policy, or did the crisis merely act as a catalyst for a development that had already been brought on the way earlier (we are thinking for example of the Schröder administration and its’ “Agenda 2010”)?

AL: Here we are faced with a paradox. Merkel’s governments have tried to export the receipts of the dominant neoliberal ideology in line with the Schröder’s turn with the Agenda 2010 to other member states: cuts in the welfare state expenditures, reforms of the labour market – actually at the margin with the Hartz legislation compared to what’s happened in Greece, Portugal or Spain over the last years – and the improvement of competitiveness through wage moderation and weakening of collective agreement. Yet, in fact, the resilience of the German economy during the “great recession” has little to do with the Hartz legislation. On the contrary, it is the reactivation of the (old) West-German social model with its mechanisms of intern flexibility (work-time flexibility) within the companies, the short-time working allowances scheme (the number of Germany’s short-time workers peaked at 1.5 million in 2009) and a less restrictive stance of the fiscal policy allowed by the fiscal deficit reduction before the crisis, which may explain the good resilience of the German economy. Other factors, which have been at the heart of its good macroeconomic performances since 2006 could be explained by long term institutional complementarities between the political system and a highly redistributive federal system, old and concentrated specializations of the German industry, education and vocational training systems in which companies play a leading role, high level of expenditures for research and development, etc.[4] Yet even if the social market economy model in Germany often has been treated as a direct product of ordoliberalism, in reality it emerged as a compromise with progressive forces. Indeed, many social policy reforms were approved by the German parliament in the 1960s and 1970s against the will of the ordoliberals.

A key problem in the European context is that Germany has managed the crisis of the euro area wanting to export key elements of its economic culture of “stability”, but other member states and the European Union itself lack several institutional complementarities peculiar to German society.

HW & DG: Even though according to the Treaty on the European Union all member states are formally equal, it is beyond dispute that Germany has taken the role of an informal leader in European cisis management, particularly in the Greek case. Is Germany’s role in the management of the Greek crisis only an outcome of ordoliberal ideas and traditions within the circle of German policy makers, or should it rather be described as the result of a strictly nationally defined German economic policy? The latter seems to be the case if you take a look at the privatization of 14 Greek airports –most of them belonging to the few state-owned enterprises in Greece which actually made a profit- to the advantage of the German company Fraport, who’s majority share is held by the state of Hesse and the city of Frankfurt on the Main.

AL: Both are not incompatible. The ordoliberal tradition might also have been used in a strategic manner! The policy response to the eurozone crisis under German leadership could be deemed essentially ordoliberal because its primary aim was to create more restrictive rules for public finance so as to ensure monetary stability and sound financial policy and to encourage greater competition between national spaces of labour allocation. A prerequisite for this competition is the implementation of structural reforms (especially of the labour market and social protection systems) as well as the “internal devaluation” of labour costs (which touches both wages and social benefits) in order to restore competitiveness and correct an imbalance of trade. As explained by Bjorn Hacker, Professor of economic policy, HTW– University of Applied Science Berlin,in his contribution to the book, the responses to the eurozone crisis at the European level in terms of new economic governance of “packs and pacts” has heightened the asymmetry between market-creating and market-correcting policies during the crisis. Indeed, all procedures and packs aim at a “coercive budgetary federation” with an “economic rules-based government” (C. Barbier) by strengthening the Stability and Growth Pact (i.e. Six Pack, Two Pack, Fiscal Treaty) and by tending towards more automatic procedures of surveillance and sanctions, as advocated by the ECB and several member state governments under the leadership of Germany’s. This new governance shows a concentration on budgetary issues and supply-side reform strategies, thereby expressing a “definitive shift of priorities” framed by the new governance of EMU: it has lead toward an even more market-oriented European social model with huge social consequences. Yet, given the limited success of this approach in resolving the main macroeconomic issues, additional measures were taken by the European Central Bank with its “non conventional policy” that has broken with the ordoliberal approach. It led to the resignation of Axel Weber, the former president of the Bundesbank, and then of Jürgen Stark, the German chief economist of the EC, as Cécile Barbier of the European Social Observatory Bruxelles reminds us in the book.

In my contribution I try to review a set of interdependences between international and domestic variables, which help to understand why the responses elaborated at the EU intergovernmental level work mainly in the ordoliberal tradition. The international variables may explain why the German government has been successful in setting most of the terms of crisis management – in spite of the turn of the monetary policy in 2012 – and the kind of national interests it defended in this context. Yet, only the national institutional configuration, cultural frames as well as domestic political constraints and the balance of power specific to Germany are able to explain fully the ordoliberal response to the crisis.

