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Welfare Policy and Social Inclusion

Abstract and Keywords

This chapter discusses the law and policy of social welfare and inclusion in the EU. While the EU has adopted significant objectives in this domain via the Lisbon Treaty, the political and legal instruments available to the EU institutions to pursue a developed welfare policy remain limited. In spite of this, EU law can have significant constraining impacts on national welfare states, an influence that instruments developed to better govern the Eurozone will likely strengthen. The chapter concludes by discussing the future of EU welfare and inclusion policy. As past experience tells us, the increasing linkage of economic and social goals provides both opportunities for new EU social capacities and the danger that social goals may be increasingly subordinated to economic objectives and procedures.

Keywords: welfare, Lisbon Treaty, social welfare law, social welfare policy, social inclusion, Lisbon Strategy policy

I. Introduction: The Constitutional Framework of Welfare and Social Protection in the European Union

The Lisbon Treaty inserted into primary EU law new language in relation to social protection and social inclusion.1 This language denotes the ambition of the authors of the Treaty to give the European Union a more social face, but it did not radically modify the existing legal framework nor did it herald a new role for European law in shaping national welfare policies. The Lisbon Treaty has, generally speaking, considerably expanded the formulation of the basic values and objectives of the EU. The relevant Treaty articles (Articles 2 and 3 TEU) now include wording that rebalances the weight of market and non-market values in the foundational provisions of the EU. Solidarity is included among the values, listed in Article 2, on which the Union is based. Article 3, which lists the Union’s main objectives, starts (p. 965) with the ringing sentence that ‘The Union’s aim is to promote peace, its values and the well-being of its people’, and then mentions, among the other main objectives, ‘a highly competitive social market economy’ and ‘social progress’. The Union is, furthermore, directed to ‘combat social exclusion’ and ‘promote social justice and protection’. In this way, the central values and principles that underlie national welfare systems are recognized and incorporated at the European level.

At first sight, these amendments to the EU Treaty may seem purely rhetorical because they are not fleshed out, elsewhere in the Treaties, by new law making competences and decision making procedures. In this respect, welfare differs from most of the other policy domains mentioned in Article 3 TEU, which can be effectively pursued by means of binding EU acts or binding international treaties of the Union. For welfare and social protection policies, the division of competences between the EU and its Member States remains what it was prior to the Lisbon Treaty. Article 153 TFEU, in the chapter on Social Policy, maintains a strict distinction between the available means of EU action:2 whereas the social protection of workers may form the object of minimum harmonization by the EU, the ‘combating of social exclusion’ and the ‘modernization of social protection’ may form the object only of measures ‘designed to encourage cooperation between Member States’, which is an oblique reference to the OMC process described in Section III of this chapter. A clear law making competence only exists in respect of the free movement of persons, allowing for the coordination of social security regimes for mobile EU citizens (as discussed in Section II.1 of this chapter) (Article 48 TFEU).

This disjunction between Treaty proclamations and lack of law making instruments was not an oversight of the drafters of the Lisbon Treaty, but rather the result of a power struggle. A consensus was eventually reached on including the lofty but rather innocuous statements of principles, while excluding—due to the opposition of a number of country delegations—any extension of the Union’s law making competences.3 The effect of the disjunction can be illustrated by a (post-Lisbon) own-initiative Resolution of the European Parliament, in which it pleaded for the introduction of guaranteed minimum income schemes in all EU Member States, and gave detailed guidelines on how those schemes should be shaped.4 The Resolution made some intriguing references to a possible ‘Commission initiative’ or to ‘a legislative proposal it [ie the Commission] may submit’,5 but it did not specify what kind of legal basis the Commission could use for a legislative initiative in (p. 966) this field (understandably so, since no Treaty basis for EU legislation seems to be available).6

This does not render the new language contained in Articles 2 and 3 TEU entirely useless or misleading. That language may come to play another, more indirect, role by prompting the EU institutions, including the Court of Justice, to give more consideration to social welfare implications when applying and interpreting other rules of EU law. Article 9 TFEU contains a new mainstreaming clause that aims precisely at achieving this. It states that, in defining and implementing all its policies and activities, ‘the Union shall 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’.

This horizontal clause, again, does not transfer any new competences to the EU. It cannot be used as a legal base for the establishment of a proactive and comprehensive EU social policy, covering the domains mentioned in the text of the article. What then could its practical legal significance be?7 By mainstreaming social policy into all EU policy fields, Article 9 TFEU affirms that social objectives are equivalent to economic objectives within EU primary law. Thereby it requires all EU actors to find a proper balance between economic, social, and other aims in all fields of public policy making and implementation in which the EU is engaged.

The fields that are particularly relevant in this context are internal market law, competition law, and European citizenship law. In those areas, EU law has created important conditions and constraints for the organization of national welfare and social protection systems, as we shall see in Section II of this chapter. ‘To find a proper balance’ concretely means—one might argue—that social considerations should play a greater role than they have done so far in EU policies outside the strict domain of social policy. Only such an understanding of the clause could make a difference compared to the pre-Lisbon situation and could thereby adequately mirror the increased recognition given to the idea of a social Europe by the text of the Treaties in their post-Lisbon version.

Finally, as discussed in Section III of this chapter, the question of balancing social welfare with the EU’s economic goals has also guided the EU’s governance and policy making structure for welfare and social inclusion. While the EU has developed mechanisms for coordinating national welfare policies, these mechanisms have been used to tie social policy closely to a competitiveness agenda. (p. 967) The euro crisis has only furthered this trend, rendering EU coordination both more prescriptive and more aligned to the Union’s larger economic goals. In this sense, the existence of social welfare and inclusion as a relatively autonomous field of EU policy faces an uncertain future.

II. The Impact of Free Movement, Internal Market Law and Competition Law on National Welfare Policy

1. Access to Welfare Rights for Mobile European Citizens

As was mentioned above, the only explicit legislative competence of the EU in relation to welfare and social protection is to be found in Article 48 TFEU.8 This is a long-standing competence, since the original EEC Treaty already provided, in the chapter on free movement of workers, that the Council, acting unanimously, could enact measures to ensure that the Member States’ social security schemes do not inhibit labour mobility (Article 51 EEC). Indeed, for many years, the main way in which European law impacted on national welfare systems was through the regime of inter-state coordination of social security, which was enacted as part of the legislative framework on the free movement of workers. The EEC Treaty provision was quickly implemented by Regulation 3/58, which was one of the very first legislative instruments adopted by the EEC, although its practical relevance for the lives of migrant workers became more tangible in the adapted version contained in Regulation 1408/71.9 The latter followed shortly after the adoption of Regulation 1612/68,10 which fleshed out the Treaty principle that migrant EEC workers should (p. 968) not be discriminated in the sphere of employment by adding some ancillary guarantees of equal treatment for EU migrants in the social sphere. Thus, as of the late 1960s, national welfare systems had to be adapted to those two fundamental pieces of European legislation. Regulation 1408/71 basically prescribed equal treatment of the migrant worker as regards social security, as well as a right to aggregate social security entitlements acquired in various Member States, and a right to export social security benefits across the territory of the EC. It also indicated which national social security regime was to apply to persons in a cross-border situation (frontier workers, seasonal workers, etc). Regulation 1612/68, for its part, guaranteed equal treatment of Community workers as regards all conditions of employment, but in addition granted them the same ‘social and tax advantages’ as the nationals of the host state (Article 7.2), as well as the same conditions of access to vocational training, to social housing, and to education for their children.

