One wedding and three funerals for Social Europe


Over the next few weeks, European politicians will be designing a roadmap to build a ‘genuine’ and stronger economic union.

The social dimension, including social dialogue, is one of the four chapters in this roadmap.

More detail on this four-point roadmap is provided in a letter of 1st of February from the President of the European Council to the Irish presidency.

The attachment to this letter is actually applauding the social dimension, calling the European social contract part of our global competitive advantage and the cement of political stability.

This sounds promising. It’s as if Europe’s political leaders, after having embarked on the disastrous course of austerity and deregulation, are now highly concerned about rising unemployment, increasing poverty and the political instability that accompanies these trends.

However, what about the three other chapters of this economic union roadmap?

Here, a closer look at the President’s letter and discussion document quickly reveals that there is no intention whatsoever of changing the present orientation of economic policy.

On the contrary, the idea is to make the system of European Economic Governance even stronger than it already is.

New and more powerful instruments of ‘economic torture’ are to be created so as to force member states to continue on the road of deregulating labour markets and squeezing wages.


Still enhancing labour market flexibility

The first proposal is to discuss and assess every national plan to reform labour and product markets even before such reform is adopted by a national government.

In itself, such a coordination of structural reforms on a wider European level would make sense.

After all, if the euro crisis teaches us anything, it is that a monetary union where key members are pursuing a policy of wage deflation while others are undergoing an inflationary debt boom is a recipe for disaster.

However, from the letter to the Irish presidency, it immediately appears that European politicians are only interested in one particular type of structural reforms, namely those reforms that enhance labour market flexibility.

Here, the idea is once again about the fact that, since members of a monetary union can no longer devalue the national currency, their labour markets should be flexible and able to swiftly deliver big wage cuts and deteriorations in other working conditions so as to deal with negative economic shocks.

There is no interest whatsoever in a setting up of a coordination of structural reforms that would prevent member states of a monetary union from engaging into ‘beggar-thy-neighbour’ policy.

On the contrary, the type of coordination that President Van Rompuy has in mind would actually applaud policy initiatives such as the one undertaken in Germany at the start of the previous decade.

At that time, the ruling government threatened to intervene in sector-level bargaining if trade unions refused to make wages more flexible by accepting wage cuts at company level.

This then led to a decade of wage stagnation and rising inequalities. In turn, this worked to destabilize the single currency in a fundamental way.


The pretext of growth and competitiveness

The second proposal is to make member states enter into contracts with the Commission on the structural reforms they are expected to deliver.

Here, the European President’s paper explicitly states that the intention is to build upon the recently introduced system of economic governance, a system that already makes it possible for the Commission to levy financial fines on member states that fail or refuse to implement the reforms recommended to them.

In other words, contractual arrangements will provide the Commission with even greater power to impose structural reforms: if member states fail in delivering the structural reforms the Commission wants, they do not respect their part of the contract and, as with any other contract, there would be consequences attached in the form of extra fines and/or blocked access to European funds (see also next point).

There’s also no illusion about the type of reforms the President’s paper has in mind: Once again, the focus is on improving competitive positions by addressing ‘sectoral bottlenecks’ (an implicit reference to sector-level bargaining?) and ‘institutional bottlenecks’ (a reference to national minimum wages or systems of legal extension of collectively bargained wages?).

On other occasions, politicians have promoted these contractual arrangements as a way to spread the structural adjustment programs now being imposed by the Troika on financially distressed countries to the whole of the Euro Area.

If this were to happen, cuts in minimum wages and public sector wages as well as all kind of reforms putting trade unions and workers in a weak bargaining position would become the order of the day across the entire Euro Area.


Mechanism for perverse solidarity

The third instrument of economic torture proposed by the Van Rompuy paper is, ironically enough, called a mechanism for solidarity.

To compensate for the fact that structural reforms are economically and socially costly, a European fund would cover some of these costs in a temporary way.

Member states that do enter into the above described contractual arrangements and deliver the structural reforms the Commission wants would get additional money.

Europe, in other words, would subsidize structural reforms such as, for example, privatising public pension schemes, cuts in minimum wages and public sector wages, weakening of collective bargaining institutions and deregulating labour laws.

This is a very peculiar concept of solidarity.

It is the solidarity of those who are weak with those who are strong.

Workers in distressed economies will suffer the social fallout from deregulation. Workers in non-distressed countries will have to face the effects of wage competition while contributing to a pan-European fund that is used to promote that same wage competition.

Meanwhile, the big winners from this organized race to the bottom will be management and capital owners who will use the wage squeeze to see profits, dividends and bonuses soar.


The social dimension as a smokescreen

The Economic Union roadmap of the European president is promising workers and trade unions a social dimension.

However, when analysing the roadmap in its whole, it is difficult not to draw the conclusion that a clear danger is hiding behind this renewed social language.

While trade unions and workers are kept busy with nice language and promises to upgrade social dialogue and social cohesion, the real agenda of this roadmap is to push forcefully forward on the road of weakening the rights of workers and all labour market institutions that protect labour from downwards flexibility.

If this scheme is continued, trade unions will be facing an Economic Union where unfettered markets rule and business does not have to bother much with workers’ rights and trade unions.

It is hard to see how this can be reconciled with the promise of a single currency with a strong social dimension.