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.

Recent decades have strained the national systems of industrial relations and collective bargaining that were a cornerstone of the postwar European social model. EMU is widely expected to intensify this strain and change European industrial relations profoundly. The supranationalization of monetary policy and economic governance implies relative decentralization of collective bargaining systems, as national systems become regions of the eurozone economy. Improved transparency of prices and wages and elimination of currency risk will intensify competition among producers and nation states. Without the option of adjusting national exchange rates (and interest rates) and with fiscal policies constrained by the Stability and Growth Pact (SGP), labor market actors will increasingly bear the burden of fluctuating economic circumstances and preventing new unemployment. All this poses a dual challenge of increasing labor market adaptability and enhancing policy coordination both within and across national systems.

The implications of EMU for industrial relations are ambiguous, however. With fiercer regime competition and contradictory pressures for adaptation of national systems, the responses of social actors and governments will depend largely on EMU's effects on growth and employment and hence on the macroeconomic policies adopted by EU authorities, and the ECB in particular. At the same time, however, differences in national systems and responses will produce as much potential for diversity as convergence. Three broad scenarios emerge:

• First, a status quo scenario assumes that the economies and industrial relations systems in the major eurozone countries have already become accustomed to operating under the conditions of fierce competition, strict monetary policies, and high unemployment and that most of the constraints of the Euro-regime have already been absorbed. The emerging path will thus codify trends observable during the 1990s. The central issue for this path will be the long-run influence of present trends on national systems.

• […]

Economic and Monetary Union (EMU), on the one hand, and existing models of labor market regulation and welfare provision within the European Union (EU), on the other, have often been assumed to stand in contradiction to one another. The re-appearance of EMU on the European agenda in the late 1980s, following the de-regulation paradigm of the Single European Market (SEM), raised widespread concern that it might serve as a “Trojan horse” for a neo-liberal policy shift across EU states. The “sound money, sound finances” principles underlying the particular design of EMU, strengthened in the Stability and Growth Pact (SGP) of 1997, seemed to threaten traditional social models and the scope for national differentiation. By the time the new Euro currency was launched in 1999, the evidence to confirm or remove such fears was, in reality, limited and varied. As in other spheres, it has been hazardous to judge the relationship between endogenous and exogenous pressures for reform. External pressures are mediated within distinct institutional settings, with different roles and interests on the part of actors. Moreover, pressures of “Europeanization” and of “globalization” may be difficult to distinguish. Indeed, some equate the two (Wylie 2002). Case study investigations, such as those presented in this volume, are needed to assesscausation rather than incidental correlation.

The argument of this chapter is that progress may be made by examining the more limited issue of how EMU has been used within different institutional settings: that is, how it has been deployed as a strategic lever for reform and as a stimulus to a shift of norms and beliefs affecting policy in contingent areas.

Germany's social model is a variant of embedded, non-liberal social capitalism that attempts to bridge the gap between efficiency and solidarity through interdependent socioeconomic and political institutions. These arrangements have placed Germany in the middle ranks of OECD welfare states, even though labor market regulation is well above average. Germany's macroeconomic policy institutions, in particular its powerful central bank, have given primacy to price stability (Busch 1995). The interaction between this corporatist–centrist welfare state and employment relations system (Schmidt 1998) and “institutionalized monetarism” (Scharpf 1987; Streeck 1997) has shaped the adjustment strategies for responding to changing economic conditions. Evaluations vary. Germany has often been presented as a model “middle way” between Anglo-Saxon liberal democracies and Nordic social democratic welfarism (Schmidt 1987, 2001b). For others, Germany's welfare and social model provides a negative blueprint, full of institutional rigidities, insider–outsider conflicts in a rigid labor market, and a dense network of institutional veto points built into institutions, adding up to a Reformstau (gridlock). To these critics German social capitalism, at least since the mid-1990s, is no longer a successful “diversified (high) quality production regime” (DQP) (Streeck 1997). Some even call Germany “the sick man of the euro.”

This chapter begins with a brief description of the institutions of the Federal Republic's labor and macroeconomic regimes in most of the postwar period, showing how they framed adjustment to changing environments between the end of the postwar “economic miracle” and the exceptional double challenge of German unification and the introduction of EMU in the 1990s.

