Over time, the impact of EMU on the European social model (ESM) is likely to depend most fundamentally on its effects on unemployment. If EMU makes it possible to significantly reduce unemployment, it poses no threat to the ESM. On the contrary, EMU could facilitate its reconfiguration, preserving its high level of social protection and labor rights while adapting it to new needs and improving its equity and efficiency. If EMU instead keeps unemployment high, it threatens the ESM's two main components: the welfare state's financial viability and the trade unions' capacity to bargain over wages and working conditions. Monetary union as such could potentially help Europe reach the reaffirmed goal of full employment. But the EMU macroeconomic policy regime, as the European Central Bank (ECB) interprets it, could make that goal unattainable.

This chapter argues that EMU is likely to keep unemployment at high levels. The argument hinges on two propositions: (1) in order to bring unemployment back down after an extended period of disinflation which has kept growth below its potential and unemployment high, a period of economic growth above its long-run potential – a growth spurt – is necessary, and (2) the EMU macroeconomic policy regime, as interpreted and implemented by the ECB, blocks such a growth spurt. Section 1 describes the policy regime, arguing that the ECB's implementation of it so far and the bank's rationale for doing so indicate an unwillingness to permit the growth spurt needed to significantly reduce unemployment.