February 2012 Single Market, Equal Rights? Adam Hug and Owen Tudor

The Changing Economic and Political Background to EU Labour Law John Foster IER March 2012

THE SINGLE MARKET AND EMPLOYMENT RIGHTS from a dysfunctional to an abusive relationship ?

February 2012

Single Market, Equal Rights?

Adam Hug and Owen Tudor

The European Social Model is (almost) dead;

Long Live the European Social Model !

February 2012

Mario Draghi, President of EU Central Bank

“The European Social Model has already gone”

The Changing Economic and Political Background to EU Labour Law: 2 IER March 2012

• The neo-liberal assumptions of the Single European Act and why they were in conflict with employment rights

• How they led to the attack on employment rights and to the recasting of the ESM

• How EU’s economic model led directly to financial crisis

• How financial crisis is leading to a further assault on what remains of the ESM

• How the EU’s economics have affected its politics

THE ARGUMENTFrom a dysfunctional to an abusive relationship?

“The design of the European Single Currency is premised on the non-existence of organised labour and shares the neo-classical assumption that labour markets can and do operate in perfect competition”Aidan Regan, ‘The Political Economy of Social Pacts in EMU’, New Political Economy, 2011

A dysfunctional relationship between the EU’s economic agenda and labour standards in member states maintained by strong collective bargaining structures at national level – and originally endorsed by Delors’s Social Europe


Single European Act 1986

Cechinni Report 1988

ASSUMPTIONS Competition would automatically reallocate resources

“A supply-side shock to the Community economy as a whole.. Inflation will be cooled by the drop in prices provoked by open markets ..and economies of scale

“Restructuring entire sectors, shifts in employment, new demands on labour mobility and training”

PROMISE: 200 billion ecus savings; 5 per cent addition to GDP; medium term creation of 1.5 million new jobs

BUTFURTHER REQUIREMENT Free market for financial services demanded

regulation and ‘a stronger European currency system’. HENCE



THE SINGLE CURRENCYMaastricht Treaty 1992

Protocol 12 Excessive Deficit Procedure Article 1 LIMIT 3 per cent government deficit to GDP; government debt 60 per cent GDP

Protocol 13 Convergence Criteria Article 1 National inflation no higher than 1.5 per cent over three ‘best’ member states

Incorporated into 1997 Stability and Growth Pact

The dysfunctional assumptions of the Single Market and Stability and Growth Pact

• ‘Supply side shock’ would automatically lead to converging development across EU

• Capital and labour would be fully mobile and market-dominant firms would not extend dominance

• Business cycle would be resolved by wage flexibility in context of higher unemployment – not by fiscal stimulus

• “internal devaluation” would correct “uncompetitiveness” of weaker economies

• BUT this did not happen


Blair moves to end the dysfunctional relationship

Tony Blair to EU Parliament 2005

‘What type of social model is it that has 20 million unemployed in Europe; productivity rates falling behind the USA; that is allowing more science graduates to be produced by India? The purpose of our social model should be to enhance our ability to complete, to help our people to cope with globalisation.. Of course, we need a Social Europe but it must be a Social Europe that works’


“A Social Europe that works”The Blair-D’Alema Report, 2000, and the Lisbon Programme 2000

A recalibration of Social EuropeStress on ‘labour market inclusion’, and elimination of obstacles to inclusion, to

achieve ‘flexicurity’Restructuring of welfare systems to reduce entitlements (esp. pensions)

European Social Model (now rephrased in terms of social inclusion, sustainability) used to justify an increasingly direct intervention against COLLECTIVELY bargained agreements, trade union rights and national WELFARE systems

Updated Lisbon Programme 2005

EU Green Paper on Labour Law 2007: Flexicurity

EU 2020 (2010)


2007-2008 The Services Directive, Lisbon Treaty and the ECJ judgements

The use of new legal powers to eliminate obstacles to free movement of capital and labour (freedom of establishment) across enlarged EU

Right of Establishment superior to right to take industrial action


How EU Neo-liberalism led to Crisis• Increasingly uneven economic development

across EU

• Decrease in wage share of national income

• Increased productivity gap with US

• Governments prevented from investing in economic and industrial development – while free movement of capital stokes speculative bubbles


Uneven Development worsens IThe Changing Economic and Political Background to EU Labour Law: 11 IER March 2012

Percentage increase in German imports and exports 1998-2008: based on euros at current value (selected countries)

CountryPercentage increase in German exports TO

Percentage increase in German imports FROM

Bulgaria 393 170Estonia 240 124France 58 31Greece 126 19Ireland 120 15Latvia 323 74Lithuania 16 -9Portugal 53 -2Romania 324 292Spain 123 56UK 61 54

Eurostat, External and Intra European Union Trade: Statistical Yearbook 2008 edition: Table 5B[1]

Uneven Development Worsens II

Innovation and industrial investmentBy 2007 old ‘core’ EU countries included 79 per cent of EU labour force

BUT86 per cent of all research workers95 per cent of Business R&D99 per cent of Triadic PatentsArchibugi and Fillipatti find South Europe declining 2000-2007 while E

Europe catches up: thereafter

2007-2010 ‘the negative effects of the crisis are remarkable’: virtually cessation of industrial Investment in both south and east Europe

Archibugi and Fillipatti, Jrnl. Common Market Studies, November 2011


Wage Share in GDP declinesThe Changing Economic and Political Background to EU Labour Law: 13 IER March 2012

Country 1991-2000 2001-2010

Netherlands 67.5 65.9

France 67.2 65.9

Austria 71.4 65.3

Italy 64.6 62.5

Spain 66.8 62.2

Greece 62.5 60.7

Ireland 62.4 55.7

UK 71.9 70.9

Regan, New Political Economy, 2011: social pacts across Europe reduced wage share by preventing workers securing share of productivity gains

Bea Cantillon, Journal of European Social Policy, December 2011: ‘poverty rates have either stagnated or even increased .. in Lisbon era’

And productivity also worsensEnrique Palazuelos, Labour Productivity, New Political

Economy, 15/3, 2010

Up to 2000 Europe was closing productivity gap with US; since then it has widened

Attributes to pushing low cost labour into employment especially in low tech service sectors while flagging demand reduced investment.


