The EES emerged from a crisis in social policy that came to a head in the mid- 1990s. Welfare states were under acute strain, and joblessness had risen dramatically. The need for action seemed especially urgent in the area of employment, as unemployment levels in most EU countries reached heights not seen since the 1930s. The European Social Model in its various national versions was under threat. Defenders of the Model knew that action was needed to preserve Europe's commitment to an expansive system of social benefits, relative wage and income equality, and high-level bargaining by organized interest groups.2
While there was a recognition that something needed to be done, reformers faced two challenges. The first came from the number and magnitude of the tasks they faced: it was clear that existing unemployment strategies were inadequate, and significant changes in the Social Model would be needed. The second came from the scope of the problem and the limits of existing governance methods: while it was becoming clear that unemployment was a common problem demanding a Europe-wide response, there was no mechanism available at the Union level to deal with issues of this nature and substantial resistence to "Europeanizing" employment policy.
By the mid-1990s, Europe had to deal with intolerable levels of unemployment while at the same time find ways to restructure employment relations and welfare systems to take account of internal changes and external shocks (Esping-Andersen, 1996). Unemployment reached intolerable levels: the EU average exceeded 10% and several countries had levels far above that. It was becoming clear that prior strategies to deal with unemployment were exhausted and innovation was required. Measures to attack joblessness that had seemed to work in the past, such as encouraging early retirement, were proving to be unsustainable and new measures to cut the unemployment rolls were urgently needed. Moreover, reformers saw that it was necessary to go beyond short-term job-creation schemes. If they were to preserve the core values of the Social Model, they would also have to adapt industrial relations policies to a changing workplace and workforce, recalibrate welfare state policies, and adjust to external shocks.
The European Social Model had been constructed in a different time. Traditional European industrial relations systems were organized to protect a largely male workforce, usually employed on a full time basis and often at a single firm for life. But now women were entering the workplace in increasing numbers, skill demands were increasing, and workers faced the need to renew their skills more frequently. Also, in an increasingly volatile economy, workers needed to be able to move from firm to firm more easily without losing social benefits. There was increased demand for, and supply of, part time work. And it was becoming clear that income maintenance and pension policies had to be modified to deal with an aging population and the negative impact that welfare state financing was having on employment.
In addition, Europe had to find ways to deal with potential external shocks brought about by the creation of the single market and globalization. Many feared that these twin shocks would erode the European Social Model. They saw that the single market in Europe and overall integration of the world economy could set off a race to the bottom in labor standards and sap the fiscal capacity of individual nations. Finally, these challenges had to be faced in a period of slow economic growth when most countries faced severe budget constraints in the run-up to EMU and in a political environment in which opponents of the Social Model were proposing to dismantle many protections and substantially reduce benefits. The resurgence of neo-liberal rhetoric, with calls to roll back the welfare state and create more "flexible" labor markets, reflected a power struggle that played itself out on both the national and the EU level.
Faced with tasks of this magnitude, and recognizing the Europe-wide nature of the problem, many looked towards the European level as the best place from which to mount an attack on unemployment and a defense of the Social Model. For some, the solution lay in a strong centralized regime that would reproduce the main elements of national social models at the European level, thus simultaneously equipping the Union with regulatory and spending capacities similar to those of the nation-states.3
However, those who thought that European-level action might be part of the solution confronted a second set of challenges. The first of these was a long-standing reluctance to give the Union competence in this field. The Member States had always been reluctant to cede even limited competence to the Union for social policy and industrial relations (Streeck, 1995). The welfare state is a major source of legitimacy for national governments and the complex systems for union and other worker representation in firms and participation in national policy-making form an important part of the political culture of most European nations. It is not surprising that the nations would resist "Europeanization" of this area. Moreover, the push for enhanced Europeanization in social policy came just when the legitimacy of the EU was in real doubt; at this time there was a growing anti-Brussels backlash in many countries and substantial resistance to expanding the EU's competence in all areas. This backlash, which threatened the Maastricht Treaty itself and led to the development of the subsidiarity doctrine, meant that it was difficult for the Union to expand its competence anywhere, let alone in a field so sensitive to national concerns as social policy.
The second obstacle to Europeanization was the inherent difficulty of framing common policies for social policy given the great diversity of policies and practices within Europe and the deep embeddedness of social policy in unique national institutions (Teague, 2001). While one can see common features of the European Social Model across most of the 15 Member States, the model is implemented in many different ways through legal and institutional structures that vary tremendously yet are deeply embedded in national life and costly to change. As a result, possibilities for cost-effective uniform regulation at the EU level are limited. At the same time, the chances for major funding by the Union were non-existent: the EU's self-imposed budget stringency made it impossible for the Union to take over welfare state functions other than those that can be done by regulation (Majone, 1993). With uniform regulation hard to do, and financing out of the question, the potential role for the Union in the best of circumstances was limited.
A third obstacle in the path of Europeanizing the field of social policy comes from the nature of the problems that need to be solved if Europe is to adapt its industrial relations systems and social benefit programs to new conditions. Many of these problems cross the traditional boundaries by which national political systems are organized and involve new configurations between ministries, among government levels, and between government and civil society. It is hard for national governments to cope with such "wicked problems" (Sabel, 2000).4 It would be harder still for the Union, with its limited resources, distance from local government, and circumscribed competence, to tackle such issues on its own.
2 The European Social Model is a concept that both reveals and hides. Politicians and policymakers often discuss the European Social Model in debates over policy. In fact, when comparing national welfare and employment systems in Western Europe to the US, there are broad differences, at least between the "average" national welfare and employment system in Western Europe and the US. Social security coverage, broadly conceived, is broader and more generous; wage and income distributions are generally more equal; and labor, generally although not without exceptions, tends to be more organized, more powerful, and more incorporated into policymaking. However, the term "European Social Model" conceals the wide differences existing between national welfare and employment systems in Western Europe. Work by Esping-Anderson has helped to highlight some of the large variation in Western Europe and how some of this variation can be classified into general groups. We use the term "European Social Model" to talk about the general pattern of arrangements in national welfare and employment systems in EU Member States, while recognizing that considering any individual Member State would require greater detail to fully specify the situation and how it might interact with the EES.
3 This strong version of "Social Europe" was a widely held dream that goes back well into the 1970s. But this vision had never materialized. Despite efforts by the Delors administration to put social policy and the preservation of the European Social Model into the center of EU policy-making, the actual results were modest; while progress had been made in a few areas of social policy, the Union's role in the social field remained limited (Rhodes, 1995). The Social Protocol of the Maastricht Treaty did expand authority for some regulatory forays into industrial relations and social policy, but European competence was carefully circumscribed and even within these areas a relatively small number of directives were actually passed.
4 One factor contributing to the recent appearance of social pacts in some EU member states is the necessity of carrying out linked changes in welfare and employment systems during the current period of reform (Rhodes, 1998; Ebbinghaus and Hassel, 2000).