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

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/miracle Unit wage costs 2000 = 100

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