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The European Employment Strategy evolved in the late 1990s as a way for the Union to deal with these daunting tasks in the face of the obvious limits of traditional methods for action at the Union level. The result, sometimes referred to as the Luxembourg process, is a new governance mechanism that uses soft law methods to link the EU-level to the national and local levels. This new governance approach, now called the "open method of coordination", has been adopted as a general model to be used in other policy domains. In this section, we trace the emergence of the EES and the new governance mechanism that it inaugurated (See Goetschy, 1999; Cameron, 2001; Kenner, 1999).
For most of the European Union's history, the EU has concentrated on creating a single market. It was assumed that this would lead to more and better jobs. But all direct employment-related policies were left to the Member States. It was understood that the States alone were responsible for creating a jobs-friendly macro-economic environment, ensuring that labor markets worked well, providing for needed skills development, and taking care of the unemployed when other measures failed. However, by the early 1990s, this clear separation of responsibility began to change under pressure from various forces. As a result of continuing poor employment performance in most Member States; deft lobbying and maneuvering by the Commission; a growing need to show that the Union was relevant to ordinary citizens; the addition of new Member States and new governments in some existing States all more favorable to having the Union tackle unemployment; and the evolution of new governance mechanisms that help overcome practical and ideological barriers to European-level action, the Union's role has been substantially expanded.
By the mid-1990s, Europeans began to fear that the high levels of unemployment found in most countries could become permanent and might grow even higher during each cyclical downturn in the economy. It was in this gloomy environment that the European Commission under Jacques Delors released the White Paper on Growth, Competitiveness and Employment. The White Paper was intended to re-energize efforts to modernize Europe's economic institutions in order to deal with unemployment. It set off a debate about European economic and employment strategy and brought the issue of employment to the top of the European agenda for the first time.5
However, just as the Commission and others were pushing for more action by the EU on employment, large portions of the public in several Member States were becoming increasing skeptical and resentful of EU action in general. There had always been a reservoir of anti-EU feeling and concern for maintaining nation-state sovereignty. But in the early 1990s, anti-EU feeling intensified as the Union increasingly intruded into nation-state policymaking. Some attacked the EU's intrusion on national sovereignty while others claimed that the integration process only helped business and did nothing for the average citizen. Some even suggested that layoffs were increasing because of pressures to complete the single market so that the EU was actually the cause of growing unemployment.
Ironically, the Commission and other supporters of Europeanization in employment policy were able to put the anti-EU backlash to good use. This was a time when the leaders of Europe needed public support for the creation of the European Monetary Union (EMU) and the launch of the Euro. Public support would be needed both to ensure ratification of the Maastricht Treaty and secure acceptance of the fiscal retrenchment that EMU would entail. Proponents of the Europeanization of employment policy were able to suggest that if the EU were to play an enhanced role in the fight against unemployment, it would seem to be more relevant to the average citizen in Europe, thus increasing their willingness to accept EMU and other policies thought to be essential for economic integration.6
It was in the context of these crosscutting forces that the European Council met in Essen in December 1994. There were pressures from Delors, some parts of the public, and some Member States to do something at the EU level about the employment crisis. But at the same time there was counter-pressure to limit any further delegation of power to the EU. The minimalist solution at the Essen summit was that the Council merely recommended that Member States invest in vocational training, increase employment intensive growth, reduce non-wage labor costs, increase active labor market policies, and fight youth and long-term unemployment. Member States were instructed to incorporate these recommendations into multi-year programs that would be monitored by the Commission and the relevant Councils of Ministers. The Commission and the Council of Ministers would report back annually to the European Council. This solution, dubbed the "Essen Process", did not delegate much power to the EU, but it did contribute to the increase in discussions of the employment crisis at the EU-level.
After the Essen Summit, pressure on EU leaders to act on employment increased while political changes brought to power leaders more favorable to European-level action. The employment crisis worsened and more lay-offs were announced.7 Critics began to argue more forcefully that there was a link between European economic integration and layoffs. At the same time, the Member States were under pressure from Germany to sign the Stability and Growth Pact. Leaders saw that this move could further alienate the public unless counterbalanced by some action on the jobs front. Finally, three new Member States favorable to action on employment (Sweden, Austria and Finland) joined the Union and center-left governments came to power in several of the major Member States (Italy, the UK, and France).8 Yet while all these forces were moving the Union towards some action, many Member States remained reluctant to transfer real policy making competence to the EU-level.
