REVIEW OF ECONOMIC PERSPECTIVES – NÁRODOHOSPODÁŘSKÝ OBZOR,
VOL. 14, ISSUE 4, 2014, pp. 393–410, DOI: 10.1515/revecp-2015-0006
EU As a Highly Competitive Social Market Economy
– Goal, Options, and Reality1
Václav Šmejkal, Stanislav Šaroch2
Abstract: In paragraph 3 of its Article 3, the Treaty on European Union (TEU) requires
the EU to go after the goal of a highly competitive social market economy for the first
time. It is noticeable in the aforementioned Treaty clause that although it deals with the
EU internal market, its authors burdened it with a mission that is far more sociallyoriented
than market-oriented. However, is „a highly competitive social market economy“
of today a meaningful goal and does the EU in its present form have the project
and powers to achieve such an objective? The paper is a combination of economic and
legal -political analysis through which the authors try to answer three main questions:
What is the contemporary meaning of the term “social market economy” in the both
economic and EU-law academic theory? Can the EU within the powers conferred to it
positively fulfill such an objective, or can it just approach it by weakening the still prevailing
tendency towards liberalization and deregulation brought about by the construction
of the EU internal market and by the promotion of its freedoms?
Key words: European Union, Lisbon Treaty, social market economy, social policy
JEL Classification: F15, I38
Introduction: EU and the Goal of Social Market Economy
The Lisbon Treaty that came into force in December 2009 brought numerous changes to
the legal basis of the EU, including one novelty with a potentially far-reaching significance.
The change at issue is the wording of Article 3 of the Treaty on European Union
(TEU) specifying the objectives of the European Union. These objectives, for the first
time in the history of European integration, refer to “a highly competitive social market
economy, aiming at full employment and social progress". Given that, in parallel, one of
the goals proposed originally, i.e. that of free and undistorted competition, was excluded
from the integration objectives, many commentators assumed that the Lisbon Treaty
would significantly strengthen the social aspects European integration.3
1
This paper was created within the project GA CR. Project registration number 14-23623S.
2
ŠKODA AUTO Vysoká Škola o.p.s., Na Karmeli 1457, 293 01, Mladá Boleslav,
Vaclav.Smejkal@savs.cz and Stanislav.Saroch@savs.cz.
3
See for instance: Barnard, C., Deakin, S., Social Policy and labor Market Regulation. In Jones,
E., Menon, A., Weaterhill, S. The Oxford Handbook of The European Union, Oxford University
Press 2012, p. 551 etc.; Damjanovic, D. The EU Market Rules as Social Market Rules: Why the
EU can be a social market economy. In Common market Law Review N. 50/2013; O´Gorman, R.
REVIEW OF ECONOMIC PERSPECTIVES
394
The view that prevails in the Western European scientific literature is that the European
integration has traditionally been far more market-liberal than social-solidarity biased.
The founding fathers made the compromise to entrust the supranational bodies of the
then EEC with tasks of “negative integration” that could be solved by impartial technocrats
on the basis of economic rationality, while the politically sensitive decisions requiring
broad social consensus had been left to the Member States. This division of
competences, expressed sometimes in shorthand “Keynes at home, Smith abroad,”4
meant that policies, legislation and case law developed at the EU level have been focusing
on the “freedoms of movement”. This in the course of years has inevitably swung
the integration towards deregulation and liberalization of until then nation-specific and
preponderantly closed sectors and systems. On the contrary, protection of workers and
their social rights, with the exception of safeguards against non-discrimination and of
certain harmonization in the field of working conditions facilitating labor migration,
have been left in charge of the individual Member States and their historically embedded
models of social protection, social dialogue and social services.5
The process of
globalization, of societal and demographic changes, hand in hand with the progress of
deep-going markets opening, however, have gradually plunged the national redistributive
social systems, based on local solidarity or even on national corporatism, under the
pressure of migrant workers, public tender bidders and service providers representing
cheap and dynamic competition.6
Any slowdown or even downturn of business cycle
then intensified, especially in the most generous welfare states, the summons to the EU
to also take care of social rights and solidarity instead of market freedom and competition
only.
The EHCR, the EU and the Weakness of Social Rights Protection at the European Level. In German
Law Journal Vol. 12 No. 10/2011; Weiss, M. The Potential of the Treaty has to be used to its
full extent. In European Labor Law Journal, Vol. 4 No 1/2013.
4
Micossi, S., Tosato, G.I. Eds. The European Union in the 21ts Century. Brussels: CEPS 2009, p.
