The Social Dimension of the Internal Market

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The Social Dimension of the Internal Market

European Economic and Social Committee


    The Social Dimension of

    the Internal Market

    Brussels, 14 July 2010


    of the

    European Economic and Social Committee


    The Social Dimension of the Internal Market

    (Own-initiative opinion)


    Rapporteur: Mr Janson


    SOC/360 - CESE 970/2010 EN/o

    Rue Belliard/Belliardstraat 99 1040 Bruxelles/Brussel BELGIQUE/BELGIË

    Tel. +32 25469011 Fax +32 25134893 Internet:


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    On 16 July 2009 the European Economic and Social Committee, under Rule 29(2) of its Rules of Procedure, decided to draw up an own-initiative opinion on

    The Social Dimension of the Internal Market.

    The Section for Employment, Social Affairs and Citizenship, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 5 May 2010.

    At its 464th plenary session, held on 14 and 15 July 2010 (meeting of 14 July 2010), the European Economic and Social Committee adopted the following opinion by 143 votes to 15 with 19 abstentions.


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1. Summary

    1.1 The social dimension is a core component of the internal market. It has a number of aspects.

    This opinion deals among others with the economic and legal aspects. Recent developments

    have raised questions about the social dimension's ability to protect workers. The internal

    market cannot function properly without a strong social dimension and the support of the


    1.2 The EESC strongly believes that the EU has an important role to play in the social field

    because social problems cannot be solved by Member States alone. In order to create political

    acceptance, solidarity and coherence, the EU should place greater emphasis on the social

    aspects in its policies.

    1.3 A number of adverse developments have, among other factors, put the social dimension in

    jeopardy. The European economy is facing its most serious challenge in decades. Financial

    bubbles have been allowed to grow and control mechanisms and traditional risk assessments

    have been sidestepped. As a result unemployment has risen and labour markets and the social

    situation will continue to deteriorate. Therefore employment must remain at the top of the

    EU's agenda. Europe needs sustainable growth and a high employment rate combined with a

    high quality labour market in order to finance welfare systems.

    1.4 Over the last decade, welfare systems have been the target of reforms aimed at promoting

    more effective work incentives in social protection systems, in order to strengthen the value

    of work and to re-integrate people in the labour market. One result has, however, been a SOC/360 - CESE 970/2010 EN/o .../...

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    growth in inequality, thus aggravating social problems. Employment and welfare systems are crucial to alleviating poverty and without social benefits the rise of inequality and the social impact of the crisis would be much more rapid and severe. The deterioration of national finances in many Member States, leading to an actual or potential sovereign debt crisis, is putting social welfare systems under considerable pressure. Increased, sustainable economic activity, regulation of financial markets and investments in research and education are some possible solutions to this problem.

    1.5 The internal market is an arena in which both the social dimension and other dimensions find their expression. To flourish, sustainable economic growth and jobs must be created which in turn generate tax revenues which are the basis for social entitlements. The levels of unemployment and the fiscal imbalances show that much can be done to remedy the current situation.

    1.6 The legal aspects of the social dimension have been brought into question because ECJ rulings in four cases (Viking, Laval, Rüffert and Luxemburg) have led to lively debates particularly in political and academic circles about potential fears of increasing risks of social dumping. The European Parliament, the academic world and employee representative

    1organisations have expressed their concern about the decisions. Others are convinced that the ECJ judgements in these cases will contribute to improved functioning of the internal market.

    1.7 The EESC therefore demands:

    In the short term the EESC calls for the posting of workers directive to be implemented more effectively. The EESC proposes that the idea of the creation of a "European Social Interpol" be explored, supporting the activities of the Labour Inspectorates of the various Member States.

    The EESC urges the Commission to assess the situation in the EU in light of the ECHR's recent judgements.

    The EESC also supports measures by the Commission that seek to strengthen social dialogue, including:

    ; the promotion of a higher quality social dialogue and a European mechanism for dispute

    resolution and conciliation;

    ; further development of the macroeconomic dialogue with a view to preventing another

    financial crisis;

    ; promotion of the European social model in international relations.