To understand the architecture and rules of European economic governance in its new form, it is important to keep in mind that the management of the crisis has been marked by the rise of the intergovernmental approach, which had begun in the aftermath of the “no” to the Constitutional Treaty in France and the Netherlands and had been incorporated in modifications of the new Treaty of Lisbon. Therefore, the main new features of governance can be traced back to the preferences and discourses of national governments or their leaders and to the compromises between member states, mainly between France and Germany, as stressed by several researches. Nevertheless, the duo “Merkozy” was asymmetric. Moreover Finland, Netherland and Austria as creditor countries were predisposed to align with Germany, whereas France was prone to defend the interests of the countries most exposed to the crisis, albeit within the bounds of its advocacy for the French banking system… Germany is the dominant economic power in the eurozone because the Maastricht founding compromise made the eurozone conform to German monetary doctrine (see above) and because of the performance of the German economy over the last years.

From a historical perspective, crisis bargaining was constrained by the path dependencies of the design of the monetary union. Concretely, solutions to the crisis compatible to institutional path-dependency were much less expansive because there was no need of explicit redistribution of costs among member states. Hence, it is not surprising that supranational delegation and enforcement are to be found “in the area of fiscal discipline, which commits the indebted countries whereas financial assistance and transfers that would commit the solvent countries should remain under intergovernmental control”. The design of the selected solutions generally “matches the preference of Germany, the country with the strongest bargaining power” as pointed out by F. Schimmelfenning. [5] This key role is also due to the economic weight and performance of the German economy in terms of external surplus, GDP growth and “raw” (that is not “full-time equivalent”) employment rate. The economic success achieved in Germany in recent years has provided a new justification for the “ordoliberalization of Europe”, although the reasons behind this performance and its consequences for the imbalances within the eurozone have been hotly discussed. Moreover, Germany’s approach to the Euro crisis has been based on a narrow national interest to defend its position as a global exporter. Undeniably, post-reunification Germany, by recovering its full sovereignty, has more vehemently pursued its national interests as its commitment to European integration has weakened among the post-Kohl generations. Germany has become more eurosceptic and has progressed toward international “normality” in the course of pursuing a more self-confident national policy.

The ordoliberal crisis narrative and responses to the crisis have been used as a strategic resource by Merkel-Schäuble governments to justify their limited room of manoeuvre at the European level and at the same time to satisfy domestic political forces by invoking frames that resonate within the national culture. These frames and ideas have national origins - the way they are produced and the political and cultural constraints they impose are largely determined by nationally specific institutions. The emphasis on a culture of stability has provided a valuable resource for securing Germany’s objectives within the eurozone, but above all, as I try to show in my paper, it also has allowed it to satisfy demands presented to it by domestic politics, institutions, the media and public opinion.

HW & DG: We know that your book is about an analysis and not about giving policy advice for the future, but, if we may, we would still like to ask you if you see any viable alternatives to the development and processes that have driven Europe’s social dimension into a cul de sac. Are there players that offer different interpretations, practices and ideas worth trying? Is there a Social Europe worth supporting beyond or beneath the “official” Social Europe?

AL: Several propositions have been made to change the deal, some of them for a long time. Three categories of them can be distinguished: those which aim at a convergence of social standards, those which claim more financial transfers at the EU level and, finally, those more broadly orientated, which call for a new balance between market freedoms and social rights.

Concerning the first point, for a long time the convergence of social standards (safety net and minimum wage) as a percentage of national median income or average wage between member states has been put forward. At the turn of the century the Commission and more recently the European Parliament have shown some interest, but the proposition has stayed in limbo so far.  The fiscal convergence - mainly on the tax base of corporate tax - has been unsuccessfully put on the agenda for years and the enhanced cooperation procedure on the Tobin tax has remained inconclusive so far, not least because of the reluctance of the French government to increase taxing of its national banking sector…

Regarding the second point, a significant rise of the EU-budget and the reforms of the structural funds have been discussed for years. In 2011 and 2012, at the peak of the crisis, several propositions have been formulated in favour of euro-area sovereign debts that are jointly guaranteed by all member states.  But this debate on Eurobonds was cast aside: according to the ordoliberal tradition, to avoid “moral hazard” behaviours of debtor countries, Merkel’s government has put the principle of liability of states (Haftungsprinzip) at the forefront of crisis management. Therefore it refused to open any perspective for a shared yet limited financial solidarity between member states and privileged the “fiscal compact”. More recently the introduction of a (partial) unemployment insurance at the Eurozone level has been advocated in details by Sebastian Dullien, as well as analysed in some publications of the French minister of Economy and Finance. Yet it has not been seriously discussed at the highest EU-level.