36
5
Expressed strictly, the EU harmonized labor rather than social standards as its limited powers in
the area have been related to the need to ensure the functioning of the internal market, including
the elimination of differences between Member states that could adversely affect the free movement
of workers. Not exhaustive list of EU harmonized standards would thus include: Health and
safety at the work place; information and consultation of workers; collective redundancies; working
time; maternity leave; posting of workers; part -time and fixed-time contracts; temporary
agency work; protection in the event of insolvency etc . Except for the relatively small EU Social
Fund and the more recent but tiny European Globalisation Adjustment Fund, the EU has never
had tools or means to "re -distribute" in the name of social spending, i.e. no social benefits, no
social security ensured and provided directly by the EU. In parallel, fundamental Rights Including
social rights such as those enshrined today by the EU Charter have been recognized by the ECJ as
part of guiding principles of EU law. It means that they must be observed in EU policies and
legislation but do not themselves provide a legal base for the individual or collective claims of EU
workers or citizens. See for instance: Pelkmans, J. How social the single market? In CEPS Commentary,
13 April 2010. Brussels: CEPS, 2010. Available at: http//:www.ceps.eu
6
Trybus, M., Rubini, L. The Treaty of Lisbon and the Future of European Law and Policy. Cheltenham:
Edward Elgar Publishing, 2012, p. 383
Volume 14, Issue 4, 2014
395
The development of European Union towards greater consideration of social aspects
gained pace at the time when the then EEC slowly began to open up to Eastern Europe,
as it can symbolically be dated from the adoption of (not binding) Community Charter
of Fundamental Social Rights of Workers in December 1989. This was followed by
amendments to the primary law approved especially in Maastricht and Amsterdam until
the beginning of the new millennium when this process culminated in the Article I- 3 of
the draft Constitutional Treaty (CT) that called for a highly competitive social market
economy which would aim to achieve full employment and social progress. After the
failure of CT’s ratification (caused by inter alia “social deficit” of the EU, perceived in
some countries) this target was copied to Article 3(3) TEU in its Lisbon’s currently
applicable version.
Among the “social” innovations of the Lisbon Treaty one has to note also the Article 9
TFEU containing the so-called “horizontal social clause”, a general obligation of the EU
to take into account in all its measures, policies, and decisions “promotion of a high
level of employment, the guarantee of adequate social protection, the fight against social
exclusion, and a high level of education, training and protection of human health”.
Moreover, the Lisbon Treaty in Article 6, paragraph 1 has made part of primary EU law
the Charter of Fundamental Rights of the European Union, which includes Title IV
“Solidarity” containing provisions on workers’ right to information and consultation;
right of collective bargaining and action; protection in the event of unjustified dismissal
or right to social security and social assistance. Although it has always been understood
even by supporters of social Europe that by the Lisbon Treaty neither new specific powers
accrued to the EU in the social field nor any directly claimable social rights were
given to European workers, the belief that the social aspects of the Lisbon Treaty would
“open up opportunities for further strategic development of social Europe” was widely
shared.7
This paper is trying to review those expectations from a distance of more than four
years that have passed since the Treaty of Lisbon came into force, in an attempt to find a
possible meaning of the concept of social market economy in the current economic and
legal situation of the European Union.
"Social Market Economy" as a Concept in Economic Theory
The answer to the question of what economic theory means (or previously understood)
under the concept of social market economy is not clear for several reasons.
The first reason is that the concept of the social market economy itself was born (in the
work of Alfred Müller-Armack) as a part or a complement to the German concept of
ordoliberalism. As Sojka8
points out, this school is usually overlooked in English and
American literature. One of the most outstanding representatives of the original ordolib-
7
Špidla, V. Social aspects of the Lisbon Treaty. Speech in the European Parliament, Brussels, 29
April 2009
8
Sojka, M. Dějiny ekonomických teorií. Praha: Havlíček Brain Team, 2010.
REVIEW OF ECONOMIC PERSPECTIVES
396
eralism, Walter Eucken, was also the founder of the Freiburg School of Economics and
Law, where together with other colleagues he sought to combine theoretical approaches
of both economic and legal science in order to apply them on the issues of market economy
and economic policy. From the perspective of the history of economic thinking the
concept of ordoliberalism, so with its part or a complement - the concept of the social
market economy, lies out of the main stream economic thinking and can well be classified
among the major directions of institutional economics. Some authors then consider
the whole concept of ordoliberalism a predecessor of constitutional economics.
Ordoliberalism containing also the concept of the social market economy can be better
described as a "theory of economic policy" as Quéré, Coeur, Jacquet and Pisani - Ferry
define it.9
According to them, the theory of economic policy must use (in addition to
knowledge of other sciences) all three currently coexisting and mutually complementary
approaches of economics to analysis and evaluation of possibilities of implementation
of economic policy. In the first two cases, it is the positive and the normative approach,
in the case of the third one, it is the approach called political economics: "In positive
economics, the economist takes the point of view of an outside observer and aims at
determining the channels through which public decisions affect private behavior" while
"in normative economics the economist adopts the posture of an adviser....and examines
which set of decisions can best serve explicit public policy purposes". Political economics
approach then "instead of considering behavior of political decision makers’ as exogenous,
it treats it the same way it treats behavior of private agents.....The government
is therefore no longer regarded as a Deus ex machina that monitors and steers private
economy in the name of general interest but, instead, as a machine directed by politicians,
i.e., by rational players whose behavior follows specific objectives and faces
specific constraints."10
The last - the third part of the definition does not of course fully
correspond with the concepts of ordoliberalism and social market economy. On the
contrary - in a nutshell, it reflects the progress between the perception of theory of economic
policy of the representatives of the Freiburg School and the concept of the social
market economy and the current main stream of a comprehensive theory of economic
policy. While the Weberian view of politicians or state officials subject to them simply
assumes them to altruistically act in the public interest, which so typical for the time
period when ordoliberalism was born, political economics abandons this assumption.
The concept of the social market economy is - and at the time of its inception was - a
distinct part of a comprehensive theory of economic policy rather than a pure economic
theory.