    1 The European Trade Union Confederation represents 80 million workers.

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    In the medium term the EESC supports a Commission initiative which clarifies the legal

    obligations for national authorities, business and workers when implementing the Posting of

    Workers Directive and which ensures that these rules are universally applicable. The EESC

    finds the proposal in the Monti report, where the right to strike is exempted from the internal

    market, interesting and believes that it might resolve some of the problems. This should,

    however, not exclude a partial revision of the Posting of Workers Directive in order to apply

    the place of work principle consistently, making it possible to establish by law that the same

    working and remuneration conditions must always apply for the same work at the same


    In the longer term the European Union should strive to strengthen the social dimension and

    realise the full potential of the internal market. The Lisbon Treaty and the annexed Charter of

    Fundamental Rights have not yet had their full impact on the balance between fundamental

    rights and economic rights. Strengthening the social dimension requires that the fundamental

    social rights be strengthened and that any limitation of fundamental rights which includes

    social rights be very restrictive. A Treaty change could be pursued to achieve this objective.

2. The internal market and the social dimension

    22.1 In 1987, the EESC adopted an opinion on the social aspects of the internal market. The

    EESC proposed that the European Community secure a number of basic social rights

    connected to the labour market. It wanted to ensure that the recently launched internal market

    did not lead to market distortions and to underline that the Community also had social goals.

    The social dimension includes legislation and agreements made at European level in order to

    guarantee that employees enjoy certain fundamental rights at the workplace. However, this

    also requires cooperation with a view to boosting employment in the EU.

    2.2 Following that opinion, the European Commission published a number of documents which

    were the starting point for the development of a broader and deeper interpretation of the social

    3dimension of the internal market. As the Commission wrote "The social dimension of the

    internal market is a fundamental component of this project, for it is not only a matter of

    strengthening economic growth and stepping up the external competitiveness of European

    undertakings, but also of using more efficiently all the resources available and of achieving a

    4fair shareout of the advantages deriving from the single market".

    2.3 In 1989, the EESC was instrumental in outlining the content of the Social charter vesting

    workers with fundamental social rights not to be jeopardised because of the pressure of

2 See ESC opinion of 19.11.1987 on Social Aspects of the Internal Market, rapporteur: Mr Beretta (OJ C 356 of 31.12.1987, pp. 31-33).

    3 For example the Social Dimension of the Internal Market. Commission Working Paper. SEC(88) 1148 final, 14.9.1988 and the

    Communication from the Commission concerning its Action Programme relating to the Implementation of the Community Charter of Basic Social Rights for Workers. COM(89) 568 final, 29.11.1989.

    4 Social Dimension of the Internal Market. Commission Working Paper. SEC (88) 1148 final, 14.9.1988.

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    competition or the pursuit of increased competitiveness. In the view of the EESC, the exercise

    of such fundamental rights presupposes that there is no unjustifiable restriction placed on


    2.4 This opinion tries to capture some of the most recent important developments affecting the

    possibilities for the social dimension to function. In recent years, the EESC has adopted other

    5opinions dealing with the social dimension which this opinion partly builds on. What is clear

    from the outset is that in a social market economy the internal market cannot function

    properly without a strong social dimension or the acceptance of the European citizens. The

    advantages of a properly functioning single market are numerous and important for

    companies, workers, citizens and the economy in general. It appears, however, from the

    preamble to the treaties that the single market was conceived as a tool to serve the welfare of

    the people, and not as an end in itself.

    2.5 There are thus four fundamental reasons for the social dimension:

    ; the free movement of persons;

    ; there are indivisible social rights to which any society should adhere and with which it

    must comply under all circumstances; these are the right to collective action, trade union

    and collective bargaining freedoms and the other rights set out in fundamental ILO

    conventions and international and European conventions on social and personal rights;

    ; to strengthen the functioning of the internal market and to mitigate the negative

    consequences of the same, in order to create acceptance for political and economic

    projects and boost social cohesion;

    ; social policy is also one major component of improved competitiveness.

    2.6 "Social policy" is a shared competence between the national and the European level. Most of

    the provisions in this field focused on establishing the freedom of movement for workers and

    the freedom of establishment for the purposes of the internal market. Nonetheless, the social

    dimension gained in prominence. Subsequent treaties have extended majority voting to areas

    such as equal opportunities legislation, the information and consultation of workers and

    policies to help the unemployed. However legislation did not (and does not) have a legal basis

    for covering such matters as pay, the rights of association, to strike or to impose lock outs,

    even if ECJ decisions and EU-legislation do touch upon these issues. The Nice Treaty

    formalised the status of the Charter of Fundamental Rights of the European Union. The

    Lisbon Treaty has further formalised rights by making the Charter of Fundamental Rights

    legally binding.

