Workers of Europe, compete!



Let us briefly return to the blog post written by Olli Rehn, the EU Commissioner for Economic and Financial Affairs, expressing support for the IMF’s suggestion to conclude a broad social partner agreement squeezing nominal wages in Spain down by 10 per cent.

Such support does not come as a big surprise: the European Commission hasn’t made it a secret that their intention is to replace the missing instrument of a currency devaluation with a devaluation of wages.

Things become really interesting when we link up with other reports published by the Directorate General (DG ECFIN) on neighbouring countries.

The in-depth study on France (see page 44), which was published at the end of May as part of the so-called excessive macroeconomic imbalances procedure, is particularly relevant.

In this report, reference is made to the agreement reached in January 2013 between French employer organisations and a number of trade unions to safeguard employment at the individual company level in exchange for a temporary increase in working hours or cut in wages.

This agreement, which introduces the possibility to pay wages that are below the wage levels in the sectoral collective agreement, is similar to the opening clauses that since 2003/2004 have become widespread in Germany.

In Germany, such company agreements were one of the factors that contributed to the trend of overall wage stagnation up until 2008.

The fact that France is now following in Germany’s footsteps is seen by the Commission as a “positive sign”.

At the same time however, DG ECFIN is quick to add the following:

“However, it would appear useful if these reforms, although significant, could be further complemented to enable firms to regain their competitive edge, in particular over their main southern competitors, notably in Spain and Italy, where labour costs have been reduced and significant reforms undertaken, including on the labour market, and where export performance has already significantly improved.”

So what DG ECFIN is really up to is playing workers of the different member states and their wages and bargaining systems against each other.

If, or when, the IMF and Commissioner Rehn succeed in cutting wages in Spain, this will be used as a very powerful argument to push France to go much further in its own efforts to squeeze wages and weaken wage bargaining systems.

And there is little doubt that, from the moment wage stability in Spain and France has fallen, the same type of message will be spread to Italy, Belgium, the Netherlands, and in the end, even Germany.

Wage competitiveness in the, relatively closed, internal European marketplace is indeed a relative concept, with wage squeezes in one member state automatically worsening the relative wage competitive position of its neighbours.

By playing this game of mutual wage competition, DG ECFIN is running the risk that, sooner rather than later, the bottom will fall out of wages in numerous member states, thereby thrusting these economies into – yet another – recession.

In an ironic twist of history, European officials such as Commissioner Rehn are trading in the historical call of the Communist Manifesto (“Workers of the world, unite!”) for the ultra-liberal slogan of “Workers of Europe, compete and cut your wages!”