The second reason for the ambiguity of the current interpretation of the concept of social
market economy in the economic theory is that - as again coincides with a number
of authors - in current research works economics as a discipline has become too specialized,
too narrowly focused, broken into the sub-disciplines, which usually have a procedure
for determining the hypothesis, its verification or falsification on the data followed
9
Bénassy-Quéré, A., Coeuré, B., Jacquet, P. and Pisani-Ferry, J. Economic Policy, Theory and
Practice. Oxford: Oxford University Press 2010, pp. 4-9.
10
Ibid. pp. 4-9.
Volume 14, Issue 4, 2014
397
by some interpretation, but in this form, and with this methodology it may not have the
ambition to give answers to practical questions of economic policy not to mention when
they are associated with a priori value preferences pronounced and declared and enforced
by political leaders, although they are embodied in documents such as TFEU
being a long-term political commitment. In his famous article in Foreign Affairs, Alan
Blinder11
deals very sensitively with issues of optimal determination of value priorities
of the society by politicians and their subsequent achievement in a form of "policy design"
by educated technocrats.
The third reason for the ambiguity of the meaning of the term social market economy in
economic theory (or rather already in the theory of economic policy) is that the founders
of the concept themselves endowed it with the principles of solidarity at one, and subsidiarity
at the other side. In the context of European integration where the concept of
subsidiarity was transferred, it is being used to defend the asymmetric transfer of responsibilities
and powers to the supranational level. In this context, Baldwin and Wyplosz
even refer to asymmetric integration, or even omitted integration in the area of
social policy and taxation.12
For the above reasons explaining the ambiguity of the term "social market economy" in
economic theory, we chose to define the term in the following way. To return to the
original meaning of the term "social market economy," we return to the definition by
the members and associates of the Freiburg school. For the definition in the contemporary
theory we turn to teleologically oriented parts of economic theory, such as the OCA
theory while trying to look for normatively oriented recommendations for economic
policy by established experts in the field of theoretical economics. In many cases, we
can trace the fact that these authors publish in two, eventually multiple genres: On the
one hand, these are very tightly focused research works, fulfilling the usual methodological-
scientific claims, and on the other, normatively oriented "policy papers" which
cannot be considered pure science.
The original meaning of the term social market economy in the works of the representatives
of ordoliberalism can be characterized by the fact that ordoliberalism itself builds
on the so-called "politics of order" (Ordnungspolitik), where the role of the state is perceived
as irreplaceable for creation of the environment and for guaranteeing the quality
of formal institutions (constitution, laws). In the concept of Eucken13
, functional price
system is a basic principle for establishing economic order. Because of the interdependence
of social and economic order the existence of price system requires the fulfillment
of six basic principles.
1. Dominance of monetary policy guaranteeing price stability.
2. Free markets without entry restrictions.
11
Blinder, A. Is government too political? Foreign Affairs, vol. 76, iss. 6/1997, pp. 115-126.
12
Baldwin, R. and Wyplosz, Ch. The Economics of European Integration. Berkshire: McGrawHill
Education 2012.
13
Eucken, W. Zásady hospodářského řádu. Praha: Liberální institut 2004.
REVIEW OF ECONOMIC PERSPECTIVES
398
3. Private property (with a protection of competitive market environment).
4. Freedom of contract (again, subject to the protection of the competitive market
environment).
5. Strong responsibility for liabilities (and event. losses) from transactions of market
participants gaining benefit from them.
6. Stability of economic policy (fixed rules that reduce the level of uncertainty - here it
is again argued by possible damage of competition and strengthening of autonomous
tendency to cartelization in the case of a higher degree of uncertainty)
These basic principles then correspond to the requirements on regulatory policy in addressing
market failures and corrective (social) policies limiting inequalities arising
from the existence of the market system correcting the degree of inequality and
strengthening social cohesion. In this conception the control monopolies is the first
group of permissible regulatory interventions followed by regulation of income through
progressive taxation, regulation and control of externalities and of too high intensity of
competition (e.g. in labor markets). Essentially, social policy has to stay next to the
functioning price system and market competition and correct the allocation of income in
accordance with the principles of solidarity and subsidiarity. To this purpose progressive
redistributive taxation can be applied together with social policies associated with
various measures in favor of the worse-off layers of the society (child allowances, rent
subsidies, social housing, etc.). The intervention should only take place where the problem
has arisen (subsidiarity) and only in cases where people are unable to take care of
themselves (the so-called legitimate poverty as defined by Murray14
).
In contemporary theory usually addresses the idea of a social market economy represented
by its basic instrumental ideals. It is especially the subsequent correction of too
high level of inequality and possible suppression of the phenomenon of reproducing
social exclusion connected with the results of the market distribution that is being discussed
in relation to the challenges of globalization and European economic integration.
Baldwin15
and Blinder16
point to the new challenges in redefining the role of the state
(or public sector at any - European, national and regional - level) due to the increasing
pressures of globalization transferring competition from the level of “among competitors"
level up to the level of "among departments and individuals".
A number of authors of the OCA theory postulate the need for greater symmetry between
monetary integration and centralization of fiscal, respectively, social policy (the
part of which would include both a European tax and the implicit transfers). Other authors,
such as Buti17
, De Grauwe 18
or Pisani – Ferry19
, speak of "Post-crisis inconsistent
14
Murray, Ch. Příliš mnoho dobra. Praha: Občanský institut 1998.
