Elsa Fornero is professor of economics at the University of Turin and an honorary fellow of the Collegio Carlo Alberto. She is a leading expert on pensions and welfare, and served as Minister of Labor, Social Policies and Gender Equality in the Monti cabinet (November 2011 – April 2013). In this capacity she devised, among other things, a key reform of the italian pension system. EuVisions met with Ms. Fornero to have a brief chat about the multiple challenges of the European social model.
Do you believe that the “European social model” will be able to adapt to the pressures, in terms of structural reforms, coming from European institutions?
Elsa Fornero: Unlike many, I do not believe that the “European social model” is outdated–on a path of irreversible decline. I do not think we are experiencing some sort of identity crisis either: we are not heading towards a logic of personal responsibility, in which everyone is responsible for her economic fate, as in the Anglo-Saxon countries. The actual crisis is rather one of adapting to external changes and specific internal challenges in each country’s welfare system. I also think that through the right adjustment process, this crisis can be overcome. welfare systems in Europe are wrestling with the problem of an ageing population: it is clear that policies conceived for systems with a growing population and a bottom-heavy age structure have to be adjusted when the distribution becomes top-heavy. Welfare policies need to be updated to face this demographic transition. We know from reliable projections that current population trends will stay with us at least for the next five-six decades.
The focus on the economic sustainability of welfare systems should be one of the building blocks in the construction of a European social model that is not only financially but also socially sustainable: [its] legitimacy should be based on the values of cohesion and participation it can stimulate.
This issue seems all the more serious in times of economic crisis.
Clearly we have an issue of economic growth. The economic slowdown we are facing cannot be interpreted as cyclical in nature. Europe as a whole has undergone a long period of slow growth–with some countries experiencing negative rates–and this trend looks set to continue: the “Great Recession” left its mark, and t it is far from being just a memory. This is a challenge for welfare systems since growth plays an essential role in any welfare system, reducing unemployment levels, raising participation rates and per capita income, and widening the scope of social contributions. Bearing in mind the broader demographic framework, economic growth it is all the more important in order to compensate for population ageing.
One of the functions of a welfare system should be to address the consequences of economic downturns. How come some systems are better equipped than others to cope with the current crisis?
Some welfare policies in the past were shortsighted and unbalanced in favour of older generations. Those choices were made in the name of solidarity, but it was an unfair and opaque form of solidarity, which implied a perverse and unjustifiable redistribution from the poor to the rich.
A European unemployment insurance scheme should provide the right incentives and a solid and coherent legal framework in order to avoid unintended effects such as hindering workforce participation, or being an invitation to irregularities and frauds.
Appeals for solidarity within the EU are ever more frequent. On what grounds should a European social model be considered effective?
It is important that we recognise the nature of our problems in order to meet the challenges ahead. It is my opinion that the focus on the economic sustainability of welfare systems should be one of the building blocks in the construction of a European social model that is not only financially but also socially sustainable. The legitimacy of such a model should not be based on the entitlements it provides, but rather on the values of cohesion and participation it can stimulate. We should get out of a mindset in which entitlements to social rights are legitimate per se, and instead promote a model in which my entitlements, rights and duties are balanced and reconciled with those of other citizens. The road will not be easy, but it is my firm belief that this is the only way to preserve a European social model.
It might be harder to legitimize a model based on cohesion and participation when other citizens are actually citizens of other countries. A policy embodying this spirit of European participation could be the creation of some form of EU-level unemployment insurance scheme. Do you see this measure as realistic?
European measures in the social field must be designed and implemented with great care. For instance, as Italy’s Minister of Labour, I worked alongside Commissioner Andor [the Commissioner for Employment, Social Affairs and Inclusion from 2010 to 2014], participating in the elaboration of the Youth Guarantee programme. In some countries the programme has worked very well. This, alas, has not been the case for Italy, where we faced constraints due to insufficient funding but also, and above all, to institutional problems. Even when funds are sufficient, it is not always easy to make the most of a well-shaped policy if a country lacks proper institutions, management structures, procedures and good practices. I am moderately in favour of measures of unemployment insurance at the European level. They should, however, be financially sound and carefully designed. As I myself learned the hard way [as Italian Minister of Labor], the devil is in the details. A European unemployment insurance scheme should provide the right incentives and a solid and coherent legal framework in order to avoid unintended effects such as hindering workforce participation, or being an invitation to irregularities and frauds. And it should be supported by adequate and transparent sources of funding, without introducing new taxes.