In enacting those rules, the European legislator intended to confer specific rights of cross-border access to welfare, and in particular only to a limited group of EU citizens, namely ‘workers’ and their families. However, in the following years and decades, the European Court of Justice adopted a consistently broad interpretation of those provisions. It first established the fundamental rule that this legislation only facilitated the exercise of the rights conferred directly by the Treaty rather than actually creating these rights. This approach has preserved an important and independent legal role—until today—for the general principle of non-discrimination on grounds of nationality (now in Article 18 TFEU) also in respect of welfare rights. The Court, furthermore, continuously extended both the personal and the substantive scope of the legislative provisions. It construed the term ‘worker’ as broadly as possible, to include basically any economically active person, and applied the principles of cross-border access to virtually all welfare benefits, whereas they were originally intended only to cover the benefits closely linked to the employment context.11 In particular, the notion of ‘social advantages’ to which migrant EU workers and their families have equal access, was interpreted by the Court as including social assistance benefits and minimum income schemes.12

The European legislator followed the extensive interpretation adopted by the Court and gradually codified the extended welfare rights of economically active migrant citizens when amending the relevant EU legislation. That process culminated in (p. 969) the adoption of Regulation 883/2004 on the coordination of social security systems and Regulation 492/2011 on freedom of movement for workers within the Union,13 which consolidated and updated the existing secondary legislation on the free movement of persons. The European Commission played a major role in this process, by trying quite often, when drafting these legislative instruments, to take welfare integration a step further even than the ECJ did, thereby imposing pressure on the Council and the Parliament to widen the scope of the non-discrimination rule. The most obvious example of this closer-integration trend is the expansion of the personal scope of the social security coordination regime. Whereas it was originally limited to ‘workers’, it applies, in its current version, to all nationals of an EU state, as well as to stateless persons and refugees, on the sole condition that they were previously affiliated to the social security system of another Member State (that is, a cross-border social security element is required).14 Recently, the EU legislator took a further step by adopting a Directive which requires the Member States to create specific remedies and monitoring mechanisms that are modelled on those tried out earlier in other areas of EU non-discrimination law. This piece of legislation does not confer new rights but its transposition in national law should, ideally, facilitate the effective access of EU migrant workers and their families to their welfare rights.15

In addition to the granting of equal welfare rights to economically active EU citizens, a more general set of rights has been granted also to the non-economically active ones, and their third-country family members, based on the legal concept of Union citizenship introduced in 1992 by the Maastricht Treaty. The European Court’s inventive line of argument, and now its well-established doctrine, is that any EU citizen who has exercised rights of movement and/or residence finds herself for that reason alone within the ‘scope’ of the Treaty and can therefore challenge, on the basis of Article 18 TFEU, any discrimination on grounds of her nationality.16 This applies also, in principle, to welfare rights and social protection schemes.

In the area of welfare integration, the Court has, however, been cautious and has tended to accept national provisions that link welfare benefits to durational residence requirements: only if they have resided for a certain length of time in (p. 970) the host Member State are EU migrants able to demonstrate the required degree of integration into the host society which entitles them to benefit from its social solidarity in the form of welfare benefits. This position is now reflected in the EU’s regulatory framework, namely Directive 38/2004 on free movement of citizens. The Directive provides that all (non-economically active) Union citizens and their (third-country) family members are entitled to complete equal access to welfare benefits once they have resided lawfully for a continuous period of five years in the host state (that is, when they obtain the status of a permanent resident citizen). Within the first five years, by contrast, those EU citizens must be able to provide for themselves and the members of their family, ie they have to be covered by health insurance and must have sufficient resources to avoid becoming a burden on the social assistance system during that early period of residence. But what happens if, during that initial five-year period, their financial means become insufficient and they wish to apply for social assistance? Can this be refused or, worse, can this be taken by the host state as a reason for withdrawing the right of residence (since the right of residence was conditional on the existence of sufficient resources)?

The Court’s case law on this question remains hesitant. The Court recognizes that ‘transnational solidarity as regards Community citizens who are economically inactive cannot but remain conditional and, in particular, can only be affirmed to the extent that it does not jeopardize the vitality of national welfare systems’.17 But that general position does not exclude that individual EU citizens may have a right to receive welfare benefits. In Grzelczyk, decided prior to the Directive of 2004, the Court had decided that a (non-economically active) EU citizen could apply for social assistance, but that such a request could have as a consequence the non-renewal of that person’s residence right.18 In Brey, decided after the adoption of the Directive, the Court found that if an EU citizen applied for social assistance, the host state could not automatically invoke the ‘burden on public finances’ argument to reject a demand for a welfare benefit. The unreasonable nature of the burden could not be based on that individual claim alone, but only on the overall burden that all similarly situated Union citizens could lay on the system19—which is hard to prove for the host Member State. After Brey, the question of the access of non-economically active EU citizens, and their families, to the welfare system of their country of residence, remains therefore uncertain in legal terms.20 That (p. 971) question is, at the same time, very controversial in political terms, with a number of Member State governments openly complaining about ‘benefit tourism’ by large groups of non-economically active EU citizens.21 Demands to tighten the welfare rights entitlements of EU citizens by means of an amendment of the Directive 38/2004 were rejected by the Commission but, in order to assuage those national governments, the Commission did publish a communication in November 2013 in which it confirmed that Member States could take measures to tackle fraud and abuse of the system, and promised to offer some guidance and help, for example, in fighting marriages of convenience, and in applying the habitual residence test for access to social security benefits.22

2. Internal Market Law and Welfare Services

It is not obvious, at first sight, why social security schemes and welfare policies would come within the scope of EU internal market and competition law. In Duphar, a judgment from 1984, the ECJ for the first time used a formula which it repeated several times in later years, namely that: ‘Community law does not detract from the powers of Member States to organize their social security systems.’23 Even at that time, the formula sounded rather unconvincing, since the system of coordination of social security regimes put in place in the 1960s (see Section II.1) seemed like an obvious ‘detraction’ from that power of the Member States, and in fact, the statement in Duphar was made fleetingly and without much sustained argument. Stronger judicial statements, exempting the social security regimes from internal market and competition law, were made in later cases. In Poucet and Pistre, decided in 1993, the ECJ stated emphatically that bodies belonging to a country’s social security system were not undertakings, so that EC competition law did not apply to them.24 In Sodemare, decided in 1997, the Court held that the Region of Lombardy could organize its social welfare system (in the particular case, the provision of (p. 972) homes for non-autonomous elderly persons) in such a way that only non-profit private organizations could be reimbursed for their contribution to the system; the fact that commercial firms from other EU countries could not obtain public funding was found not to be a restriction of their market freedoms, since, basically, there was no market to begin with.25

A similar exclusionary approach was adopted in secondary legislation. The General Services Directive of 2006 does not apply to healthcare services, to ‘social services relating to social housing, childcare and support of families and persons permanently or temporarily in need’, or to ‘non-economic services of general interest’.26 In this way, most of the welfare sector is excluded from its scope of application.27

However, there is another line in the Court’s case law which does effectively bring parts of the welfare sector within the scope of application of internal market and competition law. This has been the case, most prominently, with health services. Although the Court acknowledged that the regulation of access to medical services was part of the social security system, this fact alone was not enough to keep this sector of activity outside the scope of internal market law. In fact, the Court repeated in Kohll, one of its early health service cases, the formula mentioned above that ‘Community law does not detract from the powers of the Member States to organise their social security systems’. However, it immediately added that the ‘Member States must nevertheless comply with Community law when exercising those powers’ and that ‘the special nature of certain services does not remove them from the ambit of the fundamental principle of freedom of movement’.28 This composite and ambiguous formula, whereby the States retain their powers in the social protection domain but must exercise them in conformity with EU law, has been repeated many times since.29 It makes sense only if one accepts that EU law does actually detract from the welfare policy powers of the Member States, but not to the extent of affecting their general policy making responsibility in this domain.

In fact, the extent of this EU-law based ‘detraction’ differs between the health sector and other welfare policy sectors. In the former domain, the Court has pursued a consistent line of treating patients going abroad to seek medical help as (p. 973) ‘receivers of services’, who can invoke the Treaty provisions on the free movement of services, even when the service provided to them is part of the social security system and even when it is provided without any direct payment by the receiver. It is enough that ‘someone’ remunerates the service, even if that someone is a public healthcare fund. If all cross-border provision of medical care is now covered by the freedom to provide services, so that any obstacles placed in the way of such services become suspect restrictions of that freedom, the ECJ has been rather lenient at the justification stage, by accepting that those restrictions may be justified if they are required to preserve the financial balance of a country’s social security system.30 The Court thus accepted an economic interest as a good reason to restrict a fundamental freedom, which is rather unusual in its internal market case law.31 In this respect, the healthcare case law developed in a similar direction as EU citizenship law, where social budget arguments were also accepted by the Court and the European legislator as grounds for restricting the welfare rights of EU citizens (see Section II.1).