15
Baldwin, R. Globalisation as the great unbundling(s): What should governments do? (2008)
[online]. [cit.2014-03-09]. Available: http://www.voxeu.org/article/making-globalisation-work-
skills-families-unions-and-welfare-state.
16
Blinder, A. ,S., Offshoring: The Next Industrial Revolution? In Foreign Affairs, 85:2/ 2006, pp.
113-128.
17
Buti, M. A consistent trinity for the Eurozone (2014). A consistent trinity for the Eurozone
Volume 14, Issue 4, 2014
399
trinities" etc., or in other words, of a need for an adjustment of the institutional framework
of the EU so that the ideas of social market economy remain fulfilled. Very briefly
expressed - in order to sustain the European social model, the EU, or the Eurozone, need:
(i) fiscal union, including common implicit transfer; (ii) banking union, including effective
mechanism for crisis management and fiscal brakes; (iii) universal mechanism for
restructuring sovereign debt which would at the same time eliminate the moral hazard
of governments (in the current situation, especially for the south countries); (iv) maintaining
the targeted inflation rate and staying off the trap of debt deflation; (v) implementation
of structural reforms, especially in the content of education and teaching
methods, on labor markets, including more meaningful structure of trade unions.
Lisbon Treaty and Its “Social Market” Potential
It is not easy to figure out what exactly the drafters of the Treaty had in mind when they
adopted the objective of social market economy. It is also far from obvious what interpretation
should be given to this provision of the legally binding document with the
highest legal force, and to foretell what practical significance it could have for EU legislation
and case law.
Historically, the expression “a highly competitive social market economy” appeared for
the first time in the third paragraph of Article I-3 of the draft CT.20
Although the wording
was not fully identical to that of the current Article 3(3) TEU, its segment “based on
balanced economic growth and price stability, a highly competitive social market economy
aiming at full employment and social progress ...” reads exactly the same in both
documents. This text is the result of negotiations originally within the Working Group
XI - Social Europe of the Convention (in charge of the CT drafting), as confirmed by its
Report from February 4, 2003.21
The fact that objectives of the Union made then for the
first time reference to “social market economy” was a compromise achieved between
those who lobbied for the reference to European social model and those who pushed for
maintaining the reference to an open market economy with free competition (as already
contained in Article 4(1) of the existing EC Treaty). This reference was therefore adopted
to satisfy both sides and to underline the link between the economic and the social, as
well as the EU efforts to ensure greater coherence between economic and social poli-
cies.22
It was not easy to insert this goal into the final draft of CT as its wording from
February 6, 2003, still did not mention it, then the next version of May 28, 2003 already
[online]. [cit.2014-03-09]. Available: http://www.voxeu.org/article/consistent-trinity-eurozone.
18
De Grauwe, P. Design failures in the Eurozone: can they be fixed? In European Economy,
Economic Papers No. 491/ 2013.
19
Pisani-Ferry, J.,The euro Crisis and the new Impossible Trinity. In Moneda y Credito 234/2012.
20
Official Journal of the European Union C 310 Vol 47, December 10, 2004. Available at
http://eur-lex.europa.eu/JOHtml.do?uri=OJ:C:2004:310:SOM:en:HTML
21
Final Report of Working Group XI on Social Europe CONV 516/1/03, Brussels, 4 February
2003. Available at
http://www.europarl.europa.eu/meetdocs_all/committees/conv/20030206/cv00516-r1.en03.pdf
22
See footnote 6, the Final Report CONV 516/1/03, p. 12.
REVIEW OF ECONOMIC PERSPECTIVES
400
did, and the whole expression “a highly competitive social market economy” finally
appeared for the first time ever in the next draft from June 10, 2003.23
According to analysts, this wording reflected a clear compromise in the corridors of
power24
and strictly speaking, it was even a meta-compromise, as the wording proposed
by the Working Group Social Europe (WGSE) had already included a concession made
by those who pleaded for more social Europe. Members of WGSE could not agree on
proposing any extension of EU competences in the social field, thus described them as
“adequate” and merely emphasized the requirement of equivalence between economic
and social objectives of the EU.25
Therefore, the WGSE Report did not propose a “social
Union”, but a social market economy, and thus ceded ground to proponents of open
market with free competition. In the subsequent compilation of the final draft of the
whole CT yet another re-balancing compromise had to be struck, and the social market
economy became “highly competitive”. Commentators appreciated it as a catch-all
expression, good to give simultaneous recognition to both social and economic interests
at stake26
or as an attempt to balance the EU goals when one goal with right wing focus
offsets another goal with rather leftist orientation. 27
The target itself was commented
upon as vaguely defined28
and most likely not intended as an appeal to copy the postwar
German economic policy. It is most likely that the drafters just borrowed the ideal
of a possible compromise between the economic growth and competitiveness on the one
hand, and the social-oriented redistributive measures on the other.29
23
Joerges C., Roedl, F. Social Market Economy as Europe´s Social Model? EUI Working Papers
Law No. 2004/8 Badia Fiesolana, San Domenico 2004, p. 10.
24
Craig, P. The Lisbon treaty – Law, Politics, And Treaty Reform. Oxford University Press 2013,
p. 313.