The 1997 Intergovernmental Conference (IGC) took place in Amsterdam amidst these continuing political crosscurrents. Some Member States were pushing the Conference to declare a "full employment objective." There was talk by some of establishing a specific EU unemployment criterion, like the EMU convergence criteria or the criteria in the Stability and Growth Pact. This was rejected. Other traditional approaches like direct EU regulation and job-creating spending failed to get much attention. Many Member States were opposed to any EU-level spending. And it was becoming clear that regulation, as traditionally understood, could not solve the employment problem. While the Social Protocol of the Treaty of Maastricht, had created limited regulatory competence at the EU-level, experience pointed to the limitations of the regulatory approach. Thus, in the Protocol, the Member States had resisted transferring regulatory power in many key areas of employment relations. In those areas where competence had been ceded, it had proven hard to get directives approved. And political pressures limited what could be done even when directives could be passed: it was clear that directives that went beyond setting relatively low minimum standards would be hard to pass.
Facing a political impasse in Amsterdam, the Member States forged a careful compromise. The compromise was based on a governance innovation that had been part of the process for adopting the Euro and represented an evolution of the Essen process. The solution was to adapt the multilateral surveillance process developed for Economic and Monetary Union (EMU) to employment policymaking.
This EMU surveillance process was originally set up to monitor Member State economic policies and ensure economic convergence in the run-up to monetary union.9 States were required to submit their national plans for convergence. The Commission and the other Member States vetted these plans. Peer review and recommendations for corrective action provided an additional push to Member States to pursue the difficult and politically controversial policies that would be necessary. By the time of the Amsterdam IGC, this system was a proven success. By adapting a similar approach for employment policy, it seemed possible to accommodate pressures for increased action at the EU level with contradictory pressure against expanding EU competence. The result was the Employment Chapter of the Amsterdam Treaty which formally created the EES.
EU leaders did not wait for the ratification of the Amsterdam Treaty to implement the Employment Chapter. At the Amsterdam Summit, the French had insisted that an extraordinary summit on the employment crisis be scheduled for the fall of 1997. In November, the Council, meeting in Luxemburg and acting by consensus, launched the process envisioned by the Employment Chapter. After much debate, the first set of guidelines for what was to be called the "Luxembourg Process" were issued.
There was a heated debate on the scope of the guidelines. The Commission proposed a set of guidelines that was more comprehensive and detailed than most Member States were willing to accept. The Council made many changes in the guidelines proposed by the Commission. Three are particularly notable. Following the precedent of EMU, the Commission wanted to include quantitative targets for reduction of the unemployment rate and for an increase in overall labor market participation but the Council would not accept specific targets. The Council did agree to a quantitative target for the percentage of unemployed who would receive "active" assistance but watered down the definition of active measures and lowered the percentage requested by the Commission. Finally, a guideline promoting wage moderation was removed entirely: this meant that wage policy was excluded from the employment strategy.
In the end, the European Council approved nineteen guidelines. They were formally organized into four pillars: Employability-policies to make unemployment systems more active and increase the skills of workers; Entrepreneurship and Job Creation-policies to encourage new, smaller and more innovative businesses and make tax systems more employment friendly; Adaptability-policies to increase the flexibility of workers and work organization arrangements; and Equal Opportunity-policies to promote gender equality. Each pillar contained 3-7 guidelines.
5 From that time on the conclusions of each European Council Presidency have regularly included a prominent discussion of employment and recommendations for action by the Member States.
6 Of course, this strategy would not affect hard-core Euroskeptics opposed to any transfer of power that threatened nation-state sovereignty.
7 The announcement of the closure of the Vilvoorde, Belgium Renault auto plant in February 1997 triggered vocal public expressions of discontent with the increasing number of prominent layoffs in the EU. Vilvoorde focused attention on the lack of effective EU-level action to protect workers or promote work.
8 The new French Socialist Primer Minister, Lionel Jospin, was particularly vocal in demanding that the EU focus on employment creation to counterbalance the effects of EMU.
9 The Maastricht treaty set convergence criteria that needed to be met before the Euro could be adopted and before Member States could join. The three main convergence criteria were: a) a government deficit to GDP ratio of no more than 3 %, b) a general government debt to GDP ratio of no more than 60% (or sustained improvement towards this level), and c) inflation no greater than 1.5% above the average of the three best performing countries. On the one hand, the convergence criteria were relatively straightforward once the relevant statistics were properly computed. A minimum number of states needed to satisfy the criteria before EMU could go forward, and whether a Member State could join depended on whether that Member State met the criteria. However, to meet the criteria, states would need to pursue economic policies at the national level that would gradually lead their economies to satisfy the criteria. It would have been possible to leave to the Member States the entire responsibility for satisfying the convergence criteria. Who met the criteria and who did not, accounting tricks not withstanding, would have been clear. States could have been left on their own to carry out whichever policies they chose and to decide when to implement them to meet the criteria, without any further EU supervision. Instead of this hands-off approach, the more intrusive multilateral surveillance process was established.