International

This week the European Parliament and the heads of EU member states’ governments will decide how much power to give Europe over the national economies. Strict rules and tough accords form the basis of the soon to be introduced system of European economic governance. The hue-and-cry over Greece is overshadowing these meetings. These moves mean that Brussels is threatening to sneak in, unnoticed via the back door, rules which will impose wage restraint, leading to a situation in which, over several years, wages will not rise and may even fall.

Dennis de Jong is a Member of the European Parliament for the SP. Paul Ulenbelt represents the SP in the Dutch Parliament.

The European trade union movement is resisting the introduction of European economic governance. In this it is right, because while the Eurocrisis may have distracted attention somewhat from the package of proposals over economic governance, this does not make them any less important. Brussels is threatening, like a bull in a china shop, to stamp on collective wage bargaining. This is a dangerous development by means of which the EU is seeking to smash, or at least erode, national wage agreements.

In the latest agreed version of the text, lip-service is paid to centralised negotiations at national level. It is acknowledged that in a number of member states such agreements are the norm. Thanks to pressure from the trade unions and social forces in Europe, the Netherlands’ system of collective labour agreement has for the time being been secured. This was achieved in the face of huge pressure from the European Commission, which is in reality in favour of individualised negotiations over wages and working conditions, finding collective bargaining ‘outmoded’. ‘Every man for himself (and every woman for herself) and the devil take the hindmost’ is the neoliberal credo in Brussels. No wonder that the trade union movement is so set against this attempt to shove workers’ rights back to where they were in the nineteenth century.

Unfortunately the proposals for European economic governance still include measures which could have an enormous impact on the development of wages in the member states. Hidden away in the annexes is a proposal to maximise the relationship between wage costs and productivity. Over a period of three years this must not grow by more than 9%. To understand this, imagine that GDP and labour productivity undergo no change. This would mean that wages in 2013 could rise by 9%. This seems generous, but it is unclear whether the European Commission is taking inflation into account. Should inflation run at 2.5% p.a., real wage increases would be limited to just 0.5%. Should inflation average 3%, European intervention could mean that real wages would actually fall.

It seems, then, that the European Parliament and the heads of member state governments are about to take a decision the consequences of which cannot be entirely foreseen. What if collective labour agreements raise wages by more than is allowed under the criteria for wage development ? Will the European Council threaten to impose sanctions?

The focus on lowering European wages is fundamentally incorrect. International competition cannot succeed through decreased wages, as Portugal shows. For many years Portuguese wages were held down, but in the end they must nevertheless give way before lower wages in China en India. Competition with Asia cannot succeed by lowering wages to the Chinese level but only through improving productivity, technology and scientific research. It is generally acknowledged that the overwhelming availability of cheap labour hinders technological development. Why work intelligently, if cheap labour is up for grabs?

Brussels also appears to lack any understanding that the end price of our products does not only depend on wages, but also on corporate profit margins. These have been growing bigger for decades, while the share of total earnings paid in wages and salaries has been falling. There is therefore no sign of a wage explosion, while we can certainly speak of an explosion in profits. Yet the ever-increasing payments to shareholders, or the growing bonuses and salaries paid to executives, are never subjects of discussion in Brussels. Nor is there any democratic debate over the direction of the economy. It seems rather that the shadow of the crisis and the row over Greece are being seized upon as opportunities to take steps toward the thorough liberalisation of Europe’s economies.

Wage development must remain a national responsibility. The Netherlands is best placed to make agreements with its trade unions. It would, moreover, be completely scandalous if the government, thanks to its productivity-lowering spending cuts, were to be ‘rewarded’ by Brussels with a big stick designed to lower our wages as well, a blow which would hit industrious Dutch workers hard.

Intelligent governments do not jump blindly into the global rat-race to see who can lower wages most. Wage reductions and exploitation of hard-working people have often contributed to the ruination of countries, but never to the construction of a sustainable and socially equitable economy. This is a mistake which Brussels must not repeat. Rather invest in knowledge, innovation and technology than forcing a mass of workers into employment which brings little reward.

This article first appeared, in Dutch, on the website Joop.nl on 22nd June, 2011.