25
Description of social competences of the EU as “adequate” was simply an escape from any
assessment that might provoke a clash in the Convention. In the course of the CT being drafted,
experts assessed the EU social competence as follows: “A large range of socio-political regulations,
special legal anchor of social policy in the EC Treaty, as well as the policy of economic and
social cohesion, give rise to the belief that the EC is of considerable importance in relation to
establishment of a European social order. These appearances are deceptive, however. Analysis of
the relevant provisions of Community law shows that the EC has in the social field only fractional
and limited powers. The main part of the social rights and the social policy as such remain a
matter for Member States. In contrast to e.g. agriculture or transport, in social matters the Community
has no extensive powers to set the detailed structure of the European social order”. Quotation
from Dauses, A.M. Příručka hospodářského práva EU (Handbook of EU commercial law).
Praha: ASPI 2002, p. 219 (translation from the German original: Handbuch des EU –
Wirtschaftsrechts. Munchen : Verlag CH Beck, 2002).
26
Costamagna, F. The Internal Market and the Welfare State after the Lisbon Treaty. In Research
Paper Observatoire social européen No. 5 April 2011, p. 7 Available at: http://www.ose.be.
27
Syllová, J., Pítrová, L., Paldusová, H. a kol. Lisabonská smlouva, Komentář. Praha: CH BECK
2010, p. 15.
28
Buecker, A. A Comprehensive social progress protocol is needed more than ever. In European
Labour Law Journal Vol 4 No 1/2013, p. 12.
29
Blancke, H.-J, Mangiameli, S. Eds. The Treaty on European Union (TEU) A Commentary.
Volume 14, Issue 4, 2014
401
The transcription of the third paragraph of Article I-3 CT into the paragraph 3 of Article
3 TEU took place in the European Council’s documents without any noteworthy discussion,
just with a footnote that the wording was taken from the results of the 2004 Intergovernmental
Conference which approved the CT draft. However, a fierce debate erupted
about its second paragraph that in the draft CT’s Article I-3 ranked the “internal
market where competition is free and not distorted” among the EU objectives. Under
pressure from the then French President, N. Sarkozy, the European Council meeting in
Brussels on June 21-22, 2007, decided to drop the reference to free and undistorted
competition, stressing nevertheless its importance in a new Protocol 27 “On internal
market and competition” added to the Treaty. This symbolic swap can also be read as an
expression of resistance by more balanced Europe proponents, not just in France,
against too (neo)liberal direction of the European integration.30
Reference to free and
undistorted competition has been missing from then not only in the Treaty articles on
the EU objectives, but did not appear either among horizontally applicable clauses of
TFEU. It sparked a controversy about whether the EU was really undergoing “a major
reorientation”, as N. Sarkozy immediately stressed in his interpretation of the event.31
It is really hard to dispute that the inclusion of the objective of social market economy,
however vaguely defined, into the legislative text of the highest legal force and into its
opening provisions, which the legal doctrine classifies as “core provisions”, or even as
“Constitutional” and “overreaching directive principles”, should have some practical
significance and weight.32
The rule says, at least since the judgment of the ECJ in the
case 6/72 Continental Can (1973), that these target provisions of the Treaty are not
“provisions that merely contain general program devoid of legal effect”. They must be
understood as “indispensable for the achievement of the Community’s task”, therefore
must be followed by policies of EU bodies.33
In practice, this means not only that all the
institutions forming and implementing EU policies must properly take them into ac-
count.34
The most important consequence is that if a certain measure of the EU or of
Member State acting in the field covered by EU law denies or openly ignores these
objectives, it could be declared contrary to EU law by a decision of the ECJ, which in
Berlin: Springer 2013, p. 173; Joerges C, Roedl F. Social Market Economy as Europe´s Social
Model? EUI Working Papers Law No. 2004/8 Badia Fiesolana, San Domenico 2004, p. 11.
30
See for instance: A Less 'Anglo-Saxon' EU: Sarkozy Scraps Competition Clause From New
Treaty. In Speiegel Online International, June 22, 2007. Available at
http://www.spiegel.de/international/europe/a-less-anglo-saxon-eu-sarkozy-scraps-competition-
clause-from-new-treaty-a-490136.html
31
See La concurrence n'est plus un "objectif en soi" de l'UE. In Capital.fr 23/06/2007 Available
at: http://www.capital.fr/bourse/actualites/la-concurrence-n-est-plus-un-objectif-en-soi-de-l-ue-
235729
32
Blancke, H.-J, Mangiameli, S. Eds. The Treaty on European Union (TEU) A Commentary.
Berlin: Springer 2013.
33
Judgment of the Court of 21 February 1973. - Europemballage Corporation and Continental
Can Company Inc. v Commission of the European Communities - Case 6-72 para 23.
34
Blancke, H.-J, Mangiameli, S. Eds. The Treaty on European Union (TEU) A Commentary.
Berlin: Springer 2013. p 167.
REVIEW OF ECONOMIC PERSPECTIVES
402
the case of an EU legal act would lead to its annulment. 35
It is therefore of utmost importance
to examine whether the TEU or Treaty on Functioning of European Union
(TFEU) give some more specific content to the goal of social market economy and
whether they authorize the EU to its fulfillment.
Regarding direct clarification of the term, neither TEU nor TFEU offer any indication as
to its content. One can try to construe it using the wording of Article 3(3) TEU, as well
as other provisions of the Treaties, especially those that are of general importance for
balancing between the economic and the social or directly for building of social Europe.