Regarding the third point: as it is well-known, there is a structural asymmetry between negative and positive integration in the EU legal order. Negative integration, aimed at enhancing market efficiency, is linked to the removal of all tariff and non-tariff trade barriers as well as the guarantee of free competition and movement – as explained by Bjorn Hacker in our book. Positive integration concerns all market-correcting interventions (social, fiscal, tax policy). It has remained mainly in the hands of the member states. But they have been more and more hindered to act at the national level because of the four basic freedoms of the internal market (free movement of goods, capital, labour and services) enshrined in the treaties and because of the competition between members state. On the other hand, the negative integration can be hardly bypassed at the EU-level, because positive integration requires an initiative of the Commission, a majority in the European Parliament, a qualified majority or unanimity of government votes in the Council, which is definitively more and more difficult to reach seen the growing heterogeneity in the EU. As shown by F. Scharpf and others, this asymmetry has been reinforced and quasi “constitutionalized” by the jurisprudence of the Court of Justice (CJUE), which from the beginning of the 60s has postulated the supremacy and direct effect of European law. There is no easy solution to tackle this issue. Several propositions have been made to counterbalance this asymmetry and, particularly, to frame or to counterbalance the jurisprudence of the CJUE. In the context of the euro crisis, some jurists – like Isabelle Schönmann in our book – hope that the accession of the EU to the European Convention of Human Rights, as set out in Article 6 (2) TEU,  could lead to a converging legal system “to counter violations of fundamental social rights and avoid the current disjunction between economic and social concerns”. Yet, as noted by the author herself, this convergence towards the goal of enhancing fundamental rights protection is not assured:  asked by the EU-Commission, the CJEU opinion put the accession on hold.

Last but not least other reforms proposals aimed at reforming the new governance of the Eurozone and particularly the – so called – “European semester” procedureof surveillance of national fiscal policies by introducing social criteria for the global assessment of national economic performance. The Commission has timorously and at the margin introduced some new employment and social indicators in the scoreboard used in the Alter Mechanism Report; yet without any serious change. The main issue is that there are no political forces to exploit the eurozone crisis as an opportunity for change to promote a new governance toward an efficient social and sustainable oriented strategy. As already described in detail here (see J.-C. Barbier’s contribution in the book), the financial and economic crisis in the EU and the eurozone significantly undermined citizens’ trust in the EU, whereby the decline was especially large in southern European societies. Worst, as pointed out in the conclusion, written with Jan Wieghols of the European University Viadrina, the challenges presented by growing heterogeneity and increasing polarization since the onset of the euro crisis has not been addressed so far. On the contrary, the impact of a decreasing acceptance of cross-border solidarity is illustrated by the way EU member states are handling the huge problem of asylum seekers and refugees from third countries. Finally, the influence of euro-sceptic, and especially euro-rejectionist political forces on both the EU level and in the parliaments of member states, which grew rapidly in the years of the crisis, is a danger not only for the social dimension, but for European integration in general.


[1] Dullien, Sebastian and Ulrike Guérot, Ulrike . 2012. The long Shadow of Ordoliberalism:

Germany’s Approach to the Euro Crisis. European Council on Foreign Relations,

Brief Policy 49.

[2] Foucault, Michel.2004.Naissance de la biopolitique, Cours au Collège de France, 1978/ 1979.

Paris: Seuil, coll. Hautes Études (english edition: The Birth of Biopolitics.

Lectures at the Collège de France 1978-79. New York: Palgrave 2008).

[3] Erhard, Ludwig. 1966Wirken und Reden, Ludwigsburg: Hoch, p. 320)

[4] See A. Lechevalier « La grande transformation de l’Allemagne réunifiée dans le contexte européen », L’économie politique, n°60, trimestriel-octobre 2013, p.17-34.

https://www.cairn.info/revue-l-economie-politique-2013-4-p-17.htm

 [5] Schimmelfenning, Frank. 2015. Liberal Intergovernmentalism and the Euro zone

Crisis. Journal of European Public Policy 22 (2). 177-195.

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