STRUCTURE OF THE EUROPEAN SEMESTER AND IMPACT ON WAGES AND COLLECTIVE

BARGAININGCB TRAINING SEMINARS

MARCH 2014

POSSIBLE MOMENTS OF IMPACT ON WAGES IN EUROPEAN SEMESTER• POLICY MESSAGE IN AGS• MARCH SPRING COUNCIL• PUBLICATION OF IN DEPTH COUNTRY REVIEWS• COUNTRY SPECIFIC RECOMMENDATIONS• ….. NOT IN PREVIOUS SCHEME: IF COUNCIL DECLARES MACRO

ECONOMIC IMBALANCE TO BE « EXCESSIVE » ADDITIONAL PROCEDURE

AGS 2014: MAIN MESSAGES

• « Keep up the pace of reform »• « Signs of economic improvement are an encouragement to pursue

efforts with determination »• « Top priority is growth and competitiveness » so as to « build a

lasting recovery »

ON WAGES IN PARTICULAR

• « Further reform efforts to ensure wage developments in line with productivity, thus supporting competitiveness and aggregate demand »

PROBLEM WITH THIS WORDING?

• IS IT NOMINAL OR REAL WAGES TO BE IN LINE WITH PRODUCTIVITY? • BACKGROUND: ECB OPENLY PUSHING FOR ‘NOMINAL’ WAGES IN LINE

WITH PRODUCTIVITY (SEE DRAGHI SPEECH TO EU MARCH 2013 COUNCIL)• THIS IS NOTHING ELSE BUT THE OLD GERMAN MODEL OF ZERO UNIT

WAGE COSTS

A DECADE OF WAGE COST STAGNATION IN GERMANY (UNIT WAGE COSTS 1999 = 100)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-10

0

10

20

30

40

50

60

DEIEELESITCYLUMTSLSK

Structural reforms: Be careful what you wish for

97 98 99 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

-1

0

1

2

3

4

5

INFLATION AND UNIT WAGE COSTS EURO AREA

Unit wage costs Inflation

The problem with structural reforms… deflation is looming

ANOTHER PROBLEM: REALITY CHECK

Belgium

Bulgaria

Czech

Republic

Denmark

Germany

Estonia

Ireland

Greece

Spain

France

Croatia Ita

ly

Cyprus

Latvi

a

Lithuania

Luxe

mbourg

Hungary

Malta

Netherlands

Austria

Poland

Portugal

Romania

Slovenia

Slovakia

Finland

Sweden

United Kingdom

-30

-20

-10

0

10

20

30

Real wages and productivity 2008 -2015

Real wage productivity

IN DEPTH COUNTRY REVIEWS: EXAMPLE OF 2013 CYCLE • Wages take a central place• Eight member states• To be added: 4 MS under a Troika programm• Plus two MS to reduce tax burden on wages • Grand total of 12 (14) member states being ‘advised’ on what to do in the

domain of wages

General line

• MEMBER STATES HAVE REFORMED AND ARE ON THE RIGHT TRACK….• … IN PRACTICE THESE HAVE BEEN REFORMS NOT REALLY TO TRADE

UNION LIKING….• …. BUT MORE NEEDS TO BE DONE, FROM MONITORING REFORMS TO

DEEPENING REFORMS

WAGE INDEXATION RECOMMENDATIONS• WAGE INDEXATION SYSTEMS: CONTINUE REFORMS• BELGIUM AND LUXEMBOURG• CYPRUS ALREADY IN « THE HOUSE OF EU GOVERNANCE »

• ITALY: COMMISSION DISAPROVES OF SETTING THE WAGE COMPENSATION FOR INFLATION AT NATIONAL LEVEL NEGOTIATIONS, STANDS IN THE WAY OF DOWNWARDS WAGE FLEXIBILITY AT LOWER LEVELS

RECOMMENDATIONS ON MINIMUM WAGES • FRANCE: 60% IS REALLY TOO HIGH (BUT TAX EXEMPTIONS TO BE

TAKEN INTO ACCOUNT• SLOVENIA: 2010 HIKE IS STILL INDIGESTABLE

RECOMMENDATIONS ON WAGE SETTING INSTITUTION• SPAIN:EVALUATE REFORMS BY JULY, ACT BY SEPTEMBER (ALSO IN

EXCESSIVE IMBALANCE)• SPANISH CENTRAL BANK: ALLOW EMPLOYMENT OUTSIDE THE

MINIMUM WAGE

GENERAL CALL ON HOW WAGES SHOULD BEHAVE• DENMARK AND FINLAND: MODERATE WAGE AGREEMENTS IN

NEARBY FUTURE• FINLAND: AVOID 2007 ROUND OF HIGH WAGE PATTERN BARGAINING

ALL ABOUT DOWNWARDS WAGE FLEXIBILITY…. EXCEPT FOR GERMANY ? • « sustain conditions that enable wage growth to support domestic

demand »• « to this purpose, reduce taxes and contributions especially for low

wage earners’• In other words, « wages and domestic demand are being allowed to

rise in stronger economies »• What has happened to :

* « create the conditions for wages to catch up with productivity »• * the proposal for a minimum wage in Germany?

A LOOK INSIDE DG ECFIN THINKING: « Free prices » • THEIR BASIC MODEL: DO AWAY WITH ALL RIGIDITIES THAT BLOCK OR

DELAY PRICE ADJUSTMENT INCLUDING WAGES• THIS WILL PRODUCE DOWNWARDS WAGE ADJUSTMENT….• …BUT ALSO UPWARDS WAGE ADJUSTMENT (WHERE NECESSARY AND

DESIRABLE)• SO, IN THEIR MINDSET, NO SYSTEMIC BIAS AGAINST WAGES IF FOR

EXAMPLE MINIMUM WAGES/ERGA OMENS COLLECTIVE BARGAINING/TRADE UNIONS ARE WEAKENED EVERYWHERE• « THE MARKET WILL TAKE CARE OF EVERYTHING »

THIRD MOMENT OF IMPACT: MEMBER STATE DECLARED IN MACRO ECONOMIC EXCESSIVE IMBALANCE • Last year: Spain and Slovenia• This year: Spain out, Italy in and Slovenia remaining

Obligation to present ‘corrective action plan’

Commission examines strictly

If MS does not comply, Commission can impose sanctions

RECOMMENDATIONS OR ORDERS?• ‘Recommendations’ are evolving:

• Troika country experience: A (hostile) takeover by DG ECFIN, ECB,IMF• ECB and market pressure collide: See secret letters to Italy, Zapatero, with

reforms along the above lines in return for ECB support of sovereign debt• Already legally existing: Sanctions in economic governance procedures with

‘qualified reversed majority’ voting

RECOMMENDATIONS OR ORDERS?• In the pipeline:• Macro conditionalities in the new MFF for structural funds• Contactual arrangements under the disguise of a Euro Fiscal Capacity/Social

Europe EU unemployment fund: « Solidarity in Reform’• Ex ante coordination of reform policy • Background to these: EMU Blueprint

• « To make CSR’s really binding »• « To have adjustment programs such as in Troika countries for the whole of europe »