Welfare services other than healthcare are not so ‘fully’ covered by internal market law.32 The Court tends to find a restriction of the freedom to provide services only where the national welfare system is organized in such a way that it provides services which could equally be offered by a commercial provider based in another EU state. In such cases, a national policy choice to exclude the operation of the market may be challenged on internal market grounds. Take the example of the Kattner judgment.33 In that case, German law provided for the compulsory affiliation of employers in a particular economic sector to a social insurance scheme for accidents at work, based on the principle of solidarity. On the basis of the Poucet and Pistre and Sodemare approach, one could have expected the Court to find the Treaty inapplicable to the case. Nevertheless, the Court considered that this scheme restricted the possibility for foreign insurance companies to offer contracts covering some of the risks covered by the scheme, and that it therefore created a restriction to the freedom to provide services. In the next step of the (p. 974) reasoning, when examining possible justifications for restrictions to free movement, the Court invariably accepts welfare policy objectives as overriding reasons in the public interest that may offer a justification34 but then the final outcome of the assessment depends, as usual in internal market cases, on the proportionality of the concrete national measure.

Public procurement law is, of course, a special case. Since it is concerned with the award of public service contracts, the public system of social welfare is naturally covered by it, but only to the extent that the private sector is called upon to contribute to social protection. As the Court observed, the public procurement legislation does not make ‘a distinction between public contracts awarded by a contracting authority for the purposes of fulfilling its task of meeting needs in the general interest and those which are unrelated to that task’.35

A consequence of the fact that certain welfare services fall within the scope of internal market law is that they also fall within the competence of the EU to adopt harmonization measures to ensure the smooth functioning of the internal market. This consequence has been drawn most clearly, again, in the health sector. Following on the Court’s complex case law on cross-border access to medical services, in 2011 the EU adopted a Directive on cross-border patient rights which aimed at codifying the principles developed by the ECJ in its case law as well as providing procedural guidance on how to apply those principles.36 This is, in legal terms, a piece of internal market legislation but it does impact on the organization of national healthcare systems in a manner that could seem at odds with the Treaty article on public health which states that ‘Union action shall respect the responsibilities of the Member States for the definition of their health policy and for the organization and delivery of health services and medical care’.37

3. State Aid Law and ‘Social Services of General Interest’

To the extent that welfare services are not provided directly by public authorities but by public or private bodies funded by them, this funding could be considered (p. 975) as ‘state aid’ in the sense of the Article 107 TFEU, and therefore in need of notification to, and authorization by, the Commission. The state aid rules apply only where certain economic criteria are fulfilled, namely that the public funding must benefit undertakings, affect trade in the common market and distort competition by favouring the country’s own firms over those based in other Member States. One might, at first sight, think that the funding of welfare services does not fulfil those criteria and is therefore outside the scope of state aid law, and indeed this was the implicit understanding for many years. When, however, in 2006 the Commission adopted its first general policy document on what it called ‘social services of general interest’ (SSGI),38 it stated that those SSGI could be subject to the application of state aid rules, depending on the particular characteristics of the funding and of its beneficiaries.39 An example of a welfare scheme coming within the scope of EU state aid policy would be where private operators provide publicly defined long-term care services (eg house cleaning, laundry, and personal care) to the elderly in return for remuneration by public authorities at fixed rates.40

The Commission’s approach caused some uncertainty on whether specific welfare funding schemes, especially the ones operating at the regional and local levels, should henceforth be notified to the Commission and on whether they would be held permissible under EU law. The Commission’s expansive approach, and the initial uncertainty about its practical implications, caused widespread misgivings in the welfare sector against the Commission’s seemingly aggressive attitude, as well as critical comments in the scholarly literature.41 In his report on the state of the internal market of May 2010, Mario Monti called this controversy a ‘persistent irritant in the European public debate’ and he recommended ‘to further increase the flexibility of the State aid rules applicable to financial compensation’.42 In view of the controversy, and also perhaps in view of the introduction of ‘social’ language by the Lisbon Treaty,43 the Commission gradually backed down and has, in its most recent policy documents (in particular in the ‘Almunia package’ of (p. 976) December 201144), adopted a much more lenient view which basically exempts social services from the application of state aid rules.

First, the Commission confirmed that parts of the welfare sector are entirely outside the scope of application of state aid rules. Rehearsing the complex case law of the Court of Justice on the definition of ‘economic activity’, the Commission held that state aid rules only apply where a certain activity is provided in a market environment; therefore, the Commission declares, state aid rules do not apply at all to certain parts of the welfare sector, namely social security schemes that are solidarity based and public hospitals offering their services free of charge.45 However, the Commission could hardly have provided a full list of non-economic social services, since, according to the Court’s case law, the economic or non-economic character of an activity does not depend on its intrinsic characteristics (eg its welfare policy nature) but on the way it is regulated in each national or regional legal system.46 There is thus still much uncertainty as to where the dividing line must be traced. Second, the Commission fixed a special de minimis threshold for state aid to services of general economic interest which is higher than the general threshold for state aid schemes: such aid is exempt from the notification requirement if the total amount granted to one ‘undertaking’ does not exceed €500,000 over a period of three years.47 Many welfare schemes, especially those at the regional or local levels, may thereby be exempted without further ado. Third, financial support exceeding that threshold does not have to be notified to the Commission and is held ipso facto compatible with the common market if it is awarded to hospitals and to services ‘meeting social needs as regards health and longterm care, childcare, access to and reintegration into the labour market, social housing and the care and social inclusion of vulnerable groups’.48 This list of services seems to cover the entire welfare (p. 977) sector. This exemption is, however, subject to procedural and substantive conditions: procedurally, there must be an ‘act of entrustment’ in which the public authorities spell out the content of the public service tasks and the funding parameters; and substantively, the amount of compensation ‘shall not exceed what is necessary to cover the net cost incurred in discharging the public service obligations, including a reasonable profit’.49 The Commission thus preserves the power to intervene when it considers, on the basis of either a complaint by a potential competitor or its own information, that a social service has been over-funded by state, regional, or local authorities, but in practice that power is seldom or never used.50 One should note, however, that this legal regime is rather fragile, since it is based on a package of hard law and soft law instruments adopted autonomously by the Commission, without the involvement of the other EU institutions, and is therefore also subject to later unilateral change by the Commission. It is also subject to review by the European Courts who may refuse to approve this flexible approach to the interpretation of the Treaty’s state aid rules. On this point, it may be too early to tell—the new regime was put in place only recently and has, so far, not been challenged before the Courts.

III. Governing Social Welfare and Inclusion in Europe

1. Social Inclusion and the Lisbon Strategy

As Section II has highlighted, the legal framework for EU social welfare and inclusion policy has oscillated between different approaches. Early ideas about the ‘separateness’ of national welfare from EU economic law have given way (often after considerable national resistance) to attempts to balance and mediate between economic law and welfare services. At a political level, the EU’s own social welfare policy architecture has also carried an ambiguous character. While the Union has made considerable steps to give some weight to its social objectives, these objectives have often been closely tied and, in the view of some, even subordinated, to market and competitiveness goals.

(p. 978) This phenomenon can be seen in one of the first significant twenty-first century moves to provide an overall blueprint for EU social policy—the Lisbon Strategy, established in March 2000.51 The strategy had three central goals: to construct a knowledge-based economy in Europe; to close the Union’s growth gap towards its main economic competitors; and finally to ‘modernize the European Social Model, investing in people and combating social exclusion’.52 Ambitiously (overly so as it turned out) all of this was to be achieved by 2010. While Lisbon therefore placed the social dimension on the EU’s agenda, its three-pillar structure, and ambitious inter-locking of different policy goals, meant that it did so in an ambiguous ‘3rd way’.53

First, as a matter of institutional design, EU policy makers differed on the mechanisms through which Lisbon’s social goals could be delivered. Should EU social policy be highly prescriptive and thus based on enumerated EU legal competences in the social domain, or should the welfare state be seen instead as a domain of ‘thick’ obligations that must be intentionally insulated from the transnational sphere, including from the direct effect of EU economic law?54 The policy structure created to deliver Lisbon’s goals was effectively a compromise between these competing visions.55 Lacking the political will to create strong EU obligations in the welfare domain, the guiding framework for delivering the strategy’s goals—the Open Method of Coordination (OMC)—was designed as a multilateral coordination process, intentionally developed outside of ‘hard’ EU law.

