How will the European social model  come out of the eurozone’s crisis? If we rely on the way  the European authorities are managing the present  situation, the prognosis must be quite negative. There is a new Frankfurt-Brussels Consensus that has taken the place of the Washington Consensus that came out pretty battered by the American crisis of 2008. The debate is now focused on the European authorities’ austerity politics, which could be fatal for the Euro. However, we have also to look to other side of the coin of European policy: the so-called "structural reforms". In other words, the European social model is threatened to become the sacrificial victim of  both  sides of the coin, and the deepest wound will be inflicted by  structural reforms.

Austerity is inflicting  a massive damage to the European economy . However, sooner or later, its negative effects will be overcome , and  will leave room for different policies: but  the effects of Structural Reforms' will be much more difficult to cancel.. Once the institutional, political and economic frameworks on which the European welfare systems are based, will be dismantled, or deeply reduced , it will be almost  impossible  to move back the wheel of history, as if nothing happened. The structural Reforms are bound to change the very shape of the European  social fabric.

The fact that the austerity economy is a mess can be no doubt. Take the case of Greece, the Lehman European turning point of the crisis. Its collapse was used to intimidate and blackmail, with the threat of contagion, the other countries in difficulty, specially the large target as Spain and Italy, after Ireland and Portugal. The Troika - IMF, ECB and European Commission - could not be unaware of the consequences of the treatment imposed to Greece. At first, it was a minor problem, since Greece  represents less than three percent of GDP in the eurozone.

 A solution could have been agreed with the government of George Papandreou, who had denounced the budget manipulation of the previous Conservative government, by a phased program of financial recovery. The European authorities rejected the request, forcing on Greece a lethal deflationary policy. We know the outcome. After three years of recession and growing unemployment, now  approaching  25 percent, sovereign debt, which was less than 120 percent of GDP, is now at 160 percent and, according to the forecasts of International Monetary Fund, it will take almost a decade to return to 120 percent.

We do not share the political choice of austerity, but it would be naive and misleading to think its authors unaware of its consequences. In Brussels, as in Frankfurt and Berlin, they know perfectly well that austerity is not a tool to stimulate growth and fight mass unemployment. So, the solution will come from something else, that is, in the "structural reforms". In other words, in dismantling the institutions that make up the European social model, which Jacques Delors put at the heart of European construction.

Speaking of the European social model, we are aware of the differences, which stem from different historical, cultural, and institutional elements. There is  however, a common character  which makes it strongly different from , for example, the American social model. Not surprisingly, for the  goal  of "Frankfurt-Brussels consensus" is the gradual Americanization of European welfare system, through cutback in social spending and deregulation of work rules.

To this end the reduction of social spending must go hand in hand with  increased privatization of pension, health and education systems... It is a way to marry the austerity of today with the structural reforms  intended to last for ever .
In  the case of  the pension system, the extension of retirement age is already a largely achieved goal. But the complementary objective is to increase the amount of privatization of the system. We may consider  the British experience started with  the changes implemented by Margaret Thatcher and continued  during the last two decades. With what results? According to a recent editorial of Financial Times, "Close to half of UK pensioners need some form of means-tested benefit to get by”; and in regard to the private sector insurance it adds: “If the savings habit has to take root, tomorrows’ pensioners must know their savings are going towards their retirement rather than fund manager’s bonus” (Pension tensions, June 13 2012). 

An honest analysis by the European authorities should take all this into account. However,  their ideological fundamentalism  combines perfectly  with the financial interests of the oligarchies that control the insurance companies and banks, while the risk of old age in poverty is imposed on workers, except for the help of an uncertain public assistance.

The second point under  attach is the health-care system, which within the European model  largely  based ona universal   free public service, inspired by the Beveridge’s conception of an universali  welfare state.. Although there are certainly deficiencies in its implementation, according to an old ranking of the OECD the French and Italian systems are among the most efficient in the world. In any case, the average cost of health care in Europe is around 8 percent of GDP, against a stratospheric 17 percent in the United States. People below 65 years are in the hands of private insurance companies, whose insurance premiums, despite the crisis, keep growing, hitting the average of $ 15,000 per family at the end of 2011, while, not surprisingly, about 50 million Americans remain uninsured. The comparison is telling, but that does not dissuade the European authorities from recommend increasing doses of privatization of the system, obtaining, at large, the compliance with the privatization doctrine by the new EU’s central-eastern countries .

