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

Competitiveness Pact , European Economic Governance and Wages : The latest state of affairs. ETUC CBCC April 2011 rjanssen@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

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

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  1. CompetitivenessPact, EuropeanEconomicGovernance and Wages: The latest state of affairs ETUC CBCC April 2011 rjanssen@etuc.org

  2. The Euro Plus Pact • A Pact for Competitiveness and Convergence • Doesit ring a bell ? • Co signed by BG,DK,LV,LT,POL,RO • Competitiveness, Jobs, sustainability of public finances, financialstability

  3. Wages in the CompetitivenessPact • Someprogress: • Respect national traditions of social dialogue and social partners relations • Preserve social partner’sautonomy in collective bargaining • Involve social partnersthrough Tri partite Summit • Recognition of factthatthisconcerns national (hence not European) competences • Eachmember state decides on specificmeasures

  4. Wages in the CompetitivenessPact • At the same time, the Pactcontinues to sets clearnorms and standards for wages… • Wagedynamics in line withproductivitygrowth • Wagedynamics in line withproductivitygrowth plus adjusting for competitiveness • Relative unit wagecostscomparisons • It’s’asymmetrical’: It’s about ‘large and sustained’ wageincreasesthatmayerodecompetiteveness (growingcurrentaccountdeficit, falling export marketshares)

  5. Wages in the CompetitivenessPact • …as well as the method to reachit • Re examine wage setting machinery • Degree of centralisation of collective bargaining • Indexation mechanisms • Use public sectorwages as a signal to privatesectorwages

  6. Increasingproductivityinstead of cuttingwages? • Open up sectorsprotectedfromcompetition ( professional services, retail,…) • Education, R and D • Labour marketreforms (‘flexicurity’)

  7. EuropeanEconomicGovernance • Focus on ‘excessive macro economic’ imbalances • New version of Commission text: « The alertmechanism » (16 the March) • Recall: Alertmechanismconsists of • Scoreboard withlimitedindicators • Thresholds, based on purelystatistical ‘quartiles  » • In depthanalysis: « Economicjudgment »

  8. New proposals for indicators • Unit labour cost: 3 yearpercentage change with a threshold of 9% for Euro Area (12% for non euro area) • Export marketshares: Exports of goods and services in currentprices as share of world exports. Five year change

  9. Table of indicatorsalertmechanism

  10. ETUC evaluation • CompetitivenessPact: Setting Germany’swagedepression as an example for the rest of Europe to follow • Wages to equalproductivity…

  11. The Germanexample/miracleUnit wagecosts 2000 = 100

  12. Adjusting for competitive positions and relative wagecomparisons.

  13. ETUC evaluation (continued) • « Relative » wagecomparisons (mainly) within the Europeanintegratedmarketplace are dangerous and perverse • This ispushing the ‘wage race to the bottom’; providing an official excuse for it. • Today’swagedepression in one part of Europe risksbecomingtommorow’swagedepression in another part of Europe. • No ‘floor’, no downwardslimits to relative wagecomparisons and wageadjustments.

  14. Taking over the logic of the Euro CompetitivenessPact • Governance of wagesnowbecomesclearly ‘a symmetrical’ • Previousproposal: REER indicator: Complicated but somehow, somewhatsymmetrical (+4/-4%) • Now: Nominal Unit Labour Cost; Threeyearaverage; Threshold: 9% for Euro Area (12% for others). Longer periods (5 to 10 yearscouldbetaken)

  15. Nominal ULC’s

  16. What’swrongwith 9%? • Conspicuously close to ‘2% pricestability plus productivity’ ! (whichmay not besobad) • Nothing, absolutelynothing on MS menacingpricestabilityfrombelow • -9% threshold: Not clearwhether Commission proposes this. Makes no senseanyway as ‘signal’ wouldonlybedeliveredfrom moment nominal wages are cut by 6 to 8% (assumingproductivityincrease of 1 or 2%)

  17. Another nuance • Commission’s note tries to get out fromunder ‘relative’ wagecomparisons as suggested by the Pact.. • … but unlikely to keepthis up (‘how national ULC’swilldevelop in relation to other euro area memberswillbe…???)

  18. Export marketshares • A systematicnegative biais in the evaluation of higherincome countries • Essence of globalisation: Fallingshare of an increasing pie • An increasingshare of an increasing pie evenbetter (Germany): But thisdepends on structural competitivenessfactors, certainly not wages. • Note : No upperthreshold (vis à vis EU members)

  19. Export marketshares

  20. ETUC strategy: In the short run • Looking to weigh in on the EuropeanParliament • ECON vote 19 the April, Plenaryin June, Joint Parliament/Council decision end of June • Restatingourpriorities: • Clauses to safeguardwages • Symmetrical application • Rebalancewith social issues, role of social dialogue • Balanced fiscal consolidation

  21. Clauses to safeguardwages • Implicit and explicit reference to horizontal social clauses • « Recommendationsshall not encroach on wages on which Europe has no competence » • Scrappinganyreference to wagepolicy • No sanctions related to wagerecommendations • Language, already in EMPLOYMENT opinion (P. Bérès)

  22. Remobilizeinternal coordination • « ETUC » coordinatingwithaffiliates to stage an acceleration of wagedynamics in ‘surplus’ countries… • … being « reflected » in ‘deficit’ countries • … provided the following conditions are observed: • Politicians, central bankerskeeptheir hands of wages • No wagecuts or wagefreezes • Strictly « internal » coordination: It’s’our’ business HOW DOES THE CBCC PREPARE? ARE AFFILIATES WILLING? ARE POLICY MAKERS LISTENING?

  23. Relying on our on ownstrengths (CPC) • Close ranks, support eachother • Expose a mistakenpolicy • Expose breaches on the Treaty (autonomy of CB) • Upgrade ourexistingstrategy of coordination • Common demands • Common actions • Togetherwithindustryfederations

  24. A « European » labour market (CPC) • Not realistic to insulate national CB systemsfromEuropean pressure • Therefore, a more « European » approachwithcommon and minimum standards • Universal right to bargainat national and EU level • Minimum pay • Fairshare of productivityincrease • Regulateworkhours • Equality • Information and consultation • Social dialogue machinery in each MS plus report to Europeanconference on labour standards

  25. Meanwhile, another new but old challenge for wages • Rising headline inflation and second round effects • ECB willraiseinterest rates • Internalisingthisconstraint as well ?

  26. Behindappearances: The ECB’s real concern • If ( a big if) wagedynamics in the ‘core’ really do accelerate … • …thiswillalso push inflation in the corehigher… • … hence, higher euro area average inflation • A higher single interest rate… • …will not tameupwards inflation drift in the core; keeping real interest rates lowsothat the financial boom can continue… • … whilerepresenting a disaster for the periphery

  27. Historyrepeatsitself …. now the otherwayaround

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