Welfare reform in the shadow of EMU

A welfare state world of path-dependent, but not predetermined, solutions Since the 1980s European monetary integration has been a driving force behind domestic welfare reform across the European Union (EU). Triggered by the failure of Keynesianism in the 1970s and by macroeconomic instability in the 1980s and early 1990s, monetary integration to EMU marks a sea-change in macroeconomic policy. It has indirect effects on labor market institutions (Franzese, Jr., and Hall 2000) as well as direct effects on domestic budgetary and fiscal policy that have major implications for social policy. It means that macroeconomic policy can no longer shield labor market institutions and social protection arrangements from the need to adjust to international competition. With nominal exchange rate adjustments ruled out and fiscal stimulation greatly constrained by the Stability and Growth Pact (SGP), policy-makers must seek national solutions within the heart of European social models. Monetary integration is not the only driving force behind welfare state reform, however. Internal dynamics like aging populations, de-industrialization, changing gender roles in labor markets and households, and new technologies place severe strains on welfare state programs designed for a previous era (Daly 2000; Pierson 2001a). Such endogenous social and economic challenges are all aspects of post-industrial change (Esping-Andersen et al. 2001). Recent comparative research shows convincingly the extent to which most EU welfare states have recast the policy mix of the national systems of industrial relations and social protection built after 1945 (Scharpf and Schmidt 2000)