The third point of the traditional European model of welfare concerns the public education system, which is  substantially  free from childhood to University education. It’s well known that the higher education costs in America have relentlessly grown. “From the 1981–82 enrollment year to the 2010–11 enrollment year, the cost of a four-year education increased 145 percent for private school and 137 percent for public school. Median family income only increased 17.3 percent from 1981–2010, far below the increases in the cost of education, leaving families and students unable to pay for most colleges and universities in full. Unsurprisingly…two-thirds of recent college graduates have student loans… (and) graduates who do not find a stable source of income may be forced to postpone payment, (and)…missed payments and default can ruin young workers’ credit scores and set them back years when it comes to saving for a house or a car”. (EPI, The Class of 2012: Labor market for young graduates remains grim May 8, 2012). So, it is no coincidence that, according to the Consumer Financial Protection Bureau debts accumulated by the young to pay for attendance at college match a trillion dollars - a sum equal to half of the Italian national income.

Beyond the effects on social spending, the heart of attack to the European social model is in the labor market reform, the mother of all structural reforms.  Across the last two decades, bargaining and labor laws have substantially made flexible all aspects of work organization. But still two main taboos survive in a number of countries:  limits to layoffs and  reducing  the wages set in collective bargaining.

These are the ultimate limits  that European Commission and ECB are committed to destroy. Their reference model is the American one with the hiring and firing freedom and the wages flexibility given the low union’s membership and the difficulties  of collective bargaining. Yet, this is not an easily shared passage. In Germany, for example, the crisis has been addressed through a policy aimed to safeguarding the jobs, through the Kurzarbeit, which provides for the reduction of hours worked for all the staff, instead of layoffs. So, at the end of 2011 unemployment was at a level lower than pre-crisis. The opposite result of US, where companies have taken advantage of the crisis drastically reducing employment, gaining productivity and increasing profits.

But the European authorities do not rest. Apart from Greece, Portugal and Ireland, the most successful implementation of the labor reform was achieved in Spain, where Mariano Rajoy, head of the new Conservative government , has issued a decree, establishing freedom of individual dismissals for economic, productive or organization reasons, and, at the same time, the freedom to drive down wages for companies with balance sheet in the red –a frequent condition during a recession.
With a remarkable turnaround of the language, this type of "structural reforms" is defined as "ambitious" by the head of the Italian "technocratic" government, Mario Monti, which moves, in the same direction to abide to the infamous letter of the ECB jointly signed, last summer  when Italy was under Berlusconi’ government by Jean-Claude Trichet and Mario Draghi, respectively the old and the new president of the ECB.

Paradoxically, the strategy of structural reforms of the European authorities has many similarities with that of US Republican Party, which  blames Barack Obama for flirting with European-like social policies, as in the case of the controversial healthcare reform. Yuval Levin, editor of "The National Affairst" and contributor to "Weekly Standard", authoritative voices of American neo-conservatism, writes that "the social-democratic welfare state has become unsustainable", and that Obama with its liberal social policy "not only affect the future of public finances, but also the future of American capitalism".

So we are witnessing a dramatic reversal of parts: the progressive side of American political culture is accused of cultivating the European social model, while the European ruling élite adopts  the neo-conservative social philosophy of the Republican opposition. This shift is enlightened by Robert Reich, former Secretary of Labor during Bill Clinton's first term. "Since the start of the recession –  he writes - the share of total national US income going to profits has risen even as the share going to labour has plunged. Profits in the US corporate sector are now at 45-year high” And , talking about   the eurozone: "Ms. Merkel and her conservative allies haven’t given up on austerity economics. She is still opposed to fostering growth through more spending…she wants to spur growth with “structural reforms – by which she presumably means giving companies more freedom to hire and fire, outsource jobs to contract workers and, in general, be less constrained by regulation. That is of course the American model -. Which has been fuelling corporate profits at the same time as it depresses wages” (“A diabolical mix of US wages and European austerity”, Financial Times, May 31, 2012).

The language and the conclusions could not be more instructive. Now, let come back to our starting question: will the European social model to survive the crisis? Will it resist to the neo-liberal ideology of the “Frankfurt-Brussels consensus” backed by the blackmail of financial markets? The question remains open and it also concerns the future of the European democracy. As Amartya Sen has recently written austerity “may conflict with a more urgent priority, which in this case is to safeguard a democratic and committed to social welfare Europe. These are the values for which Europe has struggled for many decades”.
But, unfortunately, as we have seen, the criticism of many economists and commentators toward austerity, generally overlooks its close and functional relationship with the so-called “structural reforms” and its explicit  assault to the social values, which are the main characteristic of the European civilization.