In few EU member states was the tension between EMU and commitment to the ESM so apparent as in Italy in the 1990s. It was a decade of political and policy upheaval that shaped, and was affected by, the EMU process. Moreover, EMU was the catalyst and the basis for a debate about modernization in Italy that left few areas of economic and social life untouched. It will be argued that the vincolo esterno (external constraint) of monetary integration has been instrumental to bringing about changes to the basic economic, social, and political structures of the postwar order (Dyson and Featherstone 1996). It would be wrong to assume that the political and economic elites were passive, benignly accepting European dictates that might undermine their position. A constellation of social and political forces looked to use monetary integration for profoundly different reasons and objectives. For some of the forces on the left, but not exclusively, it was a means to dismantle entrenched political and economic oligarchies of the postwar constitutional order. Some of those vested interests sought to manage the requirements of the external constraints to hold on to their position. There were other political forces that looked to monetary integration as a way of bringing about some form of institutional change, be it economic or constitutional. Yet, they all framed the debate about EMU and its attendant policies as one about “modernization.”

Spain's inclusion in 1999 among the first wave of countries participating in the eurozone defied the predictions of many observers who just a few years earlier would have deemed such an outcome improbable. A late entrant into the European Community (EC), the country had been plagued by higher than average inflation and by levels of unemployment that well exceeded those of the rest of the European Union (EU). Its system of labor market regulation, a legacy of a dirigiste past, was seen to be overly protectionist and rigid (particularly concerning layoffs) and hence, a major obstacle to successful labor market adjustment. Its system of social provision, on the other hand, was still under construction when the move toward monetary union was initiated and fell short of other EU states on many dimensions. Given this labor regime, many feared that the adoption of a currency reflecting conditions in the rest of Europe would cause a sharp loss of competitiveness, with dire consequences for employment. That, in turn, might force a radical deregulation of the labor market, ending any prospect of achieving a truly “European” social model in Spain.

This chapter traces Spain's path to EMU and its implications for the country's evolving systems of social protection and industrial relations. After reviewing the basic characteristics of the Spanish social system, it examines why the Spanish government decided to pursue participation in the first wave of EMU at the end of 1998.

A welfare state world of path-dependent, but not predetermined, solutions

Since the 1980s European monetary integration has been a driving force behind domestic welfare reform across the European Union (EU). Triggered by the failure of Keynesianism in the 1970s and by macroeconomic instability in the 1980s and early 1990s, monetary integration to EMU marks a sea-change in macroeconomic policy. It has indirect effects on labor market institutions (Franzese, Jr., and Hall 2000) as well as direct effects on domestic budgetary and fiscal policy that have major implications for social policy. It means that macroeconomic policy can no longer shield labor market institutions and social protection arrangements from the need to adjust to international competition. With nominal exchange rate adjustments ruled out and fiscal stimulation greatly constrained by the Stability and Growth Pact (SGP), policy-makers must seek national solutions within the heart of European social models. Monetary integration is not the only driving force behind welfare state reform, however. Internal dynamics like aging populations, de-industrialization, changing gender roles in labor markets and households, and new technologies place severe strains on welfare state programs designed for a previous era (Daly 2000; Pierson 2001a). Such endogenous social and economic challenges are all aspects of post-industrial change (Esping-Andersen et al. 2001).

Recent comparative research shows convincingly the extent to which most EU welfare states have recast the policy mix of the national systems of industrial relations and social protection built after 1945 (Scharpf and Schmidt 2000).

This is a book about “procedural politics,” the everyday conduct of politics not within, but with respect to, political institutions. The questions it asks are fundamental to political science, and indeed to “institutional” approaches across the social sciences: why, when, how, and with what effects do actors attempt to influence their institutional environment? Why, when, how, and with what effects, by contrast, do rules constrain them? The book develops and tests answers to these questions in the context of EU politics. The results of this inquiry paint a novel picture of EU politics and policymaking, suggesting most importantly (but somewhat paradoxically) that the EU exhibits a more profound degree of rule governance than is usually recognized. But these results generalize far beyond the EU, not only to other international organizations, but also to domestic political systems and, indeed, to all institutionalized political and social systems.

My general argument can be succinctly summarized. I assume that actors seek to ensure the usage of institutions (rules) that maximize their political influence. They are constrained, however, by the strategic nature of institutional choice – the need to interact with others – and by the availability of institutional alternatives.

Procedural politics, the conduct of everyday politics with respect to rules, occurs under predictable conditions, by predictable means, and with predictable effects. It occurs when incentives, conceived as possible gains in influence, and opportunities, conceived as the creation of new institutional alternatives because of jurisdictional ambiguity, align. It characteristically involves procedural coalition formation and strategic issue framing, and it influences rules choices, policymaking efficiency and outcomes, and constitutional change. The previous chapter examined these issues in the context of European Union environmental politics and policymaking, showing that procedural politics outperforms alternative explanations of environmental positions taken, issue frames advanced, coalitions formed, and outcomes generated. When rules are at least partly endogenous to the day-to-day political process, accounts of politics with respect to them must augment and in some cases substitute for accounts of politics within them if we seek to understand legislative behavior, policymaking outcomes and efficiency, and institutional change.

