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| Photo by Yanni Koutsomitis |
Until recently, wage policy remained a national issue. Accordingly, European labour politics has mainly been shaped by pressures triggered by the creation of the Single Market and European Monetary Union. After the 2008 financial crisis, however, economic integration has been complemented by integration effected through the direct surveillance of member states. While the initial focus of the EU’s New Economic Governance regime (NEG) on austerity is uncontested, an influential stream of EU social policy literature argues that since 2013 there has been more emphasis on social objectives.
In a new study, we
show that this is not the case. We do so through an in-depth analysis of
economic governance on wage, job protection and collective bargaining policy in
Germany, Italy, Ireland and Romania between 2009 and 2019. Our main conclusion
is that the EU’s interventions in these areas continue to be dominated by a
liberalisation agenda that is commodifying labour, albeit to a different degree
across the economically uneven but nonetheless politically integrated EU. Even
so, our contextualised analysis enables us to detect contradictions that
provide labour movements with opportunities for countervailing action. After a
decade of commodifying policies, in January 2020 the new European Commission
would hardly have launched the legislative process for a new proposal on fair
minimum wages in the EU were there not a growing concern about
wages that are too low to guarantee a decent standard of living.
Understanding the EU’s New Economic Governance in context
Whilst we recognise advances in EU studies that improve our
understanding of the EU’s new economic governance, most studies of social
policy are characterised by three limitations. Firstly, those who argue that
there has been a partial but
persistent ‘socialisation’ of economic governance only focus on
a selection of Country-Specific Recommendations (CSRs) and exclude other
governance mechanisms from the analysis, i.e. the Memorandums of Understanding
(MoUs) signed by countries receiving EU loans. We therefore also include MoUs
in our analysis.
Secondly, supporters of the socialisation thesis give equal weighting to
all CSRs regardless of their legal bases, ignoring whether they relate to an
MoU, the Stability and Growth Pact (SGP), the Macroeconomic Imbalance Procedure
(MIP) or the Europe2020 agenda. Instead, we analyse the varied levels of
constraint that accompany policy prescriptions and recommendations over each
annual cycle. First, we distinguish the level of supervision that a member
state finds itself under, e.g. the quarterly reviews regarding an MoU or the
in-depth reviews regarding an excessive deficit or macroeconomic imbalance.
Table 1 shows the status each country under study was experiencing within this
governance regime between 2009 and 2019.
Table 1: Country status within the EU’s NEG policy enforcement regime
Source: Council recommendations on
national reform programmes (2011-2019). a The revised SGP
and the new MIP process came into force in 2012. SGP (Stability and Growth
Pact): EDP (Excessive Deficit Procedure); Significant Deviation Procedure
(SDP). MIP (Macroeconomic Imbalance Procedure): Ex-IMB (Excessive Imbalance),
IMB (Imbalance). MoU (Memorandum of Understanding on Financial Assistance):
P-MoU (Precautionary MoU).
The impact of economic governance procedures, however, not only depends
on the level of supervision that a member state is facing. Equally important
are the weak, significant or very significant sanctions that a noncomplying
state would risk, depending on the origin of a specific policy prescription or
recommendation, as outlined in Table 2.
Table 2: Origin and degree of constraint of NEG prescriptions
Source: Adapted from Stan and Erne
(2018). a EU Financial Assistance to a member state is
conditional on the implementation of the corresponding MoU. b Since
2014, European Structural and Investment funding to all EU member states is
conditional on ‘sound economic governance’, i.e. the implementation of
corrective EAP-, SGP-, and MIP-prescriptions (Article 23, Regulation
No 1303/2013 of the European Parliament and of the Council of 17 December
2013). c Since 2011, a member state of the euro area that
has not ‘taken effective action to correct its excessive [budget] deficit’,
risks ‘a fine, amounting to 0,2 % of the Member State’s GDP in the preceding
year.’ (Art. 6, Regulation No 1173/2011 of the European Parliament and of
the Council of 16 November 2011). d Since 2011, a
member state of the euro area that ‘has not taken the corrective action
[against excessive macroeconomic imbalances] recommended by the Council’ risks
an ‘annual fine of 0,1 % of the GDP in the preceding year of the Member State
concerned’ (Art. 2, Regulation No 1174/2011 of the European Parliament and of
the Council of 16 November 2011).
Further, in order to be able to assess the social trajectory of European
economic governance, Table 3 below distinguishes different trajectories in
three areas based on their commodifying or decommodifying content. For wage
policy, there is a simple division between wage level increases and restraints.
For labour market institutions, there is a focus on whether there is a call to
increase or decrease workers’ employment protections. For collective
bargaining, we distinguish between policies that favour solidaristic or
individualising bargaining institutions. We define bargaining institutions as
solidaristic if they are taking wages and working conditions out of competition
through the setting of standards that apply to multiple employers. By contrast,
collective bargaining policy recommendations are commodifying
labour if they call for a decentralisation of multi-employer collective
bargaining agreements.
Table 3: Policy trajectories and themes of NEG prescriptions
Source: Our Analysis of Council
Recommendations on National Reform Programmes (2009-19) including the MoUs
quoted in them. See online annexe.
Finally, decontextualised studies also often disregard where the
receiving state is situated within the EU’s combined but uneven political
economy. There is no attempt to understand, let alone explain, why a specific
set of policies may be targeted at a member state at a given point in time. Therefore,
we analyse the content of the EU’s NEG regime only in relation to a set of four
member states as opposed to all 28 (at the time), but in much more depth,
including two larger countries, Germany and Italy, as well as two smaller ones,
Ireland and Romania. We chose to study these four countries as proxies for the
relative power of larger/smaller and richer/poorer states in the EU in order to
be able to capture the national and transnational dynamics that are at work.