The OMC process was developed to monitor Lisbon’s social inclusion goals; therefore, it mixed hierarchical institutions with a heavily decentralized implementation structure. The OMC involved the central EU institutions, with the Council setting out overarching guidelines and the Commission monitoring national implementation. At the same time, policy delivery was largely inter-governmental, with national governments asked flexibly to implement EU targets and guidelines according to domestic processes and preferences (with civil society and regional actors playing an active role). The OMC’s central procedural obligation was to ask Member States to report to the EU level on the process of domestic reform. In contrast with traditional EU law, the OMC was thus designed as a ‘two-way street’: EU (p. 979) policy making was not just to inform but to be informed by national experience, learning from and adapting to the best practices of successful Member States.56

Second, the Lisbon strategy carried a substantive ambiguity: what should be the relationship between social policy coordination and the strategy’s other objectives? Should social policy coordination under the OMC be conducted separately or in combination with other coordination processes, for example in the employment and fiscal domains? While originally operating as a series of separate coordination processes in social inclusion, employment, and fiscal policy, Lisbon was heavily criticized during its 2004 mid-term review for being about ‘everything and thus nothing’.57 The solution, the review argued, was to ‘re-focus’ the strategy along a central guiding arc. This would be delivered through joining the EU’s fiscal and employment strategies into a singular ‘strategy for jobs and growth’. Alongside this central strategy, separate coordination processes in health, pensions, and social inclusion were also consolidated into an overarching OMC for social protection and social inclusion (OMC SPSI).

The downsizing of social inclusion—from a separate multilateral process, to a smaller part of an ancillary strategy—was seen by many as a betrayal of Lisbon’s original design.58 Was social inclusion part of three mutually supporting pillars or potentially subordinated to a new master narrative, focused on ‘growth and jobs alone’? In a final substantive sense, what was EU social inclusion under Lisbon really about: the ‘modernization’ of European welfare states, or instead the creation of a national social state more amenable to the ‘meat’ of EU policy making—a competitive and open trans-national market?

2. Evaluating the OMC SPSI

While these two founding ambiguities continue to represent fault-lines in the academic and institutional debate over the Lisbon strategy’s utility, the debate over EU social inclusion policy has also been dominated by the question of how effective Lisbon has been at delivering on its original social commitments. On the positive side of the coin, the experience of the OMC SPSI seems to suggest (p. 980) some concrete benefits for EU social inclusion policy from the Lisbon experiment. In many countries, for example, social inclusion issues have been placed on the national agenda for the first time.59 In others, states have shifted towards a common ‘multi-dimensional’ view of the causes and nature of social exclusion, with poverty seen not only in monetary terms, but as requiring a broad societal response, incorporating proactive health, housing, employment, and social assistance policies.60 Finally, the OMC SPSI has given many social actors, such as NGOs, a right of ‘structural entry’ into national discussions previously closed off to them, or allowed them—through EU programmes such as the PROGRESS fund (discussed in Section III.5)—to form into pan-European networks able to lobby for policy changes at EU and national levels.61

For all these benefits, however, the OMC’s operation in the social inclusion domain thus far also points to important deficits. First, while the ability of EU targets and objectives to influence national policy depends on governments willing to take EU guidelines seriously, there is evidence to suggest that national reports under the OMC have often served merely a ‘dissemination’ function, listing national reforms, but rarely serving as an engine of change for the domestic policy agenda.62 The problem may be exacerbated by the OMC’s participative shortcomings. While anti-poverty policy is primarily a regional or local competence in many Member States, national reporting has most often been conducted at a federal level, with regional authorities shut out.63 The exclusion of the very authorities with the power and authority to implement the Lisbon strategy’s most important social objectives has brought into question the ability of EU coordination to provide a ‘common frame of reference’ for national social policies.

(p. 981) Finally, there is evidence to suggest that the OMC SPSI has been placed in a secondary position when compared to other objectives, such as the economic goals pursued under the ‘integrated guidelines’ for jobs and growth. While these guidelines, for example, are supposed to ‘feed into’ and reflect upon social inclusion objectives there is scant evidence of them doing so.64 As noted by one key EU-level anti-poverty organization, EAPN: ‘While it is clear that the economic and employment processes, whether “wrapped” in the national reform programme or not, dominate and constrain the social processes (feeding in) … there is little evidence of poverty proofing of strategies or measures in other dimensions of the Lisbon process (feeding out).’65

This final deficit has led to a common perception among social actors that Lisbon is primarily about growth, with social protection systems considered relevant only insofar as they can be recalibrated to support further growth in the future.66 These empirical findings suggest that while concrete benefits have been derived from the OMC’s emergence in the social inclusion and protection domains, its impact has been far below Lisbon’s original social ambitions.

3. Social Inclusion under ‘Lisbon 2020’

The failures of the original Lisbon strategy framed much of the debate from 2010 onwards about creating a new strategy for the current decade. The relaunched ‘Lisbon 2020’ strategy attempted to tackle both of the principal ‘ambiguities’ about social inclusion mentioned above. At a substantive level, the 2020 strategy included for the first time an explicit EU-wide poverty target—to lift 20 million individuals across the EU out of poverty by 2020.67 The new strategy also addressed the concern that Lisbon had become too growth-centric by re-establishing the strategy’s original three-pillar structure. The new strategy would have three guiding arcs—of inclusive, sustainable, and smart growth—supplanting the old strategy’s focus on ‘growth and jobs’, with an emphasis on making economic growth sustainable in economic and environmental terms. This included—within the ‘inclusive growth’ pillar—a specific ‘flagship programme on poverty’, designed to allocate (p. 982) EU structural and cohesion funding to better target the least advantaged, as well as assessments of the adequacy of pension and social security systems for the socially excluded.68

Procedurally—facing severe criticism of the previous strategy’s ‘implementation gap’—the 2020 proposals saw a shift in the actors responsible for delivering Lisbon’s goals. Faced with criticisms under the first strategy that the Commission had made itself responsible for the achievement of targets that could only be delivered at the national level, the Commission used the 2020 revision to loosen the chain of responsibility hanging from its own neck. The European Council, the Commission insisted, ‘will have full ownership, and be the focal point, of the new strategy’.69 As part of this, the new strategy supplements EU-wide targets with specific national targets, ensuring that each Member State takes its own share of responsibility for the performance of the whole.70

While this move may seem sensible given the strategy’s deep penetration into areas of national competence, this reform has the potential to re-enforce the frequent criticisms of Lisbon’s ‘implementation deficit’. The problem with national targets—as evidenced by the first round of target setting—is that Member States have tended to set disparate and unambitious goals. Analysing target setting in 2012, Daly and Copeland highlighted severe disparities between national poverty targets, with three Member States failing to set any quantitative target for poverty reduction at all. Taken as a whole, they calculate that the accumulation of national targets—even if achieved by 2020—would fall short of the EU target by some five to eight million persons.71 To this extent doubts as to whether the strategy can overcome the implementation gap of its predecessor remain.

Finally, Lisbon 2020 also involved reforms to the relationship between the OMC SPSI and economic and employment coordination. Reflecting fears that the OMC SPSI was being sidelined and subordinated through its inclusion within the larger guidelines for fiscal and employment policy, the EU’s Social Protection Committee (SPC) recommended the re-establishment of a standalone OMC SPSI from 2012, with Member States submitting separate ‘National Social Reports’ on social inclusion and welfare reform.72 While this approach has the merit of reintroducing some level of autonomy to social policy coordination, it also carries the danger of placing social (p. 983) inclusion at the side-lines of the larger Lisbon framework. A worrying sign emerges from national compliance—by the deadline for submission of the 2012 Social reports, only 14 out of 27 Member States had done so.73 As will be highlighted in Section III.4, the onset of the economic crisis in the euro area has created a policy environment in which welfare and inclusion policy has struggled to enter the EU policy agenda.