The present chapter extends the empirical examination to a second sector: agricultural policymaking. This sector, when coupled with environmental policy, offers many interesting methodological opportunities. Agriculture is often viewed as the antithesis of the environmental sector in terms of history, issues, operative institutions, and legislative dynamics. Where environmental policy is a “new” area of EU competence, part of the treaties only since the mid-1980s, agriculture enjoys the longest pedigree of any EU policy with the possible exception of the customs union. Environment also represents a “new” (i.e., postmaterial) issue, while agriculture is a classic “old” (i.e., redistributive) one.

This chapter begins the empirical assessment of procedural politics in the European Union. Because this topic has never been treated systematically, one of the goals of this chapter is to paint a picture of the general incidence of procedural politics, including the extent to which it occurs; the time periods, actors, and issues involved; and its effects on important outcomes. The focus throughout will be on the directly observable manifestation of procedural politics, in the form of procedural political disputes (disagreements by two or more actors over which procedure should be used in adopting legislation). Beyond the descriptive task, I seek to test specific theoretical predictions from Chapter 2, based in part upon the analysis and operationalizations developed in the last chapter. Accordingly, this chapter begins with a descriptive examination of variations in procedural politics across time, actors, and issues. These descriptive statistics will provide first-cut assessment of some of the theoretical expectations developed in Chapter 2. Next, I test the general argument about the conditions under which procedural politics is said to occur, namely, as a function of opportunity (the availability of procedural alternatives through jurisdictional ambiguity) and incentives (influence differences among alternative procedures). These tests focus exclusively on the 1987–1997 period, for which an original dataset has been constructed. Armed with these positive results, I then consider some specific effects of procedural politics, showing them to be theoretically consistent and important both in everyday politics and in terms of the long-run evolution of EU institutions.

The data presented in the previous chapter confirm the key argument of this book: actors engage in everyday politics with respect to rules whenever opportunities and incentives align. They play procedural politics, that is, to the extent that jurisdictional ambiguity makes institutional alternatives available and to the extent that those alternatives differ in the influence they afford the EU Parliament, Commission, Council, or member states. Procedural politics varies systematically and in a theoretically consistent way over time and across actors and issues. It exerts strong and theoretically expected effects on policymaking efficiency and long-run institutional change.

The data in Chapter 4, drawn as they are from a dataset of some forty-seven hundred pieces of EU law, are necessarily general, and the tests used suffice to establish associations but may lack the depth to support the causality underlying them. Do procedural political disputes occur for the reasons identified by the theory? When they do occur, what behavioral dynamics characterize them? How do procedural political disputes affect policy and institutional processes and outcomes in concrete cases? How and to what extent do these processes and outcomes differ from those normally posited by students of EU politics and policymaking, to say nothing of institutions more generally?

This chapter and the next empirically address these important issues using logics of both intra- and intersectoral comparison. This chapter examines procedural politics in EU environmental policymaking. It begins by summarizing the procedural development of EU environmental policy.

Rules fascinate me. How can these things that we ourselves devise do what they are supposed to do, which is precisely to prevent us from doing what we might otherwise do (or enable us to do what we otherwise couldn't)? How, in short, can objects of human choice simultaneously serve as sources of human constraint?

These are the fundamental questions addressed in this book. The answers that I give are far from complete, but I think they provide new mileage in helping us to understand what Robert Grafstein (1992) has called the “dual nature of institutions.” Indeed, I think Grafstein's lone dichotomy is too simple by at least two factors, and the answers that I give to the questions above operate along three axes: institutional choice and constraint (endogeneity vs. exogeneity), the use of time in institutional explanation (diachronic vs. synchronic), and multiple levels of rules (lower/micro-level/procedural vs. higher/macro-level/constitutional). Two complexes of these factors tend to dominate institutional analysis. One, characterized later as “institutional change,” combines an assumption of institutional endogeneity with a focus on constitutions in a diachronic framework. In short, one main approach to institutions is to look at the ways in which humans change constitutions over time. A second complex, later characterized as “institutional effects,” combines an assumption of institutional exogeneity with a focus on procedures in a synchronic framework. That is, it focuses on the independent effects of procedures at a given time.