Introduction

Following the Gulf Crisis, Belgium’s former Foreign Minister, Mark Eyskens, criticised the European Union (EU)’s incapacity of acting beyond its function as a trade area, calling it an economic giant, a political dwarf and a military worm. In its original context, this description referred to the EU’s influence as an external actor in international relations. Indeed, it is widely considered an effective metaphor for conceptualising the nuances of the EU’s external action (Moïsi and Mertes, 1995; Manners, 2010). This begs the question, is this description an accurate characterisation of the EU as an internal actor?

The notion of the EU as an “economic giant” appears self-evident: in 2018, the EU was the second largest economy in the world in nominal terms (IMF, 2018), and the degree of policy transfer in the area of economic policy to the supranational level has been significant. On the other hand, the fact that the EU has limited policy-making competences would seem to confirm that it is indeed a “political dwarf”. That being said, the EU is not a traditional, hierarchical state: the nature of EU governance is that it influences the policy-making process at multiple levels (Marks et al., 1996). Thus, in order to determine the accuracy of this description, it is necessary to consider EU influence across policy areas as well as at different levels of government, namely, at supranational and national level

As such, social policy, and to a lesser extent, single market policy will be the focus of this discussion. Single market policy has been chosen as this policy laid the foundations for further economic integration in the EU. Given that social policy constitutes “the use of political power to supersede, supplement, or modify operations of the economic system in order to achieve results that it would not achieve on its own” (Falkner, 2013), an analysis of social policy can provide an indication of the EU’s political influence overall. Section one will demonstrate that single market policy and EU social policy can be respectively characterised as 1st order and 2nd order policies of the EU. The second section will discuss the Europeanisation of domestic social policies and will proceed to offer a critique of the concept of 1st and 2nd order policies as an indicator of the EU’s political influence.

The Competences of the EU – Single Market and Social Policy

This section will assess the accuracy of the description of the EU as an “economic giant and a political dwarf” with regard to the EU’s competences in two key policy areas: single market policy and EU social policy. In order to capture both the degree of EU competence and the likelihood of further integration, Chari and Kritzinger’s concept of 1st order and 2nd order policies will be used. In the case of 1st order policies, one sees a “strong and centralised EU”, whereas 2nd order policies are more decentralised, the EU’s role is “weak and ill-defined” and further integration is not likely to occur (Chari and Kritzinger, 2006).

The creation of the single market in 1992 not only laid the foundations of the Economic and Monetary Union (EMU), it was a core driver of European integration (Egan, 2013). Single market policy refers to the rules governing the free movement of goods, persons, services and capital, and has spawned efforts to liberalise trade, coordinate economic policies and promote competitiveness (Egan, 2013). Single market policy is an area of exclusive EU competence: as such, single market policy is primarily governed by supranational institutions. The Commission monitors the functioning of the single market and can trigger infringement proceedings, and the ECJ can issue legally binding judgments and penalties against Member States in instances of violation of Treaty commitments.

There are three key factors which guarantee single market policy’s 1st order status. Firstly, several other policies depend on the existence of the single market. According to Bela Balassa’s theory of economic integration, the single market is a necessary foundation for EMU, and thus, the functioning of the single currency (Balassa, 1961; Chari and Kritzinger, 2006: 83).

Moreover, as competition policy “seeks to ensure a level playing field for business in a single, integrated European market (Chari and Kritzinger, 2006: 83), it, too, depends upon a centralised single market policy. Secondly, as a result of the doctrines of direct effect and supremacy, an effective “constitutionalisation” of single market policy has taken place in the EU, meaning that Treaty commitments to the single market take precedence over national law (Scharpf, 1999). Moreover, any substantial modification to this policy would require Treaty revision in the European Council. Finally, in spite of the “internal market fatigue” evident in the wake of the eurozone crisis, there is still political will to further “deepen and widen” the single market (Egan, 2013). As such, single market policy can be characterised as a 1st order policy of the EU, and it is likely that this will remain the case.

Although the remit of EU social policy has expanded significantly since the Treaty of Rome, social policy remains primarily a national affair (Daly, 2018). Social policy is an area of shared competence, meaning that the EU shall take action only on the basis of the principle of subsidiarity and proportionality. EU social policy covers primarily working conditions, anti-discrimination policy and health and safety in the workplace (Falkner, 2013). In the past, business interests and Member States have resisted the Commission’s “social policy activism”. For example, the UK’s opposition to the inclusion of the “Social Charter” in the Maastricht Treaty meant that, until the 1997 Amsterdam Treaty, this charter was not binding for all Member States, and that the use of Qualified Majority Voting (QMV) in matters of social policy was restricted (Chari and Kritzinger, 2006). Still, the incorporation of the Charter of Fundamental Rights into the Treaties gives higher legal status to EU socioeconomic norms, and the introduction of a “horizontal clause” (Article 9 of TFEU) ensures that social requirements, such as gender equality, are taken into account when formulating
policy.

Several factors restrict the expansion of the EU’s social policy competences. Firstly, the TFEU does not include provisions on wages, rights of association and rights to strike (Falkner, 2013). Secondly, not all areas of EU social policy fall within QMV in the Council: unanimous decision-making is required for issues such as social security, social protection, collective interest representation, conditions of employment for non-EU citizens, and financing. In effect, only “minor regulatory” measures fall under QMV, and no measures with a fiscal or redistributive character (Chari and Kritzinger, 2006). Thirdly. although the European Social Fund now accounts for 10% of the EU’s total budget, as the main financial instrument for supporting employment and social cohesion, its redistributive capacities are limited (Falkner, 2013). Finally, given the constraints of unanimity and subsidiarity, new social policy initiatives rely largely upon “soft-law”, non-binding forms of governance such as the Open Method of Coordination (OMC). For these reasons, as well as the difficulty of achieving consensus on social policy in the Council (Daly, 2018), it is likely that social policy will remain a 2nd order policy.