However, cross-national transfers would be inevitable, and their direction would be quite predictable, at least in the short run.
Of course, in a system like that, somebody will have to pay for somebody else. But I do not think that Germany would be that reluctant. Sure, such a measure would imply cross-national transfers, and in this sense it is all the more important not to associate this type of measure to increases in taxation. We should be careful not to make it become yet another argument for Eurosceptics.
We see lines of tensions between the national spaces, around which the traditional welfare state was built, and the European space. What is your take on this?
I think that the way to resolve these tensions is to give Europe more room in domains that have traditionally belonged to the nation state. The flip side of the coin–and this should be made extremely clear–is that choosing less Europe, namely taking steps back from integration, necessarily comes with a great loss in social terms.
A choice towards less Europe: the British referendum comes to mind.
Currently there are many forces at play seeking to dismantle the European construction instead of trying to strengthen it. The recent Dutch vote on the EU-Ukraine association agreement and the forthcoming Brexit referendum are strong signals to this effect. I hope the former will not leave too deep a mark, and that the “remain” side will prevail in the latter, allowing the UK to stay in the EU and scale down its special status.
I am sceptical about expansionary policies that supposedly pay for themselves, because of such good intentions is paved the road to higher public debts.
Being a bit provocative, could we not see Italy’s requests to relax the budgetary constraints coming from European rules also as centrifugal forces?
Flexibility may be invoked with good reason in response to an economic slowdown. But it might as well turn out to be a double-edged sword, as it could lead to higher debt levels. I am skeptical about using budgetary flexibility as a cover for structural deficit, and about the idea of expansionary policies that supposedly pay for themselves, because of such good intentions is paved the road to higher public debts. When such policies are chosen, I think it would be fair and intellectually honest to admit that we are leaving future generations to foot the bill. I am more in favour of greater budgetary flexibility when this flexibility is tied to real, growth-enhancing and job-creating investment projects–as opposed to, say, financing an increase in pension expenditure.
One of the rationales for fiscal policy constraints is preventing decision-makers from using expansionary measures for short-term political gains. However, it seems hard to reconcile the logic of fiscal discipline with that of political and social sustainability.
In my opinion the Union’s fiscal discipline measures are an indicator of the limits of European integration: we have too little Europe rather than, as many argue, too much. Alongside a central monetary authority–and by the way, I think that the European Central Bank is doing a remarkable job given the current situation–I think Europe needs a fiscal authority, with an even greater scope for flexibility but without the political shortsightedness, carelessness and lack of transparency that have characterized some member states’ actions thus far. There is no doubt in my mind that the right course for us is to have “more Europe”.
Shortsighted, careless and scarcely transparent governments: this sounds very much like pre-crisis Greece. However, the government led by Alexis Tsipras seems to embody a general Greek mood towards less, not more Europe.
I have visited Greece recently and on that occasion I had the impression that, while the Tsipras government has a lot of goodwill, it is just not able to escape the stalemate in which Greece finds itself. Tsipras seems to be caught between a weak, yet insubordinate majority, and the constant admonitions coming from the ivory towers of supranational institutions. People in Greece are struggling, and there is an urgent need to legitimize every harsh policy choice by making sure that further sacrifices are accompanied by measures of redistribution from top to bottom.
It sounds like you are questioning the value of austerity policies.
Reading current changes only through the lenses of austerity does not help. If calls for sacrifices are made in the name of austerity by Germany and the IMF, it is perfectly understandable that they are not welcomed enthusiastically. If, on the other hand, the same choices are placed in a context of credibility and trust, in which these sacrifices start from the top, from the wealthy, they are easier to accept.
Photo Credits CC: DG EMPL