4. Social Inclusion and the Euro Crisis

The Lisbon 2020 reforms seem to tinker with but not fundamentally alter the centrality of policy coordination rather than hard law to the EU framework for social inclusion. Even if, however, the policy framework has not changed significantly from 2000 to the present day, the surrounding social context has been altered irreparably by the consecutive financial and euro crises that rocked the world economy from 2008 on. One cannot underestimate the substantive impact the crisis has had on poverty and social deprivation. To give a brief snapshot, the 2012 report of the SPC indicated an increase of 4 million in the number of Europeans living in poverty from 2010 (to 24 per cent of the total EU population).74 An increase in child poverty was registered in ten Member States with the percentage of children at risk of poverty higher than the percentage of adults. Unsurprisingly, the report illustrates that Europe’s widening North–South divide is not just economic but social: lower economic growth and weaker systems of social protection have ensured that the biggest increases in poverty and decreases in household income have taken place in southern economies.75

Given this, how is EU policy influencing the ability of national welfare states to cope with the social effects of the euro crisis? We can talk here about both negative effects, ie constraints on welfare states and the range of social policy choices available to governments emerging from EU policy in the economic field, or of positive effects, ie efforts by the Union to improve national social capacity.

In the first case, the constraints emerging on national social policy have significantly increased as a consequence of efforts by the EU to place the euro on a more secure footing. It may be helpful further to divide these constraints into two different categories: first, constraints emerging from economic coordination processes designed for the Union as a whole (which themselves may include different instruments for Eurozone and non-Eurozone states),76 and second, constraints specifically applicable to obligations arising from EU and IMF bail-outs of struggling peripheral economies.

(p. 984) In the former case, while a classical criticism of OMC methods has often been their low level of prescription and enforceability, several reforms to EU governance have significantly ‘hardened’ the range of instruments available to EU policy makers to discipline governments in the fiscal and social fields.77 One of these is the adoption by the Council and Parliament of a ‘six-pack’ of measures on strengthening EU economic governance in 2011.78 Among other reforms, the package includes an EU Regulation establishing a Macro-Economic Imbalances procedure (MIP), designed to monitor those elements of national policy (beyond debt and deficits) likely to have a significant bearing on the stability of the Eurozone. The broad remit of the MIP—covering any element of national policy, from unsustainable pension and social security systems to levels of private debt, likely to create macro-economic risk—brings levels of social spending and investment clearly within its ambit. By contrast to the relatively weak OMC SPSI, the MIP carries the possibility of binding Council recommendations, ‘corrective plans’ to be drawn up bilaterally between offending states and the Commission, and an interest-bearing deposit of 0.1 per cent of GDP (convertible into fines), where Member States deviate from agreed upon deadlines or reforms.

The broad scope of this procedure speaks to a long-standing critique of EU social inclusion and welfare policy already discussed. While EU policies designed to encourage Member States to improve social provision carry few carrots and no sticks, policies for macro-economic coordination are highly prescriptive. This may have the consequence that national social policy is increasingly monitored and steered, but largely through the lenses and priorities of fiscal consolidation. This perceived bias has already been the subject of significant political contestation. Responding in June 2013 to the Commission’s planned scoreboard for measuring such imbalances, the Green Group of the European Parliament lambasted the Commission’s omission of measurements relating to income inequality or poverty as ‘incomplete’ and likely to ‘lead to socially and environmentally regressive policies’.79 We have here the fear that measuring macro-economic imbalances is (p. 985) no mere economic coordination measure but one likely to reach deeply into the national social state.

This fear may be exacerbated by certain procedural reforms undertaken in response to the crisis. The creation of the ‘six-pack’ has coincided with greater efforts to streamline EU policy coordination under a single roof. Under the ‘European Semester’, national reporting under the Lisbon Strategy is to be assessed by the European Council in conjunction with parallel reports on national ‘Stability and Convergence Programmes’ designed to assess the soundness of public finances. While it is too early to gauge the effect of this change, a number of social NGOs have expressed concerns that social policy is likely to be marginalized through the semester cycle—to take one example, the Commission’s 2013 Communication on recommendations for the next semester cycle does not use the language of social inclusion at all.80

The possibility of fundamental reorganization of social policy under the umbrella of fiscal reform is even more tangible for states facing the need for financial assistance.81 As highlighted by the Court of Justice in its Pringle decision, high levels of conditionality are seen by the EU institutions as underpinning both the legality and the efficacy of EU lending arrangements to struggling economies.82 Even if one were to leave out specific policy prescriptions, governments facing the need to balance their books under conditions of economic and monetary union (EMU) face a dwindling number of policy options. With currency devaluation and ‘counter-cyclical’ spending forced off the table, the only route towards the balanced budget obligations demanded by EMU has often been deep cuts in social spending.83

On top of this general pressure on the social state, the Memorandums of Understanding agreed between bail-out states and the EU/IMF troika as a precondition for financial rescue have often included specific commitments relating to social rights and social spending. The Irish government, in its 2011 Memorandum of Understanding with the EU, promised to cut by one euro per hour its minimum wage and to repeal a number of collective agreements inhibiting ‘wage adjustment’ in the labour market.84 In Portugal’s Memorandum of the same year, it committed to reducing severance and bonus salary payments in the public sector, to limiting the entitlement period for unemployment benefits, to reducing state subsidies of pharmaceuticals, and to reforming its labour code to ease the grounds under which (p. 986) workers could be dismissed.85 Both states committed to raising indirect forms of taxation, such as VAT (taxes which, unlinked to income, tend to have socially regressive effects). For states requiring financial assistance, centralized EU intervention in areas far beyond the normal reaches of EU competence is not only a reality but backed up by a sanction above and beyond even the most hierarchical form of EU law: withdrawal of bail-out funding and potential economic catastrophe.

These ‘negative’ impacts have to be seen alongside more positive measures, ie EU efforts to mitigate the social welfare impacts of the economic crisis.86 While the EU’s response to the social effects of the crisis is still in its infancy, the package of social policy proposals adopted to date are highly limited in scope, tinkering with, rather than breaking from, the Lisbon 2020 framework. While asked, by the European Parliament among others, to present a Communication on strengthening the social dimension of EMU, the Commission’s October 2013 proposals offer few concrete options for improving the EU’s capacity to address its social shortcomings.87

The main proposals presented are statistical: they include, for example, including indicators on employment and poverty in the MIP, and developing a scoreboard of social indicators (essentially similar to the scoreboards already developed in the context of the OMC SPSI).88 The Communication does envisage one much more radical option—of creating a large social investment fund, which states could draw upon in times of economic downturn. As the Commission puts it:

A common instrument for macroeconomic stabilisation could provide an insurance system to pool the risks of economic shocks across Member States, thereby reducing the fluctuations in national incomes. In its simplest formulation, a stabilisation scheme to absorb asymmetric shocks could require monetary net payments that are negative in good times and positive in bad times. For example, a simple scheme could determine net contributions/payments by countries as a function of their output gap (relative to the average). Such a system would need to be financially neutral in the medium term for each country, and it would also depend on country size.89

While such a reform—a kind of EU stimulus fund—could address the serious disparities in the social safety net between different EU members, this type of (p. 987) scheme is acknowledged in the Communication as a long-term project requiring Treaty change,90 providing little immediate impetus for reform. The admission, for example, that such a fund would have to be financially neutral between states seems to undercut the utility of the proposal as a mechanism of healing the significant North–South gap emerging in European social welfare provision.

5. Social Inclusion and the EU’s Social Funds

A more realistic set of future changes may relate to the reform of existing EU funding schemes. A decisive push from the EU level to address problems of poverty and social deprivation—as well as the severe deficiencies of capacity in some Member States—would require the deployment of significant financial resources. While EU leaders have floated and developed several funding schemes with a social element,91 the resources available from traditional sources, such as the EU budget, remain limited.

The two funding schemes most relevant for social welfare and inclusion are the European Social Fund (ESF) and the EU Programme for Employment and Social Innovation (‘EaSI’) scheme, designed to support financially the social pillar of the Lisbon 2020 strategy. Of the two, the ESF is by far the most expansive. Its current funding line of €10 billion per year under the 2014–2020 budget supports Operational Programmes co-agreed between the Member States and the Commission under particular priority areas. Improving ‘the social inclusion of less favoured persons’ is a priority area to which roughly 20 per cent of the ESF budget is allocated from 2014 to 2020.92 The ‘EaSI’ scheme carries resources of €919 million over the same funding period.93 Under both schemes, NGOs and regional and local authorities can apply for EU co-financing for any projects that falls within the broad objectives of each programme (for the latter fund, Progress, this includes a focus on building transnational networks able to effectively implement and monitor EU policy in the social field).