In addition to the term “social market economy”, Article 3(3) TEU contains other 17
targets. Of these, a maximum of 4-5 can be classified as market oriented objectives:
internal market; balanced economic growth and price stability; scientific and technological
progress; and of course the very requirement that the social market economy (which
already contains within itself a market component) must be highly competitive. The
other objectives (aim at full employment and social progress; combat social exclusion
and discrimination; promote social justice and protection etc.) are either explicitly social
and solidarity oriented or rather cultural and ecological (safeguard cultural heritage;
high level of protection and improvement of the quality of the environment etc.).
Some commentators assess this enumeration of targets as a mess with no clear guidance
for political or legislative activity. Analytical report of the British House of Lords quoted
on this issue the opinion of Sir David Edward that the objectives of the Treaty “might
be said to amount in some respect to little more than a wish list” and that such a “proliferation
of objectives, without any very clear indication of which are to take precedence
over others, is going to create difficulty”.36
In order to infer from the wording of Article
3(3) TEU some specific mission, some authors point out that this entire paragraph begins
with a short and laconic sentence: “The Union shall establish an internal market”.
Therefore, all what follows, i.e. all the other objectives listed in the paragraph, should
be understood as characteristics of this historically paramount and everlasting goal of
European integration.37
From this perspective, however, the social market economy looks as somewhat incongruous
feature of the internal market. It lacks any explicit command to optimize, similar
to more explicit objectives, such as to support economic growth, to work for full employment,
to combat social exclusion etc. Comparing to them, the social market economy
is not, strictly speaking, an objective at all. If understood in its original West German
meaning, it designs rather a major strategic approach towards the economic and
social order of a society, not just an amendment to policies that underpin and further
35
Ibid. p 161, also Institute for European Integration research – Working Paper series – EU Policies
in the Lisbon Treaty: A Comparative Analysis. Gerda Falkner Eds. WP No 03/2008 Austrian
Academy of science, December 2008, p. 61.
36
House of Lords, European Union Committee, The Treaty of Lisbon: an impact assessment. Vol.
I: Report (10th Report of session 2007-08) Published March 13, 2008 HL Paper 62-I, p. 21.
37
Blancke, H.-J, Mangiameli, S. Eds. The Treaty on European Union (TEU) A Commentary.
Berlin: Springer 2013, p. 170.
Volume 14, Issue 4, 2014
403
develop its “internal market”.38
Downgraded to internal market activities of the EU, it
could likely mean the necessity to always respect the balance between the economic and
the social, never to scarify one to another. But does this mean that the objective of social
market economy amounts to nothing more than to a commandment to look for compromise
between economic freedoms and protection of social rights in all activities of the
EU and the Member States?
A possible answer can be found, according to opinions of some, in the “horizontal social
clause” of Art 9 TFEU and more specifically in the wording of Article 151 TFEU,
which opens its Title X “Social policy”. It says that lasting high employment, improved
living and working conditions, proper social protection, dialogue between management
and labor etc. will ensue not only from the functioning of the internal market (which at
least - as the Treaty framers believed - will favor the harmonization of social systems).
There would also be the need of “regulation or administrative action” as provided for in
the Treaties as well as the approximation of provisions laid down by law. Although it is
not a sufficiently specific and structured expression of objectives and corresponding
measures, some take it for the base from which an EU (social and economic) model can
be developed.39
Other authors, however, argue against the interpretation that Article 3(3)
TEU points towards stronger EU harmonization and investments in the name of social
objectives.40
They stress the wording of Articles 119-120 TFEU (Title VIII “Economic
and monetary policy”) which directly refer to the implementation of Article 3 TEU by
the EU and Member States. In its four paragraphs laying down principles to be followed,
the principle of “an open market economy with free competition” is quoted three times
(!) and regarding other guiding principles listed there, they are: stable prices, sound
public finances and monetary conditions and a sustainable balance of payments. The
logic of social protection and solidarity and the logic of fiscal austerity and free competition
do not match each other easily, even if their marriage should take place in one
Member State, under the single authority and based on the same tradition. Difficult
power sharing between EU and its members and different national models of social
security, social dialogue and social services make any draft of EU policy satisfying the
logic of both 119 and 151 TFEU Articles a mission almost impossible be it just in theory
and even more in practice.
Social Market Economy As a Mere Appeal For Social-Market Balance
A certain progress in the interpretation of the social market economy objective can after
all be accomplished thanks to analysts that claim that this objective is not the basis for
positive action, but far more a limiting principle, or even the break to any further devel-
38
Joerges C, Roedl F. Social Market Economy as Europe´s Social Model? EUI Working Papers
Law No. 2004/8 Badia Fiesolana, San Domenico 2004, p. 19.
39
Buecker, A. A Comprehensive social progress protocol is needed more than ever. In European
Labour Law Journal Vol 4 No 1/2013, p. 17.
40
Craig, P. The Lisbon treaty – Law, Politics, And Treaty Reform. Oxford University Press 2013,
p. 313.
