Competitiveness Pact, European Economic Governance and Wages: The latest state of

affairs

ETUC CBCC April 2011rjanssen@etuc.org

The Euro Plus Pact

• A Pact for Competitiveness and Convergence• Does it ring a bell ?• Co signed by BG,DK,LV,LT,POL,RO

• Competitiveness, Jobs, sustainability of public finances, financial stability

Wages in the Competitiveness Pact

• Some progress:– Respect national traditions of social dialogue and

social partners relations– Preserve social partner’s autonomy in collective

bargaining – Involve social partners through Tri partite Summit– Recognition of fact that this concerns national

(hence not European) competences– Each member state decides on specific measures

Wages in the Competitiveness Pact

• At the same time, the Pact continues to sets clear norms and standards for wages… – Wage dynamics in line with productivity growth – Wage dynamics in line with productivity growth

plus adjusting for competitiveness– Relative unit wage costs comparisons– It’s’a symmetrical’: It’s about ‘large and sustained’

wage increases that may erode competiteveness (growing current account deficit, falling export market shares)

Wages in the Competitiveness Pact

• …as well as the method to reach it– Re examine wage setting machinery– Degree of centralisation of collective bargaining– Indexation mechanisms– Use public sector wages as a signal to private

sector wages

Increasing productivity instead of cutting wages?

• Open up sectors protected from competition( professional services, retail,…)

• Education, R and D

• Labour market reforms (‘flexicurity’)

European Economic Governance

• Focus on ‘excessive macro economic’ imbalances

• New version of Commission text: « The alert mechanism » (16 the March)

• Recall: Alert mechanism consists of– Scoreboard with limited indicators– Thresholds, based on purely statistical ‘quartiles »– In depth analysis: « Economic judgment »

New proposals for indicators

• Unit labour cost: 3 year percentage change with a threshold of 9% for Euro Area (12% for non euro area)

• Export market shares: Exports of goods and services in current prices as share of world exports. Five year change

Table of indicators alert mechanism

ETUC evaluation

• Competitiveness Pact : Setting Germany’s wage depression as an example for the rest of Europe to follow

• Wages to equal productivity…

The German example/miracleUnit wage costs 2000 = 100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-5

0

5

10

15

20

25

GermanyPrice Stability line

Adjusting for competitive positions and relative wage comparisons.

ETUC evaluation (continued)

• « Relative » wage comparisons (mainly) within the European integrated marketplace are dangerous and perverse

• This is pushing the ‘wage race to the bottom’; providing an official excuse for it.

• Today’s wage depression in one part of Europe risks becoming tommorow’s wage depression in another part of Europe.

• No ‘floor’, no downwards limits to relative wage comparisons and wage adjustments.

Taking over the logic of the Euro Competitiveness Pact

• Governance of wages now becomes clearly ‘a symmetrical’

• Previous proposal: REER indicator: Complicated but somehow, somewhat symmetrical (+4/-4%)

• Now: Nominal Unit Labour Cost; Three year average; Threshold: 9% for Euro Area (12% for others). Longer periods (5 to 10 years could be taken)

Nominal ULC’s

What’s wrong with 9%?

• Conspicuously close to ‘2% price stability plus productivity’ ! (which may not be so bad)

• Nothing, absolutely nothing on MS menacing price stability from below

• -9% threshold: Not clear whether Commission proposes this. Makes no sense anyway as ‘signal’ would only be delivered from moment nominal wages are cut by 6 to 8% (assuming productivity increase of 1 or 2%)

Another nuance

• Commission’s note tries to get out from under ‘relative’ wage comparisons as suggested by the Pact..

• … but unlikely to keep this up (‘how national ULC’s will develop in relation to other euro area members will be…???)

Export market shares

• A systematic negative biais in the evaluation of higher income countries

• Essence of globalisation: Falling share of an increasing pie

• An increasing share of an increasing pie even better (Germany): But this depends on structural competitiveness factors, certainly not wages.

• Note : No upper threshold (vis à vis EU members)

Export market shares

ETUC strategy: In the short run

• Looking to weigh in on the European Parliament• ECON vote 19 the April, Plenary in June, Joint

Parliament/Council decision end of June• Restating our priorities:– Clauses to safeguard wages– Symmetrical application– Rebalance with social issues, role of social dialogue– Balanced fiscal consolidation

Clauses to safeguard wages

• Implicit and explicit reference to horizontal social clauses

• « Recommendations shall not encroach on wages on which Europe has no competence »

• Scrapping any reference to wage policy • No sanctions related to wage recommendations• Language, already in EMPLOYMENT opinion (P.

Bérès)

Re mobilize internal coordination

• « ETUC » coordinating with affiliates to stage an acceleration of wage dynamics in ‘surplus’ countries…

• … being « reflected » in ‘deficit’ countries• … provided the following conditions are observed:– Politicians, central bankers keep their hands of wages– No wage cuts or wage freezes– Strictly « internal » coordination: It’s’our’ business HOW DOES THE CBCC PREPARE? ARE AFFILIATES

WILLING? ARE POLICY MAKERS LISTENING?

Relying on our on own strengths (CPC)

• Close ranks, support each other• Expose a mistaken policy• Expose breaches on the Treaty (autonomy of

CB)• Upgrade our existing strategy of coordination– Common demands– Common actions – Together with industry federations

A « European » labour market (CPC)

• Not realistic to insulate national CB systems from European pressure

• Therefore, a more « European » approach with common and minimum standards

• Universal right to bargain at national and EU level– Minimum pay– Fair share of productivity increase– Regulate work hours– Equality– Information and consultation

• Social dialogue machinery in each MS plus report to European conference on labour standards

Meanwhile, another new but old challenge for wages

• Rising headline inflation and second round effects

• ECB will raise interest rates• Internalising this constraint as well ?

Behind appearances: The ECB’s real concern

• If ( a big if) wage dynamics in the ‘core’ really do accelerate …

• …this will also push inflation in the core higher…• … hence, higher euro area average inflation• A higher single interest rate…• …will not tame upwards inflation drift in the core;

keeping real interest rates low so that the financial boom can continue…

• … while representing a disaster for the periphery

History repeats itself …. now the other way around