Second, the Anglo-Saxon model, prevailing in the United Kingdom and Ireland: in this model, the welfare system provides a relatively limited safety net of social protection. Employment protection legislation is rather weak, recipients of benefits have to be actively searching for employment and flexibility in labour markets is considerable. Unionisation is low and there is a rather large dispersion in wages between very low pay and very high salaries. Overall, this model has a good record of generating growth and employment, but does not appear as equitable as other models. Third, in Germany, France, Belgium, Luxembourg and Austria, the Continental model prevails. Here, the welfare state essentially consists of insurance-based unemployment benefit and pensions systems, meaning transfers are seen as unconditional entitlements, which influence the propensity to actively seek work. Trade unions, despite a general weakening over the past years, are still influential, and income disparity is relatively low. The Continental model seems to insure people relatively well against poverty but it may do so with less efficiency and unsustainably: low levels of labour utilisation (in terms of the number of people employed and hours worked) and a relatively large public sector have put pressure on public finances. Fourth, the Mediterranean model, which can be identified in Greece, Italy, Portugal and Spain. Strict employment protection legislation and early retirement schemes keep employment levels below those of other models, because insiders are protected and incentives to take up work are not adequate.
In view of the harmful long-term effects of expansionary and stop-and-go fiscal policies, the degree of discretion of fiscal policy-makers had to be limited and clear yardsticks for responsible policy choices had to be provided (see Lucas, 1980). Europe’s solution was the Stability and Growth Pact, a rules-based fiscal policy framework binding all Member States and which is essential for the orientation and coordination of national fiscal policies towards sound and sustainable public finances. However, the notion of “the law as the guardian of economic wisdom” (Herdegen, 1998) is widespread: the fiscal responsibility laws in New Zealand, the constitutional obligations to produce balanced budgets in all US Federal States (except Vermont), or the “Golden Rule” of the German Basic Law which prohibits the government from borrowing more than it spends on investment, are all based on this reasoning. It is the same reasoning that led Odysseus to have himself tied to the mast of his ship in order to achieve his long-term primary objective to return home and effectively avoid the temptations of the sirens songs and the potential short-term benefits but also long-term risks they entailed. VII. Concluding remarks  I have covered a lot of ground and I should not further test your patience. But the topic of my presentation involved a variety of issues and policy dimensions. The relationships between economic performance, market structures, economic institutions and social values are complex and characterised by a multitude of direct and indirect interlinkages.