Wolfgang Merkel& Tobias Ostheim* Policy Making in the European Union: Is There a Social Democratic Space? The Challenges of European Integration for Social Democratic Policy-Making Mainstream research on European integration and European social democracy is unambiguously clear in asserting that, from the mid-1980s, the integration process has evolved to strengthen market forces and has effectively reduced national sovereignty in core ar­eas of policy-making. This applies to the negative eco­nomic integration of the Single European Market (1987), but also to positive integration, namely Economic and Monetary Union(since Maastricht 1993) and the accompanying Stability and Growth Pact (1997). These integration steps have reduced the abil­ity of the nation state to intervene in markets and to correct the unwanted results of increasingly liberalized capitalism. This might be a desired outcome for liberal and neo-conservative parties. Even Christian democratic parties might accept it(Kersbergen 1995: 236f). How­ever, for social democratic parties the“European path” taken in the 1980s and early 1990s severely challenges their model of economic regulation, policy­making, and social welfare. Since Dahrendorf's depiction of the“end of the so­cial democratic century”(Dahrendorf 1983) many au­thors have addressed the issue of whether social de­mocracy is doomed to decline. 1 In support of this thesis the erosion of class-based voting, the declining impor­tance of trade unions, socioeconomic changes, altered party competition and coalition opportunities, and the effects of globalization have been put forward. Thus, “Europe” might simply constitute another chapter in the literature on the“end of social democracy.” How­ever, European integration not only challenge s tried and tested social democratic strategies, but may also provide opportunities for new political strategies to counterbalance the market-liberal orientation of nega­tive integration and to regain the ability to act at the European level(supra-national and intergovernmental), * Social Science Research Center Berlin; University of Heidel­berg, Institute of Political Science. 1 See, for example, Przeworski 1985; Scharpf 1991; Merkel 1993; Kitschelt 1994, 1999; Pontusson 1995. something which has been lost at the national level through globalization and Europeanization. The cha l­lenge for European social democracy is thus twofold: first, to explore and fully utilize what space remains for their political and social goals at the national level, and second, to“reconstitute a conception of collective po­litical agency, aiming to use the EU as a complemen­tary site for decisions and policy setting”(Ladrech 2000: 55). However, this is a difficult task, and not only for so­cial democratic parties. Realization of both aspects of it is impeded by the difficulties of positive integration: There are policy areas that are of crucial importance for the legitimacy of democratic welfare states, in which national problem-solving capabilities are in­deed severely constrained by economic integration, whereas European regulation, or even policy ha r­monization, seems to be systematically blocked by conflicts within the underlying constellation of na­tional interests.(Scharpf 1999: 3) There are further major obstacles to such a strategy. First, substantial differe nces of opinion between social democratic or socialist governments have so far pre­vented them from correcting the clear free-market “bias” of European policies. Thus, social democratic governments do not form a cohesive actor at the European level in Tsebelis’s sense(Tsebelis 2002). Sec­ond, in most member states governments are formed by coalitions. In many cases this limits social democ­ratic room to maneuver. Third, realizing a“European strategy” may be electorally costly whenever it ob­structs claims for credit for successful policies in na­tional electoral competition. Finally, it is questionable whether social democratic governments would ever challenge the most fundamental and well defended principles of the Community, the four freedoms and competition law, because this might endanger the Community as a whole. However, it is exactly these sacred principles that constitute the greatest obstacles on the social democratic path to market correction. Since the Confederation of Socialist Parties of the European Community(CSPEC) stated in 1990 that “democratic control of the future remains possible,