EU and US Social Models converge on neo-liberal terms


J. Alber, ‘What the European and American Welfare Systems have in common, Journal of European Social Policy, 2010, 20, 2 pp. 102-125

By 2008 little difference between levels of spending in US and EU on welfare – after EU moves to privatise pensions and health and as EU benefits regime switches to ‘activation’ and removal of ‘disincentives to work’

Countouris and Horton, Industrial Law Journal, 2009, 38, 3 pp 329-338

2008 Temporary Agency Work Directive

“To the extent that, as reported in the 10th Recital of the Directive, flexicurity seeks to ‘strike a balance between flexibility and security in the labour market and help both workers and employers to seize the opportunities offered by globalisation’, we would suggest that, overall, the Directive represents a departure, in everything but rhetoric, from the regulatory concepts commonly associated with job, and labour market, security, in favour of deregulation, precarization of work and further labour market segmentation.”

And Politics FollowPolitical centre of gravity shifts to Right across EU

in 1990s and 1900s – and Social Democrat parties themselves move right

Far from protecting EU states from market forces of ‘globalisation’, EU intensifies them and internalises them politically

Social Democrat policies now framed solely within neo-liberal assumptions of EU

P. Manow et al, Europe’s Party Political Centre of Gravity’, Journal of European Public Policy, 2008, 15, 1 pp. 20-29

Mark Baimbridge et al, ‘Beyond EU Neo-liberalism’, Capital and Class, 2007, 31, 67-91Christoph Herman et al, ‘The European Social Model’, Capital and Class, 2007, pp, 125-

139


Governments lose ability to invest productively as

• Tax income falls“market integration has fuelled tax competition and caused corporate tax rates to fall

more quickly in the EU than in the rest of the world’

P. Genschel, ‘Acceleration Downhill: how the EU Shapes Tax Competition’, Journal of Common Market Studies, 2009, 49,3

• Deficit limits prevent government borrowing

• And Competition Policy stops state investment in industry


But private sector bank lending is deregulated

Causing speculative bubbles in unproductive areas – esp. property


External Debt: selected EU countries 2009

CountryNET Foreign Assets as per cent of GDP

Portugal -96Hungary -96Spain -75Greece -73Ireland -54Germany +22 net external credit

owed to Germany as per cent GDP

IMF www.imf.org/external/pubs/ft/weo/2010/01/c2/fig2_7.csv

CRISIS 2008-9“never waste a good crisis”

• EU Commission/ECB insist governments take over private debt owed to external financial institutions

• “Sovereign debt” then used to claim public spending out of control and demand intense austerity AND

• Debtor states required to ‘reform’ labour law: wage indexing, minimum wages, permanency of employment contracts


As austerity increases deficits EU secures powers to reform national

labour laws• EuroPlus Pact March 2011 Commitment to end labour contracts that restrict flexicurity and

benefits that reduce incentives to work by ALL eurozone countries ‘plus’ 5 others

• Treaty on Stability, Coordination and Governance 2012Gives ECB/Commission powers to ‘compel’ debtor governments to reform legislation that impedes labour market flexibility

Annual deficit limit reduced to 0.5 – and national debt over 60 per cent MUST be reduced by equiv of 5 per cent of GDP each year


Eurozone 2012 growth projections

Country February 2012 EurostatGreece -4.4Portugal -3.3Italy -1.3Spain -1.0Ireland 0.5Germany 0.6Austria 0.7


Eurozone unemployment rates 2011 Q4


Country overall youthGreece 19.9 48.1Portugal 14.8 29.9Italy 9.1 28.2Spain 23.2 49.9Ireland 14.8 29.9Germany 5.8 8.6Austria 5.0 7.3

How does ECB explain continuing economic contraction and mass

unemployment ?


Mario Draghi, Interview with Wall Street Journal 24 Feb 2012

WSJ: Which do you think are the most important structural reforms? Draghi: In Europe first is the product and services markets reform. And the second is the labour market reform ..In these countries there is a dual labour market: highly inflexible for the protected part of the population where salaries follow seniority rather than productivity. …one has to make labour markets more flexible. WSJ: Do you think Europe will become less of the social model that has defined it? Draghi: The European Social Model has already gone …These reforms are necessary to increase employment, especially youth employment, and therefore expenditure and consumption

It’s the strength of collective bargaining/employment rights

• Employment rights now seen as direct cause of mass unemployment and economic contraction

• Only solution legal intervention by EU and ‘Internal devaluation’

• Issues of monopoly power, income inequality, loss of consumer demand, market failure and collapse of investment not mentioned

AN ABUSIVE RELATIONSHIP ?


THE SINGLE MARKET AND EMPLOYMENT RIGHTS

February 2012 Single Market, Equal Rights? Adam Hug and Owen Tudor

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