Both programmes face significant challenges. One is the overall scope of funding. Reflecting the relative size of the EU budget, one has to keep in mind the limited capacity of EU funds to do the ‘heavy lifting’ of poverty reduction, which has historically required significant investment and social transfers. Whereas the budget of the entire ESF is €10 billion per year, even tiny Ireland (hardly the most expansive welfare state) spent over €37 billion on social security and protection in 2011.94 A second (p. 988) limit is pressure on budgets emerging from general national and EU budgetary constraints. After agreement in November 2013 between the EU institutions for a cut of some 6 per cent in the EU budget from 2014, €71 billion were allocated to the ESF in the 2014 budget, a lower amount than the prior 2007–2013 allocation. Social spending—in an EU budget required to support ever more functions and institutions—is in significant competition with other EU tasks and funding lines.

One concrete innovation of some import for EU social welfare policy in the new funding period is the Commission’s proposed EU Fund for Most Deprived Persons.95 This programme would involve broadening the mandate of the prior ‘Food to the Most Deprived’ programme (designed to utilize surplus crops produced under the Common Agricultural Policy) to include clothing, housing assistance, and other essential goods. This proposal has been the subject of political contestation. When first mooting the Fund in October 2012, the Commission proposed a €2.5 billion funding line, €1 billion below the total allocated to the fund’s predecessor. The Social Affairs Committee of the European Parliament, however, rejected this in April 2013, successfully demanding the restoration of the €3.5 billion allocation.96 The Fund (like other EU schemes, such as the planned guarantee scheme for youth unemployment) is in any case not ‘new money’—the funding would come in its entirety from the EU’s general cohesion budget (thus potentially subtracting from other projects of social value). The role of the Parliament in these negotiations, however, also provides an interesting lesson: the side-lining of the Parliament in the multilateral coordination processes already discussed could itself be to the significant detriment of developing a more robust social response to the crisis.

IV. Conclusion: Welfare in Europe from ‘Autonomy’ to ‘Balancing’

Given these legal and political developments, where is welfare and social inclusion policy in Europe headed in the future? Certainly one model of welfare—that of a national social state that is seen as autonomous from the reaches of EU law and (p. 989) EU intervention—seems to be increasingly difficult to achieve. While we have seen many efforts by the EU institutions, such as in the example of social services of general interest mentioned above, to insulate national welfare policy from internal market law, we also see many of the legal and political boundaries between national welfare and the larger structure of EU policy making being broken down.

The impact of the euro crisis seems likely to accelerate this trend. In so far as the crisis provides the EU with an enhanced capacity to steer national budgets, this capacity is likely to have knock-on effects on all areas of significant national spending. Social inclusion and welfare, if not already coordinated under the rubric of ‘soft’ processes like the OMC SPSI, will increasingly be affected by more binding mechanisms of EU economic governance, particularly for the euro area.

This trend poses its own dangers, as well as opportunities. The opportunity may be that the insertion of new social language into the constitutional framework of the Union, and new EU capacities, will also gradually lead to a more autonomous EU social policy being developed. In the 2014 parliamentary elections, social policy was no longer seen merely through a national prism. Rather, the demand and limits of an austerity agenda on growth, jobs, and equality across Europe became a significant campaigning issue.

The danger may be that enhancements of EU capacity in the social field—like many of the developments observed in existing mechanisms such as the Lisbon Strategy—will not ‘balance’ economic and social objectives, but rather subordinate the latter to the former. So long as social inclusion remains largely a rhetorical commitment, rather than one backed up by significant resources and steering capacity, social goals are likely to play second fiddle to goals such as financial stability, where an EU mandate to act is clearest. With significant problems of unemployment, inequality, and social deprivation persisting both during and after the euro crisis, social inclusion is likely to remain an area of significant fluctuation and change in the coming decade.

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                              Notes:

                              (1) For a more detailed discussion (on which some of the ideas discussed in this chapter draw), see Mark Dawson and Bruno de Witte, ‘The EU Legal Framework of Social Inclusion and Social Protection: Between the Lisbon Strategy and the Lisbon Treaty’, in Bea Cantillon, Herwig Verschueren, and Paula Ploscar (eds), Social Inclusion and Social Protection in the EU: Interactions between Law and Policy (2012) 41.

                              (2) See, for this distinction, points (a) and (b) of Art 153(2) TFEU.

                              (3) Oliver Treib, Der EU-Verfassungsvertrag und die Zukunft des Wohlfahrtsstaates in Europa, IHS Working Paper, Political Science Series 99 (2004) 26–27. Treib lists, among the most reluctant national governments, those of Ireland, the UK, Spain, Estonia, and the Czech Republic.

                              (4) European Parliament Resolution of 20 October 2010 on the role of minimum income in combating poverty and promoting an inclusive society in Europe, 2010/2039(INI).

                              (5) See, respectively, points 36 and 21 of the Resolution.

                              (6) For a discussion of this competence issue, see Herwig Verschueren, ‘Union Law and the Fight against Poverty: Which Legal Instruments?’ in Bea Cantillon, Herwig Verschueren, and Paula Ploscar (eds), Social Inclusion and Social Protection in the EU: Interactions between Law and Policy (2012) 205, 210–214.

                              (7) See also the reflections on this point by Pascale Vielle, ‘How the Horizontal Social Clause Can Be Made to Work: The Lessons of Gender Mainstreaming’ in Niklas Bruun, Klaus Lörcher, and Isabelle Schömann (eds), The Lisbon Treaty and Social Europe (2012) 105.

                              (8) This section of the chapter draws, in part, on Dragana Damjanovic and Bruno de Witte, ‘Welfare Integration though EU Law: The Overall Picture in the Light of the Lisbon Treaty’ in Ulla Neergaard, Ruth Nielsen, and Lynn Roseberry (eds), Integrating Welfare Functions into EU Law: From Rome to Lisbon (2009) 53.

                              (9) Reg 1408/71 of the Council of 14 June 1971 on the application of social security schemes to employed persons, to self-employed persons, and to members of their families moving within the Community, [1971] OJ L149/2. This text was amended several times and then repealed and replaced by Reg 883/2004 of 29 April 2004 on the coordination of social security systems, [2004] OJ L166/1, which was itself lightly amended by Reg 988/2009 ([2009] OJ L284/43) and implemented by Reg 987/2009 ([2009] OJ L284/1).

                              (10) Reg 1612/68 of 15 October 1968 on freedom of movement for workers within the Community [1968] OJ L257/2. This foundational piece of legislation was also amended several times in the course of the EU’s existence. It was replaced by a new consolidated version in 2011: Reg 492/2011 of 5 April 2011 on freedom of movement for workers within the Union [2011] OJ L141/1.

                              (11) On the extensive interpretation of these provisions by the ECJ, see Eleanor Spaventa, Free Movement of Persons in the European Union: Barriers to Movement in their Constitutional Context (2007) 1; Anne Pieter van der Mei, Free Movement of Persons within the European Community: Cross-border Access to Public Benefits (2003).

                              (12) Case 249/83 Vera Hoeckx v Openbaar Centrum voor Maastschappelijk Welzijn Kalmthout, judgment of 27 March 1985, para 22.

                              (13) See the references in n 9 and 10.

                              (14) For a complete analysis of the social security coordination regime, see Frans Pennings, European Social Security Law, (5th ed, 2010).

                              (15) Dir 2014/54 of 16 April 2014 on measures facilitating the exercise of rights conferred on workers in the context of freedom of movement for workers [2014] OJ L128/8. Note, however, the limited scope of this Directive: it applies only to EU migrant workers and their families, and not to EU citizens generally nor to third-country nationals who are not a member of the worker’s family.

                              (16) See, for a synthesis of the relevant case law, Paul Craig, EU Administrative Law (2nd ed, 2012) 508. For a critical reading of the Court of Justice’s approach, see Michael Dougan, ‘Judicial Activism or Constitutional Interaction? Policymaking by the ECJ in the Field of Union Citizenship’ in H.-W. Micklitz and B. de Witte (eds), The European Court of Justice and the Autonomy of the Member States (2012) 113.

                              (17) Stefano Giubboni, ‘Free Movement of Persons and European Solidarity’ (2007) 13 European Law Journal 360, 375.

                              (18) Case C-184/99 Rudy Grzelczyk v Centre public d’aide sociale d’Ottignies-Louvain-la-Neuve, judgment of 20 September 2001.