REVIEW OF ECONOMIC PERSPECTIVES
404
opment of European integration in one-sided direction. Referring to Germany's post-war
economic model that provides the only historically fixed content of the social market
economy concept, Joerges and Roedl conclude that in its core there is not the priority of
the social. Right the opposite is true, as there is a clear restriction of instruments to
achieve any social objective at all.41
The reason is that the original concept of social
market economy contained an ordoliberal basis which was only complemented by social
and societal policies, whose aims and instruments were supposed to reply on market
mechanism. A social market economy is therefore about market-compatible corrections
of an otherwise free market, not about building welfare state or social Union. In contrast,
Costamagna, considers the inclusion of the social market economy into TEU in the
context of other social clauses and provisions of the Lisbon Treaty and infers that this
objective poses a clear limitation to further liberalization and deregulation measures of
the internal market. It is about strengthening the social rights against internal market
freedoms and so it is a signal not that much for EU legislators but for the ECJ to rebalance
social rights and market freedoms in favor of stronger position of the former
ones.42
Be it that way or the other one, the social market economy objective thus does
not open the door to any flood of new EU legislation designed to achieve this vaguely
defined goal. It should rather be seen as a defensive clause, as a possible judicial brake
that should prevent the EU from switching to either socialism or neoliberalism.43
This assessment of importance of the social market economy objective looks plausible
even after a more detailed legal analysis of Treaty provisions. The strengthening of
social aspects of the EU was incorporated into the Lisbon Treaty at the symbolic level,
not at the practical one because the EU did not receive any substantial powers to build
its own social model. First, there is no doubt that neither Article 3(3) TEU nor the horizontal
social clause in Article 9 TFEU nor the principles44
set out in Title IV Solidarity
of the Charter of Fundamental Rights give individuals the rights which they could directly
claim before the institutions of the EU or Member States.45
Second, it should be
emphasized that the objectives of the EU, even being codified in the opening provisions
of the Treaty, cannot benefit from the rule ius ad finem dat ius ad media, i.e. in this case
the right to the result does not imply the right to the means. The EU can legislate only if
41
Joerges C, Roedl F. Social Market Economy as Europe´s Social Model? EUI Working Papers
Law No. 2004/8 Badia Fiesolana, San Domenico 2004, p. 20.
42
Costamagna, F. The Internal Market and the Welfare State after the Lisbon Treaty. In Research
Paper Observatoire social européen No. 5 April 2011, p. 8. Available at: http://www.ose.be.
43
O´Gorman R. The EHCR, the EU and the wakness of Social Rights Protection at the European
Level. In German Law Journal Vol. 12 No. 10, 2011, p. 1853.
44
Charter provide in some Titles justiciable rights but but in others only so-called „principles“
that must be observed by institutions when the issue legislative or executive acts and thus become
significant for the Courts only when such acts are interpreted or reviewed (see EXPLANATIONS
RELATING TO THE CHARTER OF FUNDAMENTAL RIGHTS (2007/C 303/02) Explanation
on article 52. Available at http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2007:303:0017:0035:en:PDF
45
Blancke, H.-J, Mangiameli, S. Eds. The Treaty on European Union (TEU) A Commentary.
Berlin: Springer 2013, p. 161.
Volume 14, Issue 4, 2014
405
the Treaty provides for corresponding competence to act in a particular area.46
And the
wording of the key “social” article 153 TFEU allows the EU only to “support and complement”
the activities of the Member States in several social fields, however, at the
same time it excludes any EU legislation affecting fundamental principles of national
social security systems and rules out any EU act that would apply to pay, to the right of
association, to the right to strike or to the right to impose lock-outs.
It is therefore clear that under the provisions of the Lisbon Treaty, the EU itself is not
capable of implementing on its own any ambitious program of social measures or collective
social rights of workers.47
In this respect, nothing should be expected from the
so-called flexibility clause of Article 352 TFEU which allows the Union’s competences
to be adjusted to the objectives laid down by the Treaty when the latter has not provided
the powers of action necessary to attain them, as this “escape clause” cannot be used in
cases where the Treaties exclude such harmonization (Art 352(3) TFEU). An interpretation
of the social market economy objective not as a green light to development of EU
social model, but as a defensive principle which should serve not that much to EU legislators
as to ECJ judges to reduce bias for the leftist or for the rightist solutions of arising
problems, looks therefore very close to reality.
How could the ECJ assume such a role was suggested by its General Advocate (GA),
Cruz Villalón, in his Opinion in the case C-515/08 Santos Palhota in May 2010, i.e.
after half a year of the effectiveness of the Lisbon Treaty. Addressing the question concerning
the legitimacy of national requirements imposed on an employer from another
Member State, which posted to the country at issue his employees within the crossborder
provision of services, GA proposed to the Court to take account of the new social
provisions of the Lisbon Treaty:
However, since 1 December 2009, when the Treaty of Lisbon entered into force, it has
been necessary to take into account a number of provisions of primary social law which
affect the framework of the fundamental freedoms. Specifically… Article 9 TFEU lays
down a ‘cross-cutting’ social protection clause obliging the institutions ‘to take into
account requirements linked to the promotion of a high level of employment, the guarantee
of adequate social protection, the fight against social exclusion, and a high level
of education, training and protection of human health.’ That requirement is laid down
following the declaration in Article 3(3) TEU that the construction of the internal market
is to be realised by means of policies based on ‘a highly competitive social market
economy, aiming at full employment and social progress’.48
46
Joerges C, Roedl F. Social Market Economy as Europe´s Social Model? EUI Working Papers
Law No. 2004/8 Badia Fiesolana, San Domenico 2004, p. 20; Blanke, H.-J, Magiameli, S. Eds.
