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

1. The Changing Economic and Political Background to EU Labour LawJohn Foster IER March 2012 THE SINGLE MARKET AND EMPLOYMENT RIGHTS from a dysfunctional to an abusive relationship ? February 2012 Mario Draghi, President of EU Central Bank “The European Social Model has already gone” February 2012 Single Market, Equal Rights? Adam Hug and Owen Tudor The European Social Model is (almost) dead; Long Live the European Social Model !

2. The Changing Economic and Political Background to EU Labour Law: 2 IER March 2012 THE ARGUMENT From a dysfunctional to an abusive relationship? • 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

3. The Changing Economic and Political Background to EU Labour Law: 3 IER March 2012 “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

4. The Changing Economic and Political Background to EU Labour Law: 4 IER March 2012 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 BUT FURTHER REQUIREMENT Free market for financial services demanded regulation and ‘a stronger European currency system’. HENCE

5. The Changing Economic and Political Background to EU Labour Law: 5 IER March 2012 THE SINGLE CURRENCY Maastricht 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

6. The Changing Economic and Political Background to EU Labour Law: 6 IER March 2012 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

7. The Changing Economic and Political Background to EU Labour Law: 7 IER March 2102 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’

8. The Changing Economic and Political Background to EU Labour Law: 8 IER March 2012 “A Social Europe that works” The Blair-D’Alema Report, 2000, and the Lisbon Programme 2000 A recalibration of Social Europe Stress 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)

9. The Changing Economic and Political Background to EU Labour Law: 9 IER March 2012 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

10. The Changing Economic and Political Background to EU Labour Law: 10 IER March 2012 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

11. The Changing Economic and Political Background to EU Labour Law: 11 IER March 2012 Uneven Development worsens I Percentage increase in German imports and exports 1998-2008: based on euros at current value (selected countries) Eurostat, External and Intra European Union Trade: Statistical Yearbook 2008 edition: Table 5B[1]

12. The Changing Economic and Political Background to EU Labour Law: 12 IER March 2012 Uneven Development Worsens II Innovation and industrial investment By 2007 old ‘core’ EU countries included 79 per cent of EU labour force BUT 86 per cent of all research workers 95 per cent of Business R&D 99 per cent of Triadic Patents Archibugi 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

13. The Changing Economic and Political Background to EU Labour Law: 13 IER March 2012 Wage Share in GDP declines 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’

14. The Changing Economic and Political Background to EU Labour Law: 14 IER March 2012 And productivity also worsens Enrique 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.

15. The Changing Economic and Political Background to EU Labour Law: 15 IER March 2012 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.”

16. The Changing Economic and Political Background to EU Labour Law: 16 IER March 2012 And Politics Follow Political 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, 67-91 Christoph Herman et al, ‘The European Social Model’, Capital and Class, 2007, pp, 125-139

17. The Changing Economic and Political Background to EU Labour Law: 17 IER March 2012 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

18. The Changing Economic and Political Background to EU Labour Law: 18 IER March 2012 But private sector bank lending is deregulatedCausing speculative bubbles in unproductive areas – esp. property External Debt: selected EU countries 2009 IMF www.imf.org/external/pubs/ft/weo/2010/01/c2/fig2_7.csv

19. The Changing Economic and Political Background to EU Labour Law: 19 IER March 2012 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

20. The Changing Economic and Political Background to EU Labour Law: 20 IER March 2012 As austerity increases deficitsEU 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 2012 Gives 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

21. The Changing Economic and Political Background to EU Labour Law: 21 IER March 2012 Eurozone 2012 growth projections

22. The Changing Economic and Political Background to EU Labour Law: 22 IER March 2012 Eurozone unemployment rates 2011 Q4

23. The Changing Economic and Political Background to EU Labour Law: 23 IER March 2102 How does ECB explain continuing economic contraction and mass unemployment ? It’s the strength of collective bargaining/employment rights 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

24. The Changing Economic and Political Background to EU Labour Law: 24 IER March 2102 THE SINGLE MARKET AND 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 ?