Can the EMU and social policy be reconciled?

12 September 2013

Can the EMU and social policy be reconciled?

Dennis de Jong - If you form a monetary union with other countries you give up your own currency and thus lose the possibility of national governments creating money independently in order to stimulate their economy. Similarly, you can no longer devalue in order to push up your exports.

A monetary union can work very well among countries with similar economies. Should, however, countries be included which suffer structural weaknesses in their economies, monetary union can become agonising. This is unfortunately what has happened in the eurozone. Southern European economies differ enormously from those of northern Europe. Just the fact that the former have huge informal sectors of economic activities on which neither taxes nor social premiums are paid makes the two regions’ economies different.

The tragedies which have unfolded in recent years in Mediterranean Europe are beyond description. A number of countries have become dependent on the financial support of other members of the eurozone to meet their payment obligations and under the command of Angela Merkel these countries have been forced to make deep cuts in spending on public services, on the number of state employees (even in the sectors necessary to the state’s monetary income, such as the revenue offices or the legal apparatus) and on wages and pensions.

By reducing wages by 20-30% these countries should become more competitive. Despite all of the popular protest such measures have been carried through. According to the International Labour Organisation (ILO) this has even occurred in a way which constitutes a breach of international social agreements and treaties.

For these reasons it takes some nerve to talk about a social European Monetary Union. This could exist if the eurozone were limited to similar economies; in the existing circumstances the opposite is the case: countries are running down their public services, conditions of employment are deteriorating drastically and poverty and unemployment are undergoing explosive growth.

The effects of this are bad enough for those involved, but will also ripple out to a country like the Netherlands. Employers are going to point to the loss of competitiveness in relation to southern Europe, and wages will be lowered here and public services eroded.

My position is that the existing eurozone is so diverse that it presents a threat to the social policies of all of its member states. Only a currency union of comparable economies can give sufficient guarantees for strengthening, or at the very least maintaining, conditions of employment and public services.

This column first appeared in the Europa-nieuwsbrief (Europe Newsletter) of the FNV, the main Dutch trade union federation, on 12th September

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