One Welfare State for Europe: A Costly Utopia?

This paper addresses the question of the social policy harmonization in the European Union. In adopting a common monetary policy Europe is faced with structural and fiscal concerns, as national growth levels di¤er. Another possible factor in output shocks are the levels of various social expenditures in the member countries. OECD data on the level of social program expenditures in four EU countries will be compared to fluctuations in GDP growth to identify existing relationships. Significant relationships between independent social expenditure policy and GDP growth shocks portends structural harmonization as an improvement if Europe is to take full advantage of the common market. However, the e¤ects of expenditure levels may be easier to identify and predict than the dynamic e¤ects of policy change. As the e¤ects of future policy changes are more di¢cult to ascertain, harmonization may not consistently appear to be a Pareto-optimum solution to asymmetric shocks.