Euro Crisis, Austerity Policy And The European Social Model

Klaus BuschHow Crisis Policies in Southern Europe Threaten the EU’s Social Dimension.

The harsh austerity measures that, according to official policy, are supposed to overcome the euro crisis have once again plunged Europe into recession in 2012. Austerity policy has proved – in Greece, Italy, Portugal and Spain (GIPS) – to be primarily an attack on wages, social services and public ownership.

The analysis of a new paper by myself, Hermann, Hinrichs and Schulten shows in section 2 that, in the course of the Euro-crisis, the EU has developed a new form of wage policy interventionism – Euro Plus Pact, Six Pack – which has led to far-reaching interference in the collective bargaining systems of the GIPS states. The principles of central collective agreements and universal applicability have been undermined and collective bargaining systems have been decentralised. Thus the GIPS states are launching processes of change in their collective bargaining systems that were completed long ago in many other EU states.

In the public sector, as a result of the austerity policy, wages have been frozen or cut. Greece (–20 per cent) and Portugal (–10 per cent) have been at the forefront of cuts in real wages throughout the economy. Spain (–5.9 per cent) and Italy (–2.6 per cent) have also experienced above-average real wage losses during this period. This represents an opening of the floodgates in comparison to the situation before the crisis of 2008/2009.

In pension policy – the topic of section 3 – Portugal introduced reforms in 2007 and Greece, Italy and Spain in 2010, which many other EU states had launched a decade before. Besides a raising of the statutory retirement age, the equalisation of men and women, a toughening of the conditions for early retirement and the abolition of job-specific differences, individual components of pension reform – increase in the number of insurance years for standard pensions, changes in indexation methods – have been adjusted in such a way that the rise in pension costs in relation to GDP by 2040 has been slowed down significantly. Relative pension levels – measured in terms of wage replacement rates – will fall drastically in the GIPS states by 2040.

The pension reforms that have been implemented will have long-term negative consequences, especially for the incomes of those future pensioner generations who have more unfavourable employment biographies. Longer periods of unemployment and so-called »atypical« employment conditions entail gaps in social insurance contributions and thus lower pension levels.

Privatisation policy – section 4 – has taken on new impetus in the GIPS states because of the Euro-crisis and the accompanying austerity policy. In Greece and Portugal, the granting of loans by the EU states was linked to extensive privatisation. Spain and Italy, under pressure from the ECB and international institutions, have announced far-reaching privatisations. Among the GIPS states, Greece has been most affected and plans a veritable fire sale of state property.

Regarding the European Social Model we draw the following conclusions:

The weakening of the social flank in Southern Europe in fact has repercussions for western and eastern Europe, putting the trade unions and left-wing parties under further pressure. In the market states system wage and social dumping processes are thus even more pronounced. This is not a linear process, in which »the South« catches up with the reforms that »the West« and »the East« have often already implemented. The abovementioned interventions in southern Europe mean that the liberalisation of the European Social Model will be implemented in the EU as a whole. If the path of economic austerity, despite all opposition, is maintained until 2014/2015 the policy disaster for European social democracy and the trade unions will be complete.

Download the full paper here


  1. superjamespond says

    We are underway to get the same systems as in china or even usa .

    salaries will go down and all the other benefits create the bigger EUROPE everything will go down 2O%to match the lower salaries of “ex east bloc countries”or even more. this % is not clear yet. it could be between 20 and 50%!!!!if we take truck driver salaries as an example for instance.
    after the euro that replaced the different currencies we are on our way to loose our culture
    ,our country,our identity to become a zero nation.europe is not a nation and will never be.
    its clear as cristal clear water.its dictated by dictator functionaires who see themselves
    as big CEO’s of europe with hughe salaries,benfits ,a bit like ex-USSR.
    it will collapse sooner or later but like any politician thier pockets will be filled and their families won’t starve from hunger.
    In the meantime and that’s worse a lot will have been destroyed in our industries
    ,families, local businesses, local know how all thanks to europe that has no hart,no understanding,only blody fucntionaires with zero capacities when it comes to defending know how,(savoir-faire),established businesses,entrepeneurship ,risk taking people, etc etc
    the biggest error in human existence is going to happen in europe because of bad and mismanagement.
    the way to hell is paved with european destroyers.

    • Global City says

      The most corrupt (or corrupting) decision made was to give all European parliamentarians and civil servants parity in pay. Now the politicians from the old East earn vastly more than their populations. As a result they are prepared to visit any hardship on their people in order to maintain their places at the core of the elite’s plans for the continent, politically and societally.

  2. Global City says

    What do Euro supporters think is meant by ‘internal devaluation’? are they also aware that the call that the tranfers that Germany would have to make to stabalise the currency are ‘much more than the Post WWI reparations’ are not just silly, made up lies, but actual sums, and that these would be im perpetuity?

    Some good points in the article, but it misses the fundamental flaws of the whole project.