European Union, Macroeconomic policies and Labor

Sottotitolo: 
Some first proposals to compare EU and US policies toward the crisis and its possible exit-ways    
Abstract: 

The ECB is the true federal institution of the eurozone, including 16 countries. Its mandate is aimed to “price stability” which has been interpreted by the ECB as an inflation rate under two percent. The strict “price stability” commitment epitomizes the German precondition for the shift from the Deutschmark to the euro. However, this is only the technical feature of the issue. The most relevant aspect is that, according to ECB paradigm, the monetary policy must not be engaged in the problems concerning the economic growth and the employment.

 

To examine the behavior of the European institutions toward the crisis we can begin with the European Central Bank. In fact, the ECB is the true federal institution of the eurozone, including 16 countries. As we know, its mandate is aimed to “price stability” which has been interpreted by the ECB as an inflation rate under 2 percent. The strict “price stability” commitment epitomizes the German precondition for the shift from the Deutschmark to the euro. However, this is only the technical feature of the issue. The most relevant aspect is that, according to ECB paradigm, the monetary policy must not be engaged in the problems concerning the economic growth and the employment.

According to its views, in fact, these two issues, are linked to the free functioning of the markets and, preliminarily, to the flexibility of the labor market. On this doctrinal basis the law rate of European growth and the relatively high unemployment can’t be related to the macroeconomic policies, but are the consequence of the rigidity of the labor market (labor protection, lack of wages flexibility, role of trade unions).

It is not surprising that in this ideological framework, when, in the spring of 2008, the US administration asked a coordination of the US and EU monetary policies to face the first round of the crisis, the ECB answered negatively, and continued to raise the interest rate until 4.25 percent, starting to slowly reduce it only in the autumn, after the Lehman collapse.

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It is worth to add that this is only a leg of the European monetarist macroeconomic policy. The other ones are the provisions of the Maastricht Treaty, which impose the limit of the budget deficit within 3 percent of the national GDP, assuming that the true long term objective is the budget balance. This rule has to be considered a subservient complement of the monetary policy. The former, as we have seen, points out to the labor market and wages flexibility; meanwhile the latter aims to curtail public expenditures, - that is the requirement of a retrenched  welfare state (e.g., reduction of public pension and health care expenditures, cut down of unemployment benefits in the member states with higher entitlements).

In the context of the current crisis these characteristics of the European macroeconomic policy have magnified the collapse of the GDP in the eurozone: a fall between April 2008 and April 2009 around 6 percent that is more than double of the US GDP decrease in the same period.

To sum up, the European macroeconomic approach has not only addressed to the price stability: the true long term objectives are the so-called “structural reform”, meaning the labor market deregulation, accompanied by the cutback of the social entitlements, as condition for a cut of the labor costs and taxation.

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But this is only a side of the story. To understand the actual European macroeconomic scenario we have to add other significant and conflicting elements. Indeed, if we take in account the huge fall of the growth, we have to surprisingly recognize that the effects on the unemployment have been contained and, comparatively, much lower in Europe than in US.

Why? The answer is that, in clear opposition to the neo-liberal ideology of the central European institutions – what I have called the “Frankfurt-Brussels axis” – within the European member states the old principles of job protection and comprehensive welfare network, in different measures, survive.

In other terms, we can affirm that the neoliberal ideology has dominated a crucial part of the European macroeconomic policy, but it has not been able to destroy the old European social model – even though deeply attacking and lessening it.

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If we look at the European experience of the last three decades, we can observe a continuous dialectic between the neoliberal model, principally of Anglo-Saxon inspiration, and the old “European social model”. The first step of this struggle was fought in UK under the leadership of Margaret Thatcher with a success of the neoliberal approach- inspired to Hayek, as well as to Milton Friedman and Robert Lucas in the contemporaneous Reagan administration.  Nevertheless, the new neo-liberal approach didn’t conquer the continent.

Between 1985 and ’95 we witnessed the birth of a new phase of the European edification (the realization of the “marché unique” and the development of the euro project) under the outstanding leadership of Jacques Delors: A French catholic-socialist leader who didn’t share the wild neoliberal approach. He imagined a big free European Market balanced by a policy directed to a coordinated growth, the full employment and a representative and sound European trade union movement. 