                              (19) Case C-140/12 Pensionsversicherungsanstalt v Peter Brey, judgment of 19 September 2013, paras 75–78.

                              (20) See the critical comment on the Brey judgment by Herwig Verschueren, ‘Free Movement or Benefit Tourism: The Unreasonable Burden of Brey’ (2014) 16 European Journal of Migration and Law 147.

                              (21) For a short reflection on this political discussion, see the ‘Editorial Comments: The Free Movement of Persons in the European Union: Salvaging the Dream while Explaining the Nightmare’ (2014) 51 Common Market Law Review 729. For a comprehensive panorama of the legal and political issues, see Elspeth Guild, Sergio Carrera, and Katharina Eisele (eds), Social Benefits and Migration: A Contested Relationship and Policy Challenge in the EU (2013).

                              (22) Commission Communication, Free Movement of EU Citizens and their Families: Five Actions to Make a Difference COM (2013) 837 of 25 November 2013.

                              (23) Case 238/82 Duphar v The Netherlands, judgment of 7 February 1984, para 16. Later repetitions of the formula include: Case C-70/95 Sodemare and others v Regione Lombardia, judgment of 17 June 1997, para 27; Case C-158/96 Raymond Kohll v Union des caisses de maladie, judgment of 28 April 1998, para 17.

                              (24) Joined Cases C-159/91 and C-160/91 Poucet and Pistre, judgment of 17 February 1993, paras 7–19. Confirmed by the Court of Justice in Case C-218/00 Cisal, judgment of 22 January 2002; and by the Court of First Instance in Case T-319/99 FENIN v Commission, judgment of 4 March 2003, paras 38–39.

                              (25) Case C-70/95 (n 23) paras 28–34.

                              (26) Dir 2006/123 of 12 December 2006 on services in the internal market [2006] OJ L376/36, Art 2(2).

                              (27) But see the more detailed analysis of this question in Ulla Neergaard, Ruth Nielsen, and Lynn Roseberry (eds), The Services Directive: Consequences for the Welfare State and the European Social Model (2008).

                              (28) ECJ, Case C-158/96 Raymond Kohll v Union des caisses de maladie, judgment of 28 April 1998, respectively paras 17, 19, and 20.

                              (29) Se eg Case C-228/07, Jörn Petersen v Arbeitsmarktservice Niederösterreich, judgment of 11 September 2008, para 42; Case C-211/08 Commission v Spain, judgment of 15 June 2010, para 53. The use and meaning of this judicial formula is discussed by Lena Boucon, ‘EU Law and Retained Powers of Member States’ in Loïc Azoulai (ed), The Question of Competence in the European Union (2014) 168.

                              (30) See eg Case C-368/98 Abdon Vanbraekel and others v Alliance nationale des mutualités chrétiennes (ANMC), judgment of 12 July 2001, para 47. For a comprehensive view of the abundant case law, see Vassilis Hatzopoulos, ‘Health Law and Policy: The Impact of the EU’, in Gráinne de Búrca (ed), EU Law and the Welfare State: In Search of Solidarity (2005) 111; and Damian Chalmers, Gareth Davies, and Giorgio Monti, European Union Law: Text and Materials (3rd ed, 2014) 835.

                              (31) Niamh Nic Shuibhne and Marsela Maci, ‘Proving Public Interest: The Growing Impact of Evidence in Free Movement Law’ (2013) 50 Common Market Law Review 965, 997ff.

                              (32) In fact, the line of case law on patient mobility has been criticized for its contribution to the ‘blurring of the economic and welfare spheres at the EU legal level and hence to the legal uncertainties … on the application of the EU market rules to the Member States’ welfare regimes’ (Dragana Damjanovic, ‘The EU Market Rules as Social Market Rules: Why the EU Can Be a Social Market Economy’ (2013) 50 Common Market Law Review 1685,1701).

                              (33) Case C-350/07 Kattner Stahlbau GmbH v Maschinenbau- und Metall-Berufsgenossenschaft, judgment of 5 March 2009, paras 74–83.

                              (34) Kattner judgment (n 33) para 85; similarly, in the case of a social housing scheme, Case C-567/07 Minister voor Wonen, Wijken en Integratie v Woningstichting Sint Servatius, judgment of 1 October 2009, para 31, and Joined Cases C-197/11 and C-203/11 Eric Libert and others v Gouvernement flamand, judgment of 8 May 2013, paras 52 and 67.

                              (35) Case C-271/08 Commission v Germany, judgment of 15 July 2010, para 73.

                              (36) Dir 2011/24 on the application of patients’ rights in cross-border healthcare [2011] OJ L88/45. See for an analysis of this instrument Stéphane de la Rosa, ‘The Directive on Cross-border Healthcare or the Art of Codifying Complex Case Law’ (2012) 49 Common Market Law Review 15; Wolf Sauter, ‘Harmonization in Health Care: The EU Patients’ Rights Directive’ in Bea Cantillon, Herwig Verschueren, and Paula Ploscar (eds), Social Inclusion and Social Protection in the EU: Interactions between Law and Policy (2012) 105–129.

                              (37) Art 168(7) TFEU.

                              (38) This concept was coined by the Commission but does not appear in the text of the EU Treaties.

                              (39) Commission Communication, Implementing the Community Lisbon programme: Social services of general interest in the European Union COM (2006) 177 of 26 April 2006.

                              (40) We draw this example from Leigh Hancher and Wolf Sauter, ‘Public Services and EU Law’ in Catherine Barnard and Steve Peers (eds), European Union Law (2014) 539, 541.

                              (42) A New Strategy for the Single Market, Report by Mario Monti to the President of the European Commission, 9 May 2010, respectively at 73 and 75.

                              (43) See the provisions of the Lisbon Treaty discussed in Section I of this chapter. See also, and in particular, Treaty Protocol no. 26 on Services of General Interest whose Art 2 states that ‘the provisions of the Treaties do not affect in any way the competence of the Member States to provide, commission and organize non-economic services of general interest’. This Article could be seen as an attempt to ‘grant to these services a sort of constitutional immunity from the opening logic of the integration process’ (Maurizio Ferrera, ‘National Welfare States and European Integration: In Search of a Virtuous Nesting’ (2009) Journal of Common Market Studies 219, 227).

                              (44) The ‘Almunia package’ (named after the Commissioner in charge of competition policy) sought to clarify the rules on state aid as regards the funding of services of general economic interest (and thus applies more broadly, well beyond welfare services). For general discussions of the Almunia package see special issue of (2012) 2 European State Aid Law Quarterly; Wolf Sauter, ‘The Altmark Package Mark II: New Rules for State Aid and the Compensation of Services of General Economic Interest’ (2012) European Competition Law Review 307; Marianne Dony, ‘Les règles régissant le financement public des services d’intérêt économique général après la réforme de 2011’ (2014) Cahiers de droit européen 97.

                              (45) Communication from the Commission on the application of the European Union state aid rules to compensation granted for the provision of services of general economic interest [2012] OJ C8/4, points 2.1.3 and 2.1.4.

                              (46) Julio Baquero Cruz, ‘Social Services of General Interest and the State Aid Rules’ in Ulla Neergaard, Erika Szyszczak, Johan van den Gronden, and Markus Krajewski (eds), Social Services of General Interest in the EU (2013) 287, 295.

                              (47) Commission Reg 360/2012 of 25 April 2012 on the application of Arts 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid granted to undertakings providing services of general economic interest [2012] OJ L114/8.

                              (48) Commission Decision of 20 December 2011 on the application of Art 106(2) of the Treaty on the Functioning of the European Union to State aid in the form of public service compensation granted to certain undertakings entrusted with the operation of services of general economic interest [2012] OJ L7/3, Art 2(1) (b) and (c).

                              (49) Commission Decision of 20 December 2011, Arts 4 and 5(1).

                              (50) For a convenient summary of the Commission’s current policy line on social services, see the Commission Staff Working Document, 3rd Biennial Report on Social Services of General Interest SWD (2013) 40 of 20 February 2013.

                              (51) See Dawson and de Witte (n 1) 43–45.

                              (52) European Council, ‘Presidency Conclusions’, 23–24 March 2000, [5].