The Treaty on European Union (TEU) A Commentary. Berlin: Springer 2013, p. 164.
47
Blanpain, R. The Treaty needs to be amended. In European Labor Law Journal Vol 4 no
1/2013 p. 31, Schoemann, I. The Lisbon treaty: a more social Europea at last? In ETUI Policy
Brief, European Social Policy, Issue 1/2010, Brussels 2010, p. 5
48
See OPINION OF ADVOCATE GENERAL CRUZ VILLALÓN delivered on 5 May 2010
Case C-515/08 and JUDGMENT OF THE COURT (Second Chamber) delievered 7 October 2010
REVIEW OF ECONOMIC PERSPECTIVES
406
However, the ECJ issued a judgment without a single reference to the objectives of
Article 3 paragraph 3 TEU or the social market economy. Indeed, according to the
EUR- LEX database, this term had never been used by the ECJ in its judgments until
then in the whole post - Lisbon period.49
At the same time, the ECJ referred several
times50
to its older, socially questionable judgments C-438/05 Viking Line51
and C-
341/05 Laval52
and commentators concluded that the ECJ does not intend to accept, in
consequence of the Lisbon Treaty, any significant changes regarding the relationship
between economic freedoms and fundamental social rights.53
Maybe the brake of social
market economy really works in both directions preventing any bias either for neoliberal
or socialist solutions. Or maybe the ECJ does not want to do the work that should be
carried out by political decision makers as it is not up to judges to draw far reaching
political consequences if Treaty framers could not decide what direction the EU should
set for.
Conclusion
In contemporary economic theory, the idea of a social market economy represented by
its basic instrumental ideals is usually addressed. A number of authors of the OCA theory
postulate the need for greater symmetry between monetary integration and centralizaCase
C-515/08. Both available at: http://curia.europa.eu
49
It was the EU’s General Court that so far in one judgment from September 2012 (T-565/ 08,
Corsica Ferries) used the argument based on the social market economy principle and upheld the
Commission’s decision not to prohibit a state aid provided to a state controlled company. It argued
that “in a social market economy, a reasonable private investor would not disregard, first, its
responsibility towards all the stakeholders in the company and, second, the development of the
social, economic and environmental context in which it continues to develop” and “for that purpose,
the payment by a private investor of additional redundancy payments is, in principle, capable
of constituting a legitimate and appropriate practice.” It sounds promising, however, only a
convinced optimist would call this isolated case in more than four years (since Lisbon Treaty
entry in force) a major shift in EU Courtrs’ approach towards assessing the balance between the
economic and the social.
50
See for instance C-271/08 Commission v. Germany 15 July 2010 para 47. Or the the review of
recent ECJ case law in Voogsgeerd, H. The EU Charter of Fundamental rights and its Impact on
Labor Law: a Plea for a Prportionality-Test „Light“. In Goettingen Journal of International Law
4/2012 - 1, p. 332-334.
51
Case C-438/05 International Transport Workers’ Federation and Finnish Seamen’s Union v
Viking Line ABP and OÜ Viking Line Eesti, 11 December 2007. Available at: http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62005J0438:EN:HTML
52
Case C-341/05 Laval un Partneri Ltd v Svenska Byggnadsarbetareförbundet and Others 18
December 2007 . Available at http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62005J0341:EN:HTML
53
Grimmel, A. The European Court of Justice growing role in the domain of fundamental rights
is not a sign of judicial activism, but political insufficiencies. In EROPP – European Politics and
Policy, LSE London, August 16, 2013, p. 8-9 , Voogsgeerd, H. The EU Charter of Fundamental
rights and its Impact on Labor Law: a Plea for a Prportionality-Test „Light“. In Goettingen Journal
of International Law 4/2012 -1, p. 332.
Volume 14, Issue 4, 2014
407
tion of fiscal, respectively, social policy (the part of which would include both a European
tax and the implicit transfers). Other authors, speak of "Post-crisis inconsistent
trinities" etc., in other words of the need for an adjustment of the institutional framework
of the EU so that the ideas of social market economy remain fulfilled. If we perceive
the European integration as a process through which Europe wants to face global
competition, we must - in addition to structural reforms - ask the question of what kinds
of international and global public goods (according to Baldwin 2008) it should try to
create to keep the European welfare state. Besides the redefinition of the role of the
public sector in areas such as healthcare and education, different types of transnational
institutional rules and regulations might be considered international (European) public
goods.
From a legal point of view, the social market economy objective seems to have no other
specific mission than to order a balancing test between the economic and the social at
any occasion when rights arising from either economic freedoms or social protection
come into clash. So far, however, this objective has not brought about any significant
change of accents in favor of more social EU as it was expected when the Lisbon Treaty
came into force. Social market economy means a compromise between free markets and
protected social rights and either itself or under provisions of the Treaty does not imply
any push towards “social Union” in the sense of specific EU measures that would harmonize
social rights and benefits across the EU. The ECJ is also apparently unwilling to
use the social market economy goal as a basis for changes to its long-established case
law. If any strategic re-orientation of the EU should take place, a shift in its competencies
would inevitably have to be approved among Member States, and the Title X TFEU
on Social policy would have to be redrafted.
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