In return for getting access to additional financial resources from Europe and the IMF, Greece has now been forced to swallow yet another round of brutal fiscal tightening and social deregulation. One can already predict what its effects will be. The ‘spiral of death’ in which Greece is already trapped will intensify: Wage and expenditure cuts will push the economy into an even deeper recession and unemployment will continue to increase. As a result, deficits will remain high and public debt, in relation to a falling GDP, will explode further. Meanwhile, and because of the continuing recession and its implications for Greek debt dynamics, financial markets will continue to extract ridiculously high interest rates – already at 42% – on Greek debt.
Among the list of wage cuts and social expenditure cuts that the Troika is imposing on Greece, there is one measure that stands out in particular: The minimum wage in Greece – which has until now been negotiated in a national collective agreement and currently stands at 862 Euro per month – will be cut by 22%. Young workers on the minimum wage are even facing a cut of 32%.
From the Troika’s point of view, cutting the minimum wage is merely a logical step in a process that started in May 2010 when the first bailout agreement for Greece was signed. At that time, public sector wages with their 13th and 14th month payments were represented as an unwarranted privilege. This was quickly followed at the beginning of 2011 by increasing the pressure on private sector wages: Company level agreements were allowed to deviate, downwards of course, from wages and working conditions set in sector level agreements. In a later step, the right to bargain was transferred from representative unions to newly established groupings of workers with 5 workers being defined as the threshold to constitute such a group.
As a consequence of these measures, wages have come crashing down. Nominal wages per head fell by 3,3% in 2010 and 2,7% in 2011 and are expected to continue to fall by 2,8% in 2012 and 1,2% in 2013. This has had a peculiar side effect. As shown in the graph below, the minimum wage increased from 40% of average monthly earnings in 2010 to 50% in 2011.Of course, this hike did not originate from an increase in the absolute value of the Greek minimum wage (the nominator) which in 2011 remained at the same level. The hike between 2010 and 2011 is purely artificial and stems from the fact that the value of the average wage (the denominator) was severely pushed downwards.
With wage building being hollowed out and with average wages starting to move in the direction of the minimum wage level, the Troika most probably wanted to provide more room for wages to fall by lowering the minimum wage floor and resetting the minimum wage at its initial relative level of 40% of the average wage. A new measure envisaged by the Troika in this respect is to let collective agreements expire and to force workers to renegotiate their individual work contracts from scratch, in this way achieving even more wage cuts.
Aside from the fact that cutting minimum wages is imposing an extremely tough burden on the weakest workers and that the overall strategy of trying to export unemployment by cutting wages is a dead end street, there’s another important lesson to be learned. Indeed, within European progressive circles, the idea that a European minimum wage standard in the form of a percentage of the average of the median wage would provide for some limits to wage dumping is widespread. In normal times, this would probably be true. However, we are not living in normal times. The pressure from financial markets, from the Troika and from the economic governance regime that is in the process of being set up by the Commission is such that workers in several member states will be forced to accept wage cuts. If this results in average wages falling, then the European minimum standard may turn out to function in the opposite way to that envisaged by progressive thinkers. If the minimum wage expressed as a percentage of the average wage is pushed above the European minimum wage standard (which realistically would be a rather low standard, say 40%) , then conservatives and the business community can easily argue that the minimum wage has become ‘excessively’ high and needs to be cut. In turn, the latter then provides more space for average wages to fall further. In this way, the European minimum wage standard would get turned around from an institution providing an effective wage floor into an instrument to push wages down.
The lesson from Greece is the following: If we want to provide for a meaningful floor in European labour markets under which wages cannot fall, then the standard to be defined should not be a relative standard but an absolute one. Here, one could suggest basing such a European standard on the wage level that is necessary to keep a worker and their family living well above the threshold of material deprivation, with this threshold to be calculated separately for each member state.