WorldView/Paul Gillespie: This week's vote on the services directive in the European Parliament was a major political event. It will make a real difference to many citizens of the EU in coming years, assuming it is implemented effectively once the negotiations are concluded.
The vote followed an elaborate compromise between conservative and socialist groups in the parliament and a substantial mobilisation of interests on the issues. Does it represent a new phase of transnational politics as well?
There is a lot at stake in the directive because the services sector makes up about 60 per cent of the EU's gross wealth and employment, but a much smaller proportion of its internal trade. Freedom to establish businesses and conduct trade has been restricted by national and local regulation, even though services have always been part of the internal market.
Economic developments in late capitalism make services more central for future growth and employment, which is why many EU leaders hope this sector can provide a stimulus that has otherwise been lacking since the euro was introduced. The Lisbon Strategy launched in 2000 has so far failed to do so. The European Commission's relaunch of the initiative last year relies a lot on getting the directive through.
But its market-friendly approach, which sidelined social inclusion and concentrates on supply side reforms, will now have to be recast. Putting the emphasis on regulations in the country of destination rather than of origin rebalances the legislation back towards social democratic priorities.
These played through the French and Dutch referendums on the constitutional treaty last year and were seen here during the Irish Ferries dispute. But there is still ample scope for new cross-border services business.
Left-wing parties and trade unions have been to the fore in the campaign on the directive. They say its launching reflected a new phase in the globalisation and Europeanisation of capital.
By moving towards more unregulated and unaccountable spheres, capital exits the relatively tight "legitimation triangle" in the nation-state represented by cultural homogeneity, political participation and social sharing institutions. Labour movements with hard-won access and voice nationally are disadvantaged by it, since they have less of these at European or global levels.
They face a political dilemma on how to respond. Most parties and unions adapted programmatically to the previous round of capital mobility by accepting the EU single market and currency in return for guarantees about the European social model.
It has been a lop-sided deal, since there are far fewer instruments available at EU level for social redistribution or macroeconomic planning compared to the post-war decades, when welfare states were created along with that triangle of legitimacy. This historic compromise between capital and labour broke down in the 1970s, ushering in the neoliberal turn of the following decade, which social democrats sought to rebalance at European level.
Should they continue this strategy now? To what extent does the relatively successful campaign to amend the services directive represent a decision to do so? Does this mean we will see greater mobilisation of such interests at European level in future, including demonstrations and closer political co-operation?
Will there then be a greater willingness to create more redistributive and macroeconomic capacity in the EU? Or does this mobilisation rather represent a protectionist urge duplicating those directed at national level against labour migration from central and eastern Europe, Turkey or north Africa?
The European Parliament compromise reflects the grand coalition between Christian Democrats and Social Democrats in Germany. Interestingly, it comes ahead of a marked recovery in the German economy, which some predict will soon be strong and sustained. Among them is Stefan Collignon, a professor of political economy at the London School of Economics and Harvard, and a former adviser to the German government.
Speaking at the Institute of European Affairs this week he said that, unless the EU can agree on a more appropriate macroeconomic stabilisation policy, the Euroland economy as a whole will not benefit optimally from such a recovery or be able to protect itself with suitable instruments from general or partial downturns.
Whereas the United States has effectively matched fiscal and monetary policy over the last decade, they have been at odds in Europe. This is because it suits national governments to free ride on budgetary deficits without attracting compensating higher interest rates.
Both policies tend to be pro-cyclical in the EU because it is a system of government with governments, of governance without government. The new Lisbon process and the reformed Stability and Growth Pact create higher equilibrium interest rates, lower growth and more unemployment, combining to make Europe the least dynamic region in the industrialised world economy.
Collignon believes there is a contradiction between the creation of the single market and common currency and the failure to create a democratically accountable way to govern the overall policy in which they operate. Governments resist binding rules or policy delegation to a European level because they want to control their own agenda. It is difficult to sell more Europe to their electorates because it is already so weak, he argues.
In consequence, "national interests dominate the European interest and collective action problems prevent efficient policies. Europe has attained a point where the lack of input legitimacy undermines output legitimacy." If this is not addressed the EU "will die a slow death in gridlock, economic stagnation and unkept promises. Nor can we exclude a more violent crisis, with extreme right-wing parties coming into power and blocking all progress".
Collignon says the only way to resolve this contradiction between input and output legitimacy is to create a European government responsible to the European Parliament for selected policies.
His argument is interesting because it relates legitimacy to effectiveness and thus to citizen engagement. If it can be shown convincingly that institutions and policies are so out of line it should prove easier to win the political argument for a deeper level of integration with labour movements which have an interest in growth, jobs and a democratically regulated capitalism.