The EU Services Directive, German Labour Market Regulation and Institutional Change

Abstract

How does extending markets across national borders impact national institutions regulating labour markets? This paper addresses this question by analysing resistance in Germany to the European Commission’s draft Directive on an Internal Market for Services (COM(2004) 2 final/3). It demonstrates how the Commission’s initial attempt to integrate European service markets threatened to accelerate changes in the institutional structure of post-war German industrial relations. The paper shows how a broad spectrum of social and political interests in Germany united in successful opposition to this threat. It also demonstrates, however, that this resistance only postponed institutional reform in German labour markets and pushed the reform process—temporarily—from European to German legislative arenas. This study demonstrates that European market liberalisation, rather than driving the German state from labour markets, is pushing it to take a more active role in regulating employment. It also provides observations about processes of institutional change.