    5 See EESC opinions:

     - of 6.7.2006 on Social cohesion: fleshing out a European social model, rapporteur: Mr Ehnmark (OJ C 309 of 16.12.2006, pp. 119-125). - of 9.7.2008 on A new European Social Action Programme, rapporteur: Mr Olsson (OJ C 27 of 3.2.2009, pp. 99-107) and - of 4.11.2009 on The post-2010 Lisbon Strategy, rapporteur-general: Mr Greif (OJ C 128 of 18.5.2010, pp. 3-9).

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    2.7 Social policies are primarily the responsibility of Member States. However, social challenges

    arising from global or European developments affect people living in Member States, and so a

    coordinated European approach is necessary. The EU has tackled the dilemma of dual

    competencies using different methods. It has tried to uphold social norms by deciding on a

    range of minimum standards. Another method is the Open Method of Coordination (OMC).

    The OMC could be used better and more effectively by using the newly introduced "common

    principles" approach and by allowing organised civil society's participation in formulating

    6and even negotiating the objectives of the Lisbon Strategy at European level.

    2.8 Europe's social "acquis" is remarkable: about 70 directives and regulations have been adopted

    in this field since the creation of the European Union. The majority have been adopted since

    1985. The EESC strongly believes that the EU has an important social role. Social problems

    cannot be solved by Member States alone. In order to create political acceptance, solidarity

    and coherence, the EU should place greater emphasis on the social aspects of its policies,

    while respecting the principle of subsidiarity.

3. Present developments

3.1 Development of the economy

    3.1.1 The European economy is facing its most serious challenge in decades. Since the second half

    7of 2008, the world economy has been experiencing a sharp economic slowdown which is

    proving to be far worse than expected in most countries. Just as economies were showing

    signs of recovery from the banking crisis, they are now endangered by the sovereign debt

    crisis and the severity of the corrective measures being mandated.

    3.1.2 Unemployment is rising, aggravating the situation. The repercussions of the financial crisis

    and lenders' requirements have led to cuts in welfare systems, pensions and social transfers.

    This will exacerbate poverty and place the most vulnerable groups at a disadvantage, starting

    a vicious circle. Many European companies that have been affected by the crisis nevertheless

    have taken measures, together with public employment services, to maintain their labour

    force and thus keep people in employment.

    3.1.3 The sudden explosion of events and their rapid spread show new phenomena in the globalised

    economy. The causes were many. Monetary and exchange-rate policies which led to

    excessive liquidity, insufficient or non-existent regulation of certain areas or actors, the search

    for unrealistically high returns coupled with an insufficient understanding or analysis of the

    risks involved on the part of market actors and supervisory and regulatory bodies, excessive

    6 EESC opinion of 4.12.2008 on the Effective governance of the renewed Lisbon Strategy, rapporteur-general: Ms Florio

    (OJ C 175 of 28.7.2009, pp. 13-19).

    7 European Commission Economic Forecast Spring 2009.

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    leverage, insufficiently coordinated macroeconomic policies and inadequate structural


    3.1.4 Inevitably, the question arises of whether the EU's present economic framework, including an

    insufficient macroeconomic dialogue, has in fact aggravated the crisis. The results have been

    weakened automatic stabilisers, an explosion of credit instead of real wages, falling growth

    rates and less likelihood of detecting financial bubbles. The EESC is of the opinion that

    transferring private debt (banks) to public debt (States and citizens) places an excessive

    burden on citizens, particularly since the deterioration of public finances and the limitations

    of the growth and stability pact raise questions about how vital investments in welfare

    systems will be financed in the future.

    3.1.5 The latest stage of the crisis has revealed that many Member States have been running

    unsustainable budget deficits. The corrective action needed to restore public finances will put

    enormous pressure on tax systems, social policies and programmes.