                              (53) Damian Chalmers and Martin Lodge, ‘The Open Method of Coordination and the European Welfare State’ (2003) ESCR Centre for Risk and Regulation Studies Discussion Papers 11; Mark Dawson, ‘The Ambiguity of Social Europe in the Open Method of Coordination’ (2009) 34 European Law Review 55–79.

                              (54) See Claus Offe, ‘The European Model of “Social” Capitalism: Can It Survive European Integration?’ (2003) 11 European Journal of Political Philosophy 437.

                              (55) Jonathan Zeitlin, ‘Social Europe and Experimentalist Governance: Towards a New Constitutional Compromise?’ (2005) 5 European Governance Papers.

                              (56) See Milena Büchs, ‘The Open Method of Coordination as a Two-level Game’ (2009) 36 Policy & Politics 21.

                              (57) Facing the Challenge: The Lisbon Strategy for Growth and Employment, Report from the High Level Group Chaired by Wim Kok, November 2004, 16.

                              (59) See Mark Dawson, New Governance and the Transformation of European Law, (2011) 184–185; Milena Büchs and David Friedrich, ‘Surface Integration: The National Action Plans for Employment and Social Inclusion in Germany’ in Jonathan Zeitlin and Phillippe Pochet (eds), The Open Method of Coordination in Action: The European Employment and Social Inclusion Strategies (2005) 249, 267.

                              (60) See Dawson (n 59) 181–184; Stefan Bernhard, ‘The European Paradigm of Social Exclusion’ (2006) 2 Journal of Contemporary European Research 41.

                              (61) See Dawson (n 59) 197–201; Jonathan Zeitlin, ‘The Open Method of Coordination in Action: Theoretical Promise, Empirical Realities, Reform Strategy’ in Jonathan Zeitlin and Phillippe Pochet (eds), The Open Method of Coordination in Action: The European Employment and Social Inclusion Strategies (2005) 468; Kenneth A. Armstrong, ‘The Europeanization of Social Exclusion: British Adaptation to EU Co-ordination’ (2006) 8 British Journal of Politics and International Relations 79, 90–91.

                              (62) See eg the assessment of the Lisbon 2020 evaluation document: ‘While the OMC can be used as a source of peer pressure and a forum for sharing good practice, evidence suggests that in fact most Member States have used OMCs as a reporting device rather than one of policy development.’ Lisbon Evaluation (n 57) at 21. See also Dawson (n 59) 230.

                              (63) Sandra Kröger, ‘When Learning Hits Politics or: Social Policy Coordination Left to the Administrations and the NGOs?’ (2006) 10 European Integration Online Papers 6; Mark Dawson, ‘EU Law Transformed? Evaluating Accountability and Subsidiarity in a “streamlined” OMC for Social Inclusion and Social Protection’ (2009) 13 European Integration Online Papers.

                              (65) EAPN, ‘The 2006–2008 National Reports on Strategies for Social Protection and Social Inclusion: What Do They Deliver for People in Poverty?’ (2006) 23.

                              (66) See eg EAPN, ‘Making Lisbon Deliver for People Experiencing Poverty: EAPN Response to 2006 Implementation Reports on the National Reform Programs’ (2007) 3; Offe (n 54).

                              (67) European Council, ‘Presidency Conclusions’, 17 June 2010, EUCO 13/10 [12].

                              (68) See on this, the specific measures proposed in the Commission Communication, ‘The European Platform against Poverty and Social Exclusion: A European Framework for Social and Territorial Cohesion’ SEC (2010) 1564 final.

                              (69) Commission Communication, ‘Europe 2020: A Strategy for Smart, Sustainable and Inclusive Growth’ COM (2010) 2020, 4.

                              (70) European Council ‘Presidency Conclusions’, 25 March 2010, EUCO 7/10 [5].

                              (71) Mary Daly and Paul Copeland, ‘Poverty and Social Policy in Europe 2020: Ungovernable and Ungoverned’ (2014) 42 Policy and Politics 351 at 361.

                              (72) See European Council Opinion, ‘The Future of the Social Open Method of Coordination—Endorsement of the Opinion of the Social Protection Committee’ SOC (2011) 418 final.

                              (73) Daly and Copeland (n 71) 11.

                              (74) ‘Social Europe: Current Challenges and the Way Forward’, Annual Report of the Social Protection Committee (2012) 9.

                              (75) ‘Social Europe’ (n 74) 25–27.

                              (76) To use the example of the MIP discussed below, this procedure is applicable to all EU states, yet its sanctions cannot be applied to non-Eurozone states.

                              (77) See Sonja Bekker, ‘The EU’s Stricter Economic Governance: A Step Towards a More Binding Coordination of Social Policies?’ (2013) WZB Discussion Paper 501; M. Dawson, ‘Modes of Flexibility: Framework Legislation v Soft Law’, forthcoming in Andrea Ott, Ellen Vos, and Bruno de Witte, Between Flexibility and Disintegration: The State of EU Law Today (2015).

                              (78) Reg (EU) No 1173/2011 of 16 November 2011 on the effective enforcement of budgetary surveillance in the euro area; Reg (EU) No 1174/2011 of 16 November 2011 on enforcement measures to correct excessive macroeconomic imbalances in the euro area; Reg (EU) No 1175/2011 of 16 November 2011 amending Council Reg (EC) No 1466/97 on the strengthening of the surveillance of budgetary positions and the coordination of economic policies; Reg (EU) No 1176/2011 of 16 November 2011 on the prevention and correction of macroeconomic imbalances; Council Reg (EU) No 1177/2011 of 8 November 2011 amending Reg (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure; Council Dir 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States

                              (80) Commission Communication, ‘2013 European Semester: Country Specific Recommendations’, COM (2013) 350 final.

                              (81) See Catherine Barnard, ‘The Charter, the Court and the Crisis’ (2013) Cambridge Legal Studies Research Paper Series 18, 8.

                              (82) See Case C-370/12 Thomas Pringle v Government of Ireland, judgment of 27 November 2012.

                              (83) Fritz W. Scharpf, ‘Monetary Union, Fiscal Crisis and the Preemption of Democracy’ (2011) MPIfG Discussion Papers 11, 27.

                              (84) Council Implementing Decision on granting Union financial assistance to Ireland, 2010/0351 (NLE) of December 10 2011 http://register.consilium.europa.eu/pdf/en/10/st17/st17211.en10.pdf.

                              (85) Portugal Memorandum of Understanding on Specific Economic Policy Conditionality http://ec.europa.eu/economy_finance/eu_borrower/mou/2011-05-18-mou-portugal_en.pdf.

                              (86) For a more positive appraisal, see Bart Vanhercke, ‘Under the Radar? EU Social Policy in Times of Austerity’ in David Natali and Bart Vanhercke (eds), Social Developments in the European Union 2012 (2013) 91.

                              (87) See eg the disappointed reaction of the President of the European Parliament https://twitter.com/MartinSchulz/status/385349244086784000.

                              (88) An interesting question is whether the inclusion of social indicators in the MIP is consistent with its legal basis under Art 121(6). See on this, Kenneth A. Armstrong, ‘The Social Dimension of EMU: Socialising Economic Governance’ http://eutopialaw.com/2013/10/04/the-social-dimension-of-emu-socialising-economic-governance/.

                              (89) Commission Communication, ‘Strengthening the Social Dimension of the Economic and Monetary Union’ COM (2013) 690, at 11

                              (90) Commission Communication (n 89) at 12,

                              (91) See eg the Commission Communication on an EU Youth Employment Initiative COM (2013) 0144 final.

                              (92) See Reg 1304/2013 of 17 December 2013 On the European Social Fund and Repealing Council Reg (EC) No 1081/2006 OJ L347/470.

                              (93) Reg 1296/2013 of 11 December 2013 on a European Union Programme for Employment and Social Innovation [2013] OJ L347/238, Art 5.

                              (95) See Reg 223/2014 of 11 March 2014 on the Fund for European Aid to the Most Deprived [2014] OJ L72/1

                              (96) See European Parliament Press Release, ‘Social Affairs Committee Rejects Cut to Fund for the EU’s Most Deprived’ (21.05.13). http://www.europarl.europa.eu/news/en/news-room/content/20130520IPR08568/html/Social-affairs-committee-rejects-cut-to-fund-for-the-EU%27s-most-deprived