Europe has more social leeway

For a long time, the neoliberal orientation of the European Union was considered an obstacle to social progress. But that has changed, as a new legal opinion by European law expert Wolfram Cremer from the University of Bochum shows. According to the opinion, member states and the EU may attach social conditions to public aid for companies. These include job security, collective bargaining standards, and the preservation of locations. The opinion, which I was able to view in advance, was commissioned by the trade union-affiliated Hugo Sinzheimer Institute (HSI).

Contrary to widespread misconceptions, according to legal expert Cremer, the EU's founding treaties do not enshrine a radical market economy. Although the Maastricht Treaty of 1993 still emphasized an “open market economy with free competition,” the focus has since shifted to a “highly competitive social market economy.” According to the Treaty of Lisbon, which came into force in 2009 in the midst of the financial and euro crisis, social concerns and protection against discrimination have become significantly more important.

The first effects were seen in the aid provided during the energy price shock of 2022 following Russia's invasion of Ukraine. Government funds, for example for gas and electricity price caps, were linked to job preservation. The aim was to prevent an economic collapse – and this was successful, at least temporarily. And this was compatible with EU law, explains legal scholar Cremer.

Economy under pressure

Such interventions are likely to increase in the coming years. This is because the climate crisis and the upheavals in world trade are being accompanied by a new phase of industrial policy. Many experts agree that cushioning the upheaval and transforming industry in an environmentally friendly way can only be achieved with a lot of public money. “We need industrial policy – not just for start-ups, but also for strategic sectors that are under pressure,” explains economist Sander Tordoir from the London-based think tank Centre for European Reform.

These challenges are already being addressed with relief measures for companies. Under the banner of competitiveness and bureaucracy reduction, EU Commission President Ursula von der Leyen is partially rolling back reporting requirements and guidelines in the areas of sustainability and human rights in supply chains. As part of the Next-Generation EU program, companies have been subsidized with billions of euros in response to the coronavirus pandemic.

The next long-term EU budget again provides for comprehensive investment in industry. In addition, enormous sums will be spent on upgrading and bridge prices for energy-intensive industries. At the national level, the Bundestag reformed the debt brake in the last legislative period: a special fund of €500 billion will be used to finance spending to achieve climate targets and modernize infrastructure. “We are now tackling what has been neglected in our country for years,” said Finance Minister Lars Klingbeil in June on the government's draft budget bill for 2025.

Social clauses allowed – and necessary

Government investment and subsidies should “not contribute to the dismantling of social rights in the workplace,” emphasizes HSI Director Ernesto Klengel on the publication of the report. The current debates on federal and EU finances have stressed that a state capable of acting is essential. And the report shows that EU law offers considerable scope for this.

This could soon be put to use. In Germany, Federal Labour Minister Bärbel Bas recently presented a draft of the collective bargaining law that trade unions have been demanding for years. It obliges companies to comply with collective bargaining standards for public contracts worth at least €50,000. Cremer's report confirms that such requirements are likely to be compatible with EU law.

In addition, state aid law allows for targeted subsidies, for example for “important projects of common European interest.” Projects such as the transition to climate-friendly production can thus be linked to social requirements.

More say, no socialism

Regarding the allocation of EU financial aid, for example from regional and cohesion funds, the study emphasizes the role of social partners. They must be involved throughout the entire period. “It is therefore not least the trade unions that can influence the content of program planning,” writes Cremer.

Despite differing interpretations, the legal situation is clear according to the report: the EU treaties open up far-reaching possibilities for shaping the economy in the spirit of a social market economy. However, a fundamental departure from capitalism remains out of the question—a sobering message for all forces to the left of social democracy.

The article was first published in the German newspaper nd.Der Tag (Abre numa nova janela).