    3.1.6 Despite their shortcomings, it should be noted that the Commission is considering national

    State subsidies, including in view of labour protection, in the framework of a broader

    European picture. Competition policy, in particular regarding SMEs and State subsidies to

    banks, rightly takes account of the socio-economic aim of maintaining a level playing field in


    93.1.7 The EESC has previously noted that European economic policy-makers have recognised the

    need for a counter-cyclical macroeconomic policy to complement the past reliance of

    economic policy on supply-side measures. The EESC also welcomed the commitment to

    provide better protection for the weakest members of society and to coordinate economic

    policy more effectively. However, it underlined that the EU's economic recovery plan is

    relatively small in scale compared with the packages adopted in other regions of the world.

3.2 Development of the internal market

    3.2.1 The EESC has lauded the creation and development of the internal market in several

    10opinions. The internal market, covering all Members States and the EEA countries, benefits

    consumers, companies and workers by providing a single regulatory space for mobility of

    goods, capital, persons and services.

8 See EESC opinion of 15.1.2009 on the European Economic Recovery Plan, rapporteur: Mr Delapina (OJ C 182 of 4.8.2009, pp. 71-74).

    9 Ibid.

    10 See EESC opinion of 14.5.2009 on The impact of legislative barriers in the Member States on the competitiveness of the EU,

    rapporteur: Mr van Iersel. (OJ C 277 of 17.11.2009, pp. 6-14).

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    113.2.2 The Commission has laid out its vision of the single market for the future. It points out that

    the single market is beneficial for consumers and businesses, that it has supported job creation and stimulated growth, competitiveness and innovation. The key areas for the future according to the Commission are:

    ; consumers and businesses, where the single market needs to deliver better results and

    benefits to respond to the expectations and concerns of consumers and businesses; ; coping with globalisation;

    ; making knowledge and innovation the "fifth freedom";

    ; a social and environmental dimension where the Commission promises to improve its

    impact assessments to anticipate market changes more effectively.

    The most serious failure of the internal market has been its inability to stimulate employment and economic activity through inward investment. In particular, there has been a failure to nurture and develop technology and research in order to lay the basis for a transition of the economy. Unless this failure can be corrected, Europe will be left in the slow lane of the world economy.

    3.2.3 The EESC calls for a better balance between social development, a favourable economic environment and environmental protection which is key to a functioning internal market and the promotion of long-term sustainable development. The deeper the integration of the internal market, the more vital it becomes to fulfil the treaty objective of ensuring the welfare of the people, and therefore the better the social protection which must be supplied. With 27 labour markets with different legislative traditions, the EU must make sure that rules for internal mobility do not weaken already functioning systems. Precautions need to be taken to make sure that competition between Member States in the common market is geared towards

    12innovation and is not counter-productive or even destructive.

    3.2.4 Furthermore, in the wake of the crisis, Europe will face a wave of company restructuring. The EESC notes that the EU currently lacks a common strategic vision for how to either combat the negative consequences of such restructuring or to seize the opportunity to make the EU economy more competitive in the global economy. The EESC calls on the Commission to adopt a European position together with the social partners to protect all employees concerned. In this respect the EESC welcomes the initiative of the ESP to deliver a study on restructuring in the EU and set up a "Road Map" for companies on how to be effectively engaged in the process of restructuring.

    11 Communication from the Commission to the European parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - A single market for 21st century Europe {COM(2007) 724 final}.

    12 Integrated Report on the implementation and the future of the Lisbon Strategy in the post-2010 period.

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    133.2.5 The EESC has stated that if Europe wants to remain competitive over the long-term, the

    internal market must ensure a sustainable and long term growth which means also taking the

    environmental dimension into account. The final goal is to significantly improve the

    functioning of the internal market within a social market economy, and ensure fundamental

    social rights are respected. The EESC has also stressed that if necessary and appropriate,

    suitable specific measures should be adopted as soon as possible to protect workers stating

    that neither economic freedoms nor competition rules should take precedence over

    14fundamental social rights. At the same time the EESC is mindful of the need to stimulate

    job creation and promote entrepreneurship as well as create healthy and sustainable Member

    State economies.

    3.2.6 One shortcoming which needs to be addressed if the internal market is to fulfil its role is to

    give more prominence and legal certainty to services of general interest which have played an

    important role as economic stabilisers during the current economic crisis and to develop the

    international dimension. We need to promote our social model on the international stage as a

    factor of development and affirm our identity as a mutually supportive, active body in

    international forums which aims to provide a stronger framework for globalisation. If

    globalisation is to be fair then Europe should press for more equal trade and globalisation in

    its trade related and other international agreements.

