Markets over welfare: the consequences of liberalisation and the financial crisis Gérard Mathias Nicholas Thomas Submitted in partial fulfilment of the requirements for the degree of Doctor of Philosophy School of Geography Politics and Sociology April 2015 Abstract This thesis considers the 2007/2008 financial crisis as the cause and the catalyst for the establishment of the Eurozone response and the establishment of the European Financial Stability Facility, the European Stability Mechanism, and the expansion of the stability framework in which these operate. The thesis further considers the actions of Germany and France as the main contributors to the establishment of the rescue plan for the Euro. What are the implications of global change for European welfare states in the context of global and Euro Zone crisis? The German and French actions will be considered within a national framework shaping the EU’s institutional processes. Germany and France have the ability to shape the state’s understanding of its role within political economy and its responsibility to care for the welfare of its population. These issues are investigated using a most similar case study approach. This approach will be complemented by Susan Strange’s theory of structural power applied to Germany and France. This thesis will focus on Germany and France because of their status as Europe’s two largest economies and motors of the European integration process. The analysis includes quantitative and qualitative data, which are used to investigate the change in the national conception of the role of the state within the economy and its requirement to provide welfare to its people. This thesis will demonstrate that the German and French states’ reconfiguring of state-society relations, leads to the end of the traditional concept of the state. The thesis will also demonstrate that unilateral movement on the side of either Germany or France will likely result in long term adverse political economic consequences for Europe, which can be averted if Germany and France manage to develop and most of all maintain a balanced effort to resolve the Euro crisis. ii Acknowledgements There are a number of people without whom this thesis might not have been written, and to whom I am greatly indebted. I would like to express my special appreciation and thanks to both of my supervisors Dr. Matt Davis and Prof. Anthony Zito. Without their help, support and advice through all phases of this PhD I would not have been able to successfully accomplish this task. I would also like to thank them for their patience and their kind words of encouragement whenever I was in doubt. My thanks also go to my previous supervisor Prof. Barry Gills whose help was enormously helpful not only in progressing with this thesis but also for encouraging and aiding me in pursuing my PhD studies. I would also like to thank the academic staff of the Politics department within the School of Geography Politics and Sociology particularly Dr Valentina Feklyunina, Dr Jocelyn Mawdsley, Dr James Bilsband, Dr Martin Coward, Dr Kyle Grayson, Dr Simon Philpott and Dr Nick Randall for their continued encouragement and support. Thanks are also due to the technical staff of the School of Geography Politics and Sociology, whose understanding and support greatly facilitated the writing of this PhD. I am also indebted to my friends and colleagues Megan O’Branski, Benjamin Armstrong, Maria Mpakola, Paul MacFadden, Russell Foster, Pete Kitson, Dawn Rawlings and Katie Yokom for their kindness and advice, their help and support and for letting me use their couch when I needed it. I would further like to thank my friends and colleagues, Steven Robinson, George Braithwaite and Nicholas Appleby whose advice was invaluable in getting me through the PhD. I would also like to give special thanks to Jurgita Cepulyte without whose patience, support, kindness and quiet strength I would have greatly struggled to finish this PhD. I would finally also like to express my unending gratitude to my family. To my mother and father who through my entire academic career have helped, supported and advised me to the best of their abilities. I would also like to give a special thanks to my sister, for her kindness and support throughout my studies, to my aunt for her advice and to my godmother; her help was invaluable in making my research in Paris a successful and a rewarding experience. iii Table of contents Abstract ii Acknowledgements iii Table of Contents iv List of Tables ix Glossary of Terms xiii Chapter 1 Introduction 1 1.1 Introduction 1 1.2 Research Question 3 1.3 Research Significance 3 1.4 Argument 5 1.5 Theoretical Framework and Method 6 1.5.1Theory of the EU 8 1.5.2 Structural theory 11 1.5.3 Hegemony 18 1.6 Timeframes of (in) action 19 1.7 Chapter outline 20 Chapter 2 Different liberal economic concepts and the evolution of state welfare conceptions; achievement of equality through different worldviews 24 2.1 Introduction 24 2.2 Freedom; capitalism’s conduit to prosperity for all 29 2.3 Taxation: coercion or necessary redistribution? 