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The dialectic between the two models found a paramount symbolic representation in 1994 when, at the end of his presidency, Delors delivered the White Book on “Growth, Competition and Employment”, meanwhile the OECD published its engaging and widespread “Jobs Study”. The first was an attempt to combine the European market unification with the engagement of the EU and the Member States toward a sustained growth, full and better employment. The second was the extreme theorization of the neo-liberal model with the retrenchment of the role of the Sate and the deregulation of the labor market – briefly, the most elaborated anti-Keynesian and anti-welfare-state Manifesto.

Since the middle of ’80s to the start of the current crisis the European Union has been characterized by this more o less apparent opposition. On one hand, the struggle of the rightwing neoliberal forces and the “Frankfurt-Brussels axis” to impose the neoliberal model; on the other hand, the resistance of unions and a part of the leftwing parties against the Anglo-Saxon model. I have said a part of the leftwing, since another part – sometimes the majority – married the Blair's Third way, which covered the neoliberal model with a human “smiling face”. An operation favored, at the end of Nineties, by the resonant success of the “New economy” under the Clinton administration in US.

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The outcome of this unsettled conflict was a poor economic performance of the EU, the meager and deceiving rate of growth in the aftermath of the euro adoption, and the permanent average high unemployment rate. It is in this framework that EU arrived to the 2008 global crisis with the paradoxical attitude of the ECB, which before denied the crisis and then blocked any attempt to promote a cooperative European policy, not to say an EU-US joint strategy of contrast.

Yet, something new has happened, as we have remarked before. Each Member-State adopted a cluster of measures to mitigate the economic and social consequences of the crisis: huge intervention of the State, such as nationalization of banks, public support in favor of manufacture industries (particularly, automakers), engagement against the worker’s firing and enhancement of the “automatic stabilizers”. Measures more o less in contradiction with the neo-liberal template of the European institutions and the dominant ideology of the last decades. 

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Now we have to put the question: How will the EU exit from the current crisis? One chance is that, after the crush of the neo-liberal model, a new combination of macroeconomic and microeconomic policies will be adopted. The massive State’s intervention to rescue banks, protect fundamental industries, save jobs could be an indication toward a renewed alternative paradigm. This is a possibility. But it is also possible a different path. Once, bypassed the night, rescued the financial system, and returned to some sort of growth, old macroeconomic policies will come back

Does this question fit the post-crisis European politics only, or does it concern the US, too?

My guess is that we should come back to the past commitment, when European and US researchers engaged in analyzing and comparing the European and American prospects from the economic and social viewpoint, taking into account two relevant and stimulating differences. First, the old criticism to the neo-conservative model has attained an undeniable confirm, and the question is not anymore their validity, but the exit way. Second, ten years ago the American globalization still was at its apogee; now, what was synthesized as the “Washington consensus” has evaporated, and a new map of the globalization shapes the world economy. Third, the advent of Obama has opened a new, even though uncertain, horizon in the theoretical and political debate.

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Could we address these questions in a common perspective? 

It seems to me that an initiative in this direction would be of great – not only academic, but also political - interest. In other terms, we could start a new phase of mutual engagement in regard to these issues, starting with a possible seminar involving research centers, Universities, unions and experts from US and Europe.

CISS could work in this direction but, given the Italian current appalling (and not facilitating) context, it would be necessary to convene a larger, political and material, cooperation. In this prospect, a first seminar could be organized for the end of the year in Italy – or in any other available host center in Europe or US: a seminar aimed to analyze the roots of the crisis, its developments, and the possible alternative exit-strategy. The seminar should also be the occasion for the best of INSIGHT, the new multilingual website, for the realization of which, several friends are working on.

(Rome, August 2009)

Antonio Lettieri

President of CISS - Center for International Social Studies (Roma). He was National Secretary of CGIL; Member of ILO Governing Body, Member of the OECD's Trade Union Advisory Council and Advisor of Labor Minister for European Affairs.(a.lettieri@insightweb.it)- http://antoniolettieriinsight.blogspot.it/