Much of the EU’s economic success can be attributed to the single market, in terms of increasing intra-EU and extra-EU trade, attracting foreign investment and contributing to overall economic growth (Swedish National Board of Trade, 2015). Based solely on an analysis of the EU’s competence in single market policy therefore, the characterisation of the EU as an “economic giant” seems fitting. On the other hand, social policy’s 2nd order status is often cited as evidence of the EU’s limited political influence, especially given that social policy comprises the “the entirety of authoritative political interventions” to both protect individuals from the market and to enable them to profit from it (Streeck, 2018). Streeck (1995) observed that the failure to integrate the Social Chapter into the Maastricht Treaty “should have finally made clear (…) that the integrated Europe of the European Union will never be a supranational state on the model of European nation-states”. However, as will be demonstrated in the next section, measuring the EU’s political influence exclusively in terms of its policy competences fails to capture the impact of European integration on domestic policies, and thus, the full scope of EU political influence.

The Europeanisation of Domestic Social Policies

Beyond the direct effects of implementing EU social policy, national social policies have also been indirectly affected by European, primarily economic, integration. As Hix notes, “the policy mix of the EU – with the regulation of the single market and monetary policies at the European level and taxation and spending at the national level – severely constrains the policy choices of national governments” (Hix, 2007). This section will demonstrate that domestic social policies across the EU have been subject to a process of Europeanisation, which can be defined as the domestic impact of European Union politics (Börzel and Risse, 2000). It will outline some broad trends, before providing specific examples of how economic integration has shaped national social policies.

The remit of EU social policy does not include social expenditure. However, Olaf van Vliet (2010) shows that between 1995 and 2003 social expenditures of Member States converged on average, whereas those of non-EU countries diverged, indicating the existence of an “EU specific” impact. While this convergence may be attributable to the EU’s use of “soft governance” measures encouraging coordination, van Vliet suggests that economic factors are the more likely explanation: the need to protect employment and attract investment in an environment of increased internal and international competition has created incentives for social security systems to converge.

There are several specific examples of how national social policies have adapted in response to economic integration. In the famous Viking and Laval cases, national labour law came into conflict with EU single market policy, namely, the right of establishment for firms and the free movement of services. In Viking, industrial action was taken by a Finnish Trade Union against a Finnish company that chose to incorporate in Estonia to avoid being bound the Finnish collective wage agreement. In Laval, the Swedish construction workers’ union took an action against a Lithuanian company offering construction services in Sweden for refusing to sign Sweden’s national wage agreement. Both times, the ECJ ruled that European Internal market freedoms took precedence over national trade union rights (Streeck 2018). These cases seem to confirm Scharpf’s hypothesis, that economic integration has created “a constitutional asymmetry between policies promoting market efficiencies and policies promoting social protection and equality” (Scharpf, 2002).

According to Egan (2013), EU competition law has reinforced a liberalising bias in the single market. Although nationally important industries, such as utilities, were given special exemptions to competition rules on the grounds that they provided “universal services”, the Commission has increasingly used its competition powers to liberalise industries such as telecommunications and electricity (Egan, 2013: 262). Scharpf (1999) argues that the single market and EU competition policy has led to the transformation of previously mixed economies along neoliberal lines, whether as a result of direct intervention by the Commission (as was the case with the liberalisation of telecommunications in Spain in 1996), or as a consequence of the “legal uncertainty” created by EU competition law (Schmidt, 2008).

Finally, domestic social policies have increasingly been affected by EMU. Micro-economic, supply-side tactics are effectively the only tools at states’ disposal to stimulate their economies, which include lowering tax burdens, deregulation, flexibilisation, wage differentiation and welfare cutbacks (Holman, 2004: 726; Van Vliet, 2010). Streeck (2018) outlines how the emergency legislation adopted following the financial crisis (including the Fiscal Compact, the six-pack, and the two-pack) resulting in the widespread implementation of austerity measures and “structural reforms”. The social policies of “programme countries” were most adversely impacted: not only were they instructed to cut their social spending, for example on health care or pensions, there were also demands for institutional change, including the decentralisation of collective bargaining (Streeck, 2018). The Fiscal Compact is an intergovernmental treaty which remains binding for all Member States that ratified it (including non-Eurozone Member States), and thus, will continue to influence national social policies, not least by limiting social expenditure.

One can, therefore, identify a pattern of Europeanisation of domestic social policy. The primacy of EU law has far-reaching consequences on the policy choices available to national governments (Hix, 2007). The concept of 1st order and 2nd order policies does not take into account the influence of EU jurisprudence, nor does it capture the multi-level, multi-dimensional nature of policy in the EU. The fact that the EU exerts both direct and indirect political influence over national and supranational policy-making, as demonstrated by the Europeanisation of national social policies, shows that the EU’s influence cannot be determined on the basis of its policy competences alone, and that the notion of the EU as a “political dwarf ” is, therefore, misleading.

Conclusion

Determining the EU’s political influence overall would, of course, require an analysis EU’s impact on global politics and the international political economy. Rather, this essay has endeavoured to gauge the EU’s political influence by examining its impact on supranational and national policies. Section one demonstrated that single market policy and EU social policy can be respectively characterised as 1st and 2nd order policies of the EU. However, the second section showed that domestic social policies have become Europeanised, whether as a “natural” consequence of economic integration, or due to the “constitutionalisation” of EU law (Scharpf, 1999). The Europeanisation of social policy demonstrates that although the EU may be a “political dwarf ” in terms of its competences, the EU exerts indirect political influence over national policy-making.

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