Social Protection Competition in the EMU

Every step towards the completion of European integration appears to be greeted with renewed, not to say increasing, concern over its possible unwanted negative social side-effects, particularly as regards protection against social risks (unemployment, sickness and invalidity, age, ...) and poverty. Not only the governments of the different Member States but also the two EU Commissions headed in the past by Delors were deeply worried about the ability of the Member States, by applying incomes policies and social security measures, to pursue beggar-my-neighbour policies in an integrated market and all the more so in a monetary union. The EMU would provide an even greater temptation for them to do so because other economic policy instruments such as trade policy or monetary policy are kept under tight control, thereby increasing the relevance of incomes policy as an instrument at their disposal. Moreover the very creation of a single market would allow potentially more substantial gains from a competitive advantage as competition and the price elasticity of the demand of “tradables” increases. This applies in particular in a monetary union in which international transparency increases with the removal of transaction costs.