31 2.3.1 Amoral 31 2.3.2 Moral 33 2.4 The State: Night-Watchman or Manager? 35 2.4.1 The Manager 35 2.4.2 The Night-Watchman 37 2.5 The structural power of neo- and classical- liberalism 39 2.6 Two phases of Social Security: Social Policy and Welfare 40 2.6.1 Social Policy 41 2.7 Welfare: a variety of opinions 47 2.7.1 Welfare: Theory and practice 47 iv 2.7.2 Peter Taylor-Gooby 50 2.7.3 Conclusions of social policy 52 2.8 Welfare 52 2.8.1 The establishment of Welfare 53 2.8.2 Bismarck 56 2.8.3 Beveridge 56 2.8.4 Keynesian Economics 60 2.8.5 Problems with Keynesian Style economics 61 2.8.6 Problems with Neo-liberal economics 63 2.9 Conclusion 64 Chapter 3 From a financial to a fiscal crisis: the consequences and repercussions of deregulation and unregulated practices 67 3.1 The New Crisis 67 3.2 How has finance risen to such an important position? 69 3.2.1 A not so Strange answer 70 3.2.2 A moral hazard 72 3.3 Conclusions form theory 77 3.4 The start of the mess 79 3.5 The pressures are on … 83 3.5.1 …non-Euro countries 85 3.5.2 …Euro Countries 86 3.5.3 …welfare 88 3.6 The tradition of the state; Germany and France 90 3.7 The European way of managing the financial sector 91 3.8 Conclusion 95 Chapter 4 Social Security the German Way 98 4.1 Introduction 98 4.2 Soziales Gesetzbuch (SGB) 100 4.3 The German Business model before Agenda 2010 102 4.3.1 German Welfare before Agenda 2010 103 4.3.2 German Industrial policy 105 4.3.3 The EMU and its impact on the German Model 107 4.4 The becoming of the Agenda 2010 and the Hartz laws 108 v 4.4.1 Party Manifesto 109 4.4.2 The Third Way 115 4.4.3 The State of the Nation 119 4.5 From the Hartz Commission to the Hartz Laws 121 4.5.1 Establishment of the Hartz Commission 122 4.5.2 The Commission proposals 124 4.6 The Hartz Laws 128 4.6.1 The first Hartz law 129 4.6.2 The second Hartz law 130 4.6.3 The third Hartz law 132 4.6.4 The fourth Hartz law 134 4.7 The Good the Bad and the Ugly 137 4.8 Conclusion 141 Chapter 5 The Hartz reforms: socio-economic consequences for Germany and an argument for European austerity? 146 5.1 Introduction 146 5.2 Germany in the 20th Century 149 5.2.1 Germany between 1950 and 2005 149 5.2.2 Germany between 1991 and 2007 152 5.2.3 Germany between 2005 and 2014 165 5.3 Germany: the burden of success and reform 179 5.4 Conclusion 187 Chapter 6 Social Security the French Way 191 6.1 Introduction 191 6.2 State traditions and the constitutional rights to work and social security 193 6.2.1 Labour Law 194 6.2.2 Social Security Law 196 6.2.3 The particularities of the French style of government 198 6.3 The State and Labour unions 199 6.3.1 The French business model: A dirigiste tradition 199 6.3.2 Labour unions 201 6.4 The EMU and its impact on the French model 204 vi 6.5 The Years of Mitterrand and Chirac 206 6.5.1 Mitterrand 206 6.5.2 Chirac 214 6.6 Sarkozy 218 6.6.1 Sarkozy and the TEPA law 219 6.6.2 A Proposal for Reform (part 1) 220 6.6.3 Sarkozy and the 2008 reforms 226 6.6.4 Reactions to the Financial Crisis 229 6.6.5 A proposal for reform (part 2) 230 6.7 Hollande 234 6.8 Conclusion 235 Chapter 7 The socio economic development of France: a quantitative analysis 239 7.1 Introduction 239 7.2 France during the “Glorious 30” 242 7.3 After 30 years of Economic Growth, 30 years of French political stasis 244 7.3.1 The decline of the 1980s 244 7.3.2 The declines of the 1990s and 2000s 246 7.4 The French conundrum two decades into the new millennium 250 7.4.1 2002-2008 250 7.4.2 2008-2012 and 2012-2014 256 7.4.3 Investir pour l’avenir 267 7.4.4 The Plan to Balance the French Public Finances 272 7.4.5 The first reforms of Hollande 276 7.5 Conclusion 277 Chapter 8 Austerity and Spending: combined approaches towards a new European Future 281 8.1 Introduction 281 8.2 Consequences of German and French political economic concepts 283 8.2.1 State traditions and their historical differences 283 8.2.2 German action and French inaction: the constitutional reason 284 vii 8.2.3 The consequences of “Fördern und Fordern” and “Traitement Social du chômage” 285 8.2.4 Economic results of the French and German approaches 290 8.3 Welfare within a Neo-liberal framework: Common Concepts different applications 295 8.4 The future of the European social state 300 8.4.1 The begninning of a new deal: negotiating a balance between austerity and spending 302 8.5 Conclusion 305 Chapter 9 Conclusion 307 9.1 Introduction 307 9.2 Substantive study 309 9.3 Theoretical implications