A Social Dimension For A Genuine Economic Union

JanssenWill a reinvigorated European Employment Strategy Be Up To The Job?

Through the so called roadmap for a ‘genuine’ Economic Union, Europe is in the process of strengthening its power to intervene in Euro Area member states and to impose flexible labour markets and flexible wages. As described in a previous contribution, this roadmap therefore constitutes a serious threat to Social Europe in terms of equitable wages and workers’ rights.

However, the same roadmap also contains a chapter on the social dimension of monetary union. This raises the question whether new initiatives in the social dimension can function as a counter veiling power to DG ECFIN’s quest for deregulated labour markets. Or, as European Commissioner of social and employment affairs Lazlo Andor seems to be saying in his speech at the ETUC conference in Madrid: “Economic and Monetary Union itself needs to have a social dimension (…). The social dimension of a genuine Monetary Union must be understood as an ability (…) to ensure that economic efficiency and social equity are pursed at the same time (…). This requires that (…) there are institutional guarantees to limit the real economic and social costs (…)”. (http://europa.eu/rapid/press-release_SPEECH-13-62_en.htm?locale=en)

What types of proposals on the social dimension are now being launched?

In and at the margins of the meeting of the EPSCO ministers at the end of February, a number of proposals have been launched, either through so called leaked ‘non-papers’ or through public statements. One red line running through all of these is the idea to set up a system of ‘social’ governance inspired by and running in parallel with the system of European Economic Governance.

It starts with the proposal to transform the existing ‘Employment Performance Monitor’ and ‘Social Protection Performance Monitor’ into a scoreboard of improved employment and social indicators, triggering in-depth reviews in case a ‘social imbalance’ occurs. This is exactly identical to what DG ECFIN developed with its procedure on preventing and correcting excessive macro-economic imbalances.

Also identical to ECFIN’s instruments of economic governance is the proposal to subject major employment and social policy reforms to multilateral surveillance before they become final. Or the idea to provide financial incentives so as to have member states enter into mutually agreed contractual arrangements on social or employment issues.

In all of this, there’s the element of benchmarking of key measures. Common objectives are to be formulated; such as already is being done in the recently decided youth guarantee (a job or training offer after 4 months of youngsters leaving school). This is to be followed by organising a close examination to see which member states are successful and which are not.

Finally, the most far reaching proposal that we know of is to arrive – in the long term – at a common wage floor that would guarantee each worker in Europe a fair wage, with member states being left the choice to set, we quote (and notice the word ‘minimal’!), a ‘minimal minimum wage’ either by legislation or by collective bargaining.

A feeling of ‘Déjà vu’

Those who have been following the European policy discussion over the last fifteen years may reflect that they have seen this before. Indeed, after the Maastricht Treaty had cemented the 3% deficit objective, a debate was launched in the mid nineties on how to rebalance the policy of fiscal consolidation with employment and labour market policy. The idea that emerged was the idea that fiscal targets and the pace of austerity could be made more flexible and less damaging for the economy if the employment dimension was also brought into the policy discussion. This then resulted in the famous European Employment Strategy. Member states, especially those entering monetary union, were to consider employment policy as a ‘matter of common concern’. Key objectives such as a 70% employment rate were agreed upon. Employment guidelines with sub targets on, for example, active help for the unemployed after a certain span of time, lifelong learning or school drop outs were set. A system of peer review and mutual benchmarking between different national labour ministries was to ensure a close and systematic follow up of what was happening in practice in member states. As previously indicated, the hope was that this structural attention for employment matters would be able to change the balance and put pressure on decision makers, in particular finance ministers, not to stare themselves blind on the issue public finances but also look at the needs in terms of labour market policy.

What is fifteen years of European Employment Strategy able to tell us? It turned out that the ‘soft law’ approach of the European Employment Strategy was no match for the ‘hard law’ constraints imposed by the Maastricht 3% deficit criterion and the zero deficit requirement of the Stability Pact. Out of fear of being refused entry into the single currency and, later on, because of the concern of being humiliated through the excessive deficit procedure and its related threat of financial sanctions, the balance in the policy discussion firmly remained in favour of those who were stressing the case for a strict continuation of fiscal consolidation.

Today, the balance of power between ‘soft employment benchmarking’ and ‘hard economic law’ is even worse. With national central banks having become a subsidiary of the European Central Bank, all governments of monetary union are now perfectly aware that they are extremely vulnerable to the mood swings of the financial market herd. Governments are also aware that the European Central Bank itself will only provide minimal liquidity support against such financial mood swings if and only if they do not step outside the ECB’s twin policy box of austerity and deregulation. Given all of this, the idea of reinventing ‘soft benchmarking’ to try and defend the social dimension against the ‘hard violence’ of economic governance does not stand much of a chance. 

A ‘Stockholm syndrome’ for Labour Ministers?

The historical experience with the European Employment Strategy teaches us a second thing. Confronted with their dwindling influence over economic and social policies, labour ministers and their representatives have on occasions shifted their positions, in that way hoping to be taken more seriously by finance ministers. For example, in the first five to seven years, the guidelines and recommendations of the Employment Strategy were stressing the need to tackle low wages and to promote job quality. Most recently however, such concerns have been replaced by the view to promote, in line with finance ministers’ thinking, downwards wage and labour market flexibility.

At this moment, there are some indications that this is happening again. For example, it is surprising to note that in a policy document that is otherwise excellent in denouncing the failure of the European policy of austerity, it is recommended to substitute the unemployment statistic in the macro economic imbalances procedure with an indicator of ‘structural unemployment’. (http://www.progressiveeconomy.eu/content/iags-report, see page 76)

A look at the AMECO database shows what would happen if this suggestion would be taken up. In that case, labour ministers would be analysing labour market policies on the basis of an estimation telling them that Spain for example is suffering from a structural unemployment rate as high as 24%. The policy conclusions then automatically becomes that the disastrous level of unemployment  in Spain (currently 26%) is mainly ‘structural’ and thus related to the inefficient functioning of the labour market and not to the strategy of austerity and the collapse in aggregate demand this strategy triggered. In this way, austerity is being graciously let off the hook and policy makers can argue for its continuation.

The alternative: Strike at the very heart of Economic Governance

A social dimension that really matters is indeed about strong institutional guarantees putting limits to the process of economic governance. However, simply placing improved social indicators and a renewed employment benchmarking process alongside economic governance may certainly be interesting but it is not enough. What needs to be done is to strike at the very heart of European Economic Governance. Social limits and principles need to be placed INSIDE its processes and procedures. In that way, the social dimension can be safeguarded from the very start. In a next contribution, we will present some concrete proposals on how to do so.