2009-2019: No social orientation of economic governance in the area of
industrial relations
The results of our analysis are summarised in Table 4 below. They
distinguish between decommodifying and commodifying trends, as well as between
very significant (black), significant (grey) and weak (white) degrees of
constraints depending on its particular policy area, its timing, and the
country position in the EU’s political economy. Ultimately, our analysis shows
that there has been no socialisation of the EU’s NEG regime between 2009 and
2019 in the policy fields and countries under study.
Table 4: EU prescriptions on wages, employment protection, and
collective bargaining
Source: Our Analysis of Council
Recommendations on National Reform Programmes (2009-19) including the MoUs
quoted in them. See online annexe.
For Italy, there was a continuing insistence on both the commodification
of job protection laws and wage bargaining decentralisation, despite the
implementation of several major labour market reforms since 2012. In 2018,
however, the issue of bargaining decentralisation was dropped. But this did not
happen due to a higher sensitivity to social or local concerns, as the
Commission in its ‘Country Report’ continued to call the efforts on
decentralisation insufficient. The recommendation was dropped only after the
Employment Committee of the Council evaluated the level of decentralisation
achieved by the Italian reforms as enough.
The MoU for Romania called for major wage cuts and a commodification of
individual and collective labour law. This would suggest that there would be no
need for further new prescriptions after the acute phase of
the crisis. In 2013, however, the EU started to worry about the increases in
public sector and minimum wages that the new Social Democratic government
promised to implement unilaterally. In June 2017, the Council opened a
Significant Deviation Procedure (SDP) that meant that the government had to
take decisive action to ensure that the nominal growth rate of net primary
government expenditure would not exceed 3.3% in 2017. In turn, the Social
Democratic government counteracted its own wage increases with a new law that
shifted most social security taxes of employers to their employees. Since 2018,
the public sector and minimum wage increases have thus effectively been
financed by the employees themselves, given the savings for public and private
employers created by this ‘tax revolution’.
For Ireland, the MoU also called for major wage cuts and liberalisations
of its already very flexible collective wage setting regime. After the
abolishment of the provisions for binding sectorial minimum wages and their
replacement with a more flexible regime in only a small number of sectors,
Ireland did not receive any commodifying CSRs in our field, as the centre-right
Irish government made sure that the austerity wage cuts were restored at such a
slow pace that they did not cause any concern in Brussels. Irish growth rates also
increased again, not as a result of the austerity cutbacks, but due to the
growth of actual and transfer pricing activities that multinational firms
reported in Ireland. In turn, Irish nominal Unit Labour Cost (ULC) increases
for the 2014-16 period remained a stunning 29.5 per cent below the upper
ceiling set by the EU’s MIP scoreboard.
The German government, by contrast, received weak recommendations that
point in a decommodifying direction. Since 2013, Germany has faced persistent
calls to increase wages and to increase transitions towards more stable forms
of employment. This, however, is not due to a concern for the German economy
being besieged by precarious work, but because of its position within the EU
economy. According to EU policy makers, German wage policy alone would be able
to generate so much demand-led growth domestically that it would have positive
‘spill-over
effects’ for the rest of the EU. What on the surface looks like a
shift towards social concerns about the wage moderation that has been forced
upon German workers since the start of the century, is in fact an economic
concern with the role current account imbalances have played in shaping the
macroeconomy of the EU.
From NEG prescriptions on wage retrenchment to an EU law on fair minimum
wages?
Our analysis of EU wage policy recommendations between 2009-2019 shows
that policies were mostly oriented in the direction of wage moderation or
retrenchment. This stems from diagnosis of the Euro crisis where growing unit
labour costs were identified among the main causes of the increasing imbalances
among EU member states. Even after the most acute phase of the crisis, wage
setting institutions and collective bargaining still had to be adapted to
support so-called national competitiveness.
The recent proposal by the new Commission on fair minimum
wages in the EU may signal new concern among EU leaders about
the fact that for too many workers wages are too low to guarantee a decent
standard of living. At the same time, however, the ongoing debate around the
Eurozone budget also shows the continued commodifying bias of the EU’s new
economic governance regime, as the proposed budget has no stabilisation
function, but would serve
to reward member states that implement ‘structural reforms’ suggested by the
Eurogroup. Therefore, it remains to be seen whether the EU’s
conflicting aim of moderating wages in order to increase national
competitiveness and giving workers fair wages providing a decent standard of
living can be reconciled.
Trade unions might play a role in this respect, pushing for an increase
in wages across Europe. In the absence of labour mobilisations, there is indeed
hardly a need for social concertation, which means that even moderate
unions must complement the force of their Keynesian arguments with the argument
of force. Given the methodological nationalism of the EU’s NEG
regime, its inaccessible, technocratic language, and the different policy
directions of CSRs for countries at the centre and periphery of the EU’s
political economy, the politicisation
of the supranational NEG regime is not easy in a transnational
public sphere.
However, considering the much more uniform commodification
patters of CSRs on the provision of public services by
comparison to the labour politics areas analysed in our study,
EU economic governance may be politicised by European public service unions
rather than the manufacturing unions, even if the latter have been integrated
in transnational production regimes for much longer.
For more information, see the authors’ accompanying paper in the British Journal
of Industrial Relations
This post was first published on the LSE European Politics and Policy blog on 6 April 2020.
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