    3.2.7 The EESC is of the firm conviction that mobility in Europe should remain one of the EU's

    political priorities. In this respect, the EESC has called on those Member States which

    continue to apply transitional arrangements with regard to the free movement of persons to

    15follow the procedures arising from the treaties and dismantle these arrangements.

3.3 Evolution of social/welfare systems

    3.3.1 Despite a partial economic upturn, the employment and social situation will continue to

    deteriorate, especially in the context of the current measures designed to solve the sovereign

    debt crisis. The Commission reports that in the next two years the rate of unemployment is

    16forecast to increase to levels not seen in several decades.

    3.3.2 Steps have been taken in Member States which have had positive effects on keeping up

    employment and keeping down unemployment. They include stimulating investments,

    facilitating collective bargaining and specific labour market measures financed by public

    unemployment schemes. Some have relied on 'internal flexibility', such as various schemes to

13 See EESC opinion of 14.1.2099 on the social and environmental dimension of the internal market, rapporteur: Mr Adamczyk (OJ C 182 of 04.8.2009, pp. 1-7).

    14 See EESC opinion of 14.5.2009 on The impact of legislative barriers in the Member States on the competitiveness of the EU, rapporteur: Mr van Iersel. (OJ C 277 of 17.11.2009, pp. 6-14).

    15 See EESC opinion of 25.3.2009 on Identification of outstanding barriers to mobility in the internal labour market, rapporteur:

    Ms Drbalová (OJ C 228 of 22.9.2009, pp. 14-23).

    16 European Commission Economic Forecast Spring 2009.

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    reduce the number of hours worked combined with training. In some countries there have

    17been large-scale redundancies partly due to the absence of such provisions.

    3.3.3 Employment must be at the top of the EU's agenda. Europe needs a high employment rate

    combined with a high quality labour market. High-quality labour needs high-quality

    entrepreneurship as well as investments in the public and private sectors in order to be

    internationally competitive. The financing of welfare systems relies on the European labour

    market being able to incorporate as many workers as possible. Europe is still facing barriers

    to achieving full employment. In order to maintain high future levels of employment in

    Europe, the emphasis has shifted to flexicurity, employability, higher productivity, and

    education and training which can contribute to establishing more effective labour markets.

    More than this, the highest priority should be given to measures that will stimulate jobs and

    company formation and to measures that will encourage sustainable inward investment.

    3.3.4 Over the last decade, welfare systems have been the target of reforms aimed at promoting

    more effective work incentives in social protection systems, in line with a supply-side

    oriented philosophy with reductions in welfare benefits and stricter eligibility criteria. Such

    measures are thought to reduce unemployment. Welfare systems must strike a balance

    between providing support for getting people back to work and income support in the event of


    3.3.5 The effectiveness of such policies is open to question. There has been a growth in inequality

    over the last two decades. Welfare systems are crucial to alleviating poverty and without

    social benefits the rise of inequality and the social impact of the crisis would be much more

    rapid and severe. There is a danger that the present crisis will bring the trend of increased

    employment and improvements in cross-country social cohesion to a halt, while exacerbating

    18a long-term trend in Europe where intra-country income inequality is worsening.

    3.3.6 The anti-crisis measures in many Member States brought positive results. On the other hand

    19the Commission reports that in many countries, unemployed people do not receive income

    support. In some cases these benefits are poorly targeted, suggesting that benefit systems not

    only fail to provide a comprehensive safety net, but also that they are not properly targeted

    towards those most in need. The quality as well as the sustainability of these systems is at

    20stake. Given the effects of the economic crisis and the demographic development there is a

    risk that welfare systems may shift from protecting living standards to simply establishing

    minimum standards. This is particularly the case where entitlements are already in excess of

    the fiscal incomes of certain Member States. While productivity continues to increase in EU

17 Plant-level responses to the economic crisis in Europe Vera Glassner and Béla Galgóczi WP 2009.01 ETUI.

    18 This trend of growing inequalities is also evident in the OECD-area.

    19 The Social Situation in the European Union 2008.

    20 IRES 115.

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