1. Euro-zone crisis: from internal devaluations to a job-friendly alternative?
Raymond Torres, Director, International Institute for Labour Studies, ILO

2. Euro-zone versus US
2009
2012
Unemployment
Euro-Zone
9.6
10.9 US
9.3
8.2
Inflation
0.3
2.0
-0.3
2.1
Public Deficit
-6.4
-3.2
-13.0
-8.1
Investment % of GDP
19.0
19.5
14.7
16.3

3. Starting position Overall similar or better than the US
Somewhat larger intra-zone imbalances than in US
But more limited institutional capacity to address those imbalances

4. Reaction to this situation: “internal devaluation”
Fiscal austerity in deficit countries
Attempts to regain competitiveness through “labour market reforms” in deficit countries
Employment regulations relaxed
Wage formation decentralised
Significant cuts in minimum wages in some cases
Conditional support to address debt issues

5. Effects of these policies
Recession and higher unemployment in deficit countries, social unrest
Further banking problems and little reduction in deficit, requiring more austerity
Contagion to other countries, pushing them to move to austerity, and global risks

6. What went wrong? Internal devaluation does not work if:
Productive base too narrow to react to new incentives
Credit system does not function well, especially for small enterprises
More and more countries move to austerity within the zone
Some of the labour market reforms not well designed
Links between central bank and sovereigns were cut
Central bank no longer lender of last resort for governments
Unclear whether central bank is lender of last resort for banks

7. An approach based on growth and jobs
Repairing credit system, adopting credible medium-term fiscal plans
Wages growing in line with productivity in surplus countries
Boosting investment and jobs now
EIB, structural funds, EU growth initiatives
Activation policies: youth activation guarantees
Social dialogue would boost consensus and confidence

8. Strong, well-designed labour market institutions
Public employment services
Collective bargaining helps! The lower wage increases, the more the pressures on public budgets to stimulate the economy
Examples of well-designed employment protection systems (Austria, Netherlands)
Training will be crucial

9. Alternative approach will improve job prospects

10. …and also deficits in medium term

11. How to make an alternative possible?
Evidence-based analysis that prove that an alternative works
-- formulation of an alternative with country differentiation
Strengthen the constituency for the real economy: key role of social dialogue in countries and at EU level
-- creation of an observatory?
-- position papers that highlight risks of present course and benefits of alternative?
International policy coordination: analysis and voice of ILO in Europe, G20, etc. in cooperation with EC (DG Employment )

12. Thank you for your attention!
Further reading: World of Work Report 2012, avauilable at: