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BusinessEurope and the European Commission: in league against labor rights?

Labor Market Reform Supplement - March 2013

Assessing EU policy recommendations to member states on employment in light of BusinessEurope's agenda.

When European head of states meet on March 14 and 15 in Brussels for the European spring summit they will asses the 'progress' of reforms in EU member states and how they match with the “Country Specific Recommendations” the Commission gave to the member states. In this supplement we examine how the European Commission and BusinessEurope are working hand in hand to push for neoliberal structural reforms – with a particular focus on labor rights – within the so called European Semester (see below).

While it is not clear what the outcomes of the spring summit will be and how it will asses the implementation of the Country Specific Recommendations by member states, we are given an idea when we take a look at the Annual Growth Survey – a paper published every year by the Commission – to set common targets for economic policy across Europe. And as we show here, despite the devastating effects the current direction has not only on economic growth but also in our every day lives, the Commission will not consider changing the course of its neoliberal agenda. However, this is less surprising when we take into account that BusinessEurope, one of the most powerful business lobby groups in Europe, has a strong interest in these policies. 

Yet BusinessEurope and the Commission still aren’t entirely happy with the current framework to impose austerity and neoliberal structural reforms. As we will show in this report, though the Commission's line of attack on wages and labor rights coincides with BusinessEurope's agenda, both remain unhappy about individual countries' lack of commitment to impose their suggested 'structural reforms'. Therefore the Commission, along with BusinessEurope, is pushing for a new round to strengthen so-called economic governance rules. The core proposal at the top of the agenda is the idea of contractual arrangements between the Commission and the member states to make at least parts of the Commission's recommendations binding.

Taking advantage of austerity

BusinessEurope's labor reform agenda needs to be understood within the context of the European crisis. Indebted European countries (often due to bank bailouts) have been given loans on the condition that they impose harsh anti-labor reforms.1Indeed, by late 2011, three countries in the eurozone, Greece, Portugal and Ireland, were all under the shock therapy of the Troika (the International Monetary Fund, the European Union and the European Central Bank). Additionally, non-eurozone EU members Romania, Latvia and Hungary were also under the Troika. All these countries implemented vast anti-labor reforms that have substantially deteriorated average living standards. 

INFO-BOX: BusinessEurope: the “satisfactory” Greek model

According to BusinessEurope, Greece is among those who have made the most ''satisfactory progress'' in the EU regarding labor market reforms. They say: “improvement is noticeable in some indicators such as unit labor costs”. After input from the Greek federation of industrialists (SEV, a member of BusinessEurope), the Troika imposed a reduction of 40% in average Greek wages between 2009 and 2011.

However, the Council of Europe recently condemned Greece for violating the European Social Charter by approving specific measures included in the Troika's Memorandum of Understanding of February 2011 that sets the youth minimum wage below the poverty line, discriminates against young people over  their right to social security, and violates the right of all workers to a reasonable period of notice for termination of employment. Similarly the International Labor Organisation (ILO) found that there were “a number of repeated and extensive interventions into free and voluntary collective bargaining and an important deficit of social dialogue,” and called Greece to “bring its labor relations system back to fundamental rights”.

The combined effect of wage reductions, increased horizontal taxation such as VAT and a five year long recession has more than halved the average Greek income in recent years and sunk millions below the poverty line. But this doesn’t change the fact that according to Commission’s indicators and BusinessEurope, labor reforms in Greece have been successful. This is no mystery: Greek employers earned €7 billion from salary reductions in one year alone (2010-2011).

However it is not just countries under the Troika that have slashed labor rights: this is a policy across Europe. And the European Commission's proposals to its member-states within the European Semester (see below) to impose shock therapy style labor reforms, often coincide with BusinessEurope's demands laid out in its 2011 Reform Barometer.2 For example, five countries (Belgium, Cyprus, Luxembourg, Italy and Spain) were asked to flexibilise and decentralise labor agreements in order to weaken unions, involving less binding national agreements and less cross-sectoral agreements. Italy and France were asked to make lay-offs easier. BusinessEurope demanded the abolition of any indexation systems – in which wages rise in line with inflation – where they still existed. Similarly, the Commission asked Belgium, Luxembourg and Spain to weaken their respective wage indexation systems. In line with BusinessEurope, the Commission also proposed an increase of the retirement age in seven countries (Austria, Belgium, Denmark, France, Luxembourg, the Netherlands and Poland). The Council adopted all these Commission recommendations which were then included in National Reform Programs. 

In its 2012 Reform Barometer BusinessEurope records its approval of these European Commission's country-specific-recommendations and implementation of these reforms: “We recognise that important reform progress took place in the last months of 2011 in many countries.”3 In addition, the crisis has given the European Commission new powers to deliver the kinds of labor reforms BusinessEurope would like to see implemented.4

European Semester

The European Semester was launched together with the Europa 2020 initiative for economic growth (which succeeds the Lisbon Strategy) and aims to improve Europe’s competitiveness. It was one of the first initiatives after the outbreak of the current crisis to promote the new European economic governance framework. The underlying idea is that European member states' economic polices are too divergent and therefore need to coordinate among themselves to reach their 'common' aim of a competitive Europe. 

The European Semester consists of several steps in relation to the economic and fiscal policies of the member states.

Source: http://ec.europa.eu/europe2020/pdf/chart_en.pdf

  1. Annual Growth Survey: the Commission outlines the overall aims in economic and fiscal policies for the coming year.
  2. The Annual Growth Survey is debated by the Council of the European Union and the European Parliament.
  3. The European Council endorses reform priorities for the member states at the EU spring summit.
  4. The member states present their National Reform Programmes (NRP) and Stability and Convergence Programmes (SCP).
  5. The European Commission issues their Country Specific Recommendations (CSR) to the member states and they are endorsed by the European Council.
  6. At the end of the year the member states present their draft budgets.

This procedure gives the Commission a clear lead. It is not democratically elected bodies who set the priorities for Europe, but the Commission who, with the publication of the Annual Growth Survey, sets the agenda at the beginning of the semester. Later in the process it is only the European Council and the Commission who actually take decisions while the European Parliament is sidelined. 

Also noteworthy are the existence of 'European Semester Officers' who have only recently come to public attention.5 While it is not entirely clear what these officers do, this could be an attempt by the Commission to try and expand its power within member states.

BusinessEurope's wish for 2012: low wages  

According to the Reform Barometer 2012, BusinessEurope would like to make concrete the Commission’s main priorities listed in its Annual Growth Survey for 2012 published in November 2011:6 “The priorities identified by BusinessEurope member federations are in line with the main priorities set out by the Commission,” such as to “reform employment protection legislation in consultation with social partners with a view to reducing the excessive rigidities of permanent contracts”. 

Revising wage setting mechanisms is also a major priority: 

“BusinessEurope members attach much importance to reform wage bargaining/setting systems. Wage flexibility is an essential element of European private companies’ competitiveness to win markets at global level and create employment in Europe. Companies must be able to adapt wages to their performance, aligning them on productivity. Reforms are therefore needed to put in place more flexible and/or decentralised wage bargaining structures and help ensure that growth of real wages is kept in line with labor productivity.”7

Despite the fact that transnational corporations alone do not create much more than 20% of the overall employment in the EU, they continue to preach this deceptive argument of 'employment creation'.8 The claim that they want real wages to be in line with productivity is also deceptive. In fact the EU's unit labor cost indicator in the six-pack scoreboard unfairly compares nominal wages ('labor costs') with real – as opposed to nominal – GDP growth. Notice too, that an increase in labor productivity is not enough justification to raise wages: according to the Europact, growth and competitiveness must also increase at a satisfactory pace. In a nutshell, it is very clear when wages should be kept down but much more complicated to define when real wages should go up. 

The wage-setting criteria laid down by the Europact and the Macroeconomic Surveillance Procedure completely disregard the European Social Charter, a Council of Europe's Treaty which has been ratified by all EU member states.9 This Treaty guarantees that: “All workers have the right to a fair remuneration sufficient for a decent standard of living for themselves and their families.”

The Council of Europe defines a “fair remuneration” in these terms: 

“In order to be considered fair… a wage must be above the poverty line in a given country i.e. 50% of the national average wage... In addition, in principle a wage must not fall below 60% of the national average wage… unless a state is able to  demonstrate that the wage is sufficient for a decent standard of living, e.g. by  providing detailed information on the cost of living.”10

BusinessEurope and the Commission are completely indifferent to such criteria. The aim of European employers is to keep down what they see only as costs – labor costs in this case – in order to make their profits rise at satisfactory rate for their own growth. 

BusinessEurope’s per country demands for 2012  

BusinessEurope lays out its general position in the 2012 Reform Barometer thus: 

“Modernising wage bargaining and wage-setting mechanisms is... key to improve competitive adjustment channels, so that companies can produce in each country with globally competitive unit labor costs... Removing price-indexation schemes, restricting indirect labor costs, and reforming social benefit systems are important priorities in this respect.”11

This breaks down into three categories of demands, many targeted at specific countries [see tables]. These  priorities reflect the input of national employers’ federations via BusinessEurope:

  • Reform wage bargaining / setting.

  • Promote ‘active labor markets’ and labor mobility across countries and sectors,12 including by increasing retirement age, limiting access to unemployment benefits and relaxing job protection.

  • Making workers pay by ''improving'' the interplay of tax and benefit systems. This concept developed by the Commission aims to provide incentives to remain in work for more years and to reduce “indirect” employers' costs such as contributions to social welfare and state revenues in general.13

The following three tables show BusinessEurope's priority policies and countries based on the three categories of demands above. This can be compared with the general policy directions governments pledged to follow under the Europact.  Under that are listed the recommendations submitted by the Commission and the Council in May 2012 in response to the national reform programmes of governments.14 Next to that is listed what happened or is to happen at the national level. 

Table 1 Collective bargaining, wage-setting and wage indexation 

Priority 

country for 

BusinessEurope

EU recommendations 

National programmes  / reforms

BusinessEurope’s priority for 2011 and/or  2012:

''Reform Wage bargaining / setting'' and ''Remove price-indexation schemes''

Europact provision: 

“Review wage setting arrangements... the degree of centralisation in the 

bargaining process, and the indexation mechanisms''

Belgium 

  • “Reform... the system of wage bargaining and wage indexation”.
  • “ensure that wage growth better reflects developments in labor productivity and competitiveness, by (i) ensuring the implementation of ex-post correction mechanisms foreseen in the 'wage norm' and promoting all-in agreements to improve cost-competitiveness and (ii) facilitating the use of opt-out clauses from sectoral collective agreements to better align wage growth and labor productivity developments at local level.”
  • Real wages have been frozen for 2011. 
  • Increases in 2012 may amount to maximum 0.3% only.
  • “Collective bargaining agreements that do not respect this norm will not be eligible for binding powers by royal decree.”

Germany

  • “Create the conditions for wages to grow in line with productivity”.
  • “Establish the legal basis for the principle of one firm - one collective agreement (Tarifeinheit)”.
  • Delays in implementing sector-level agreements and government support to precarious forms of work have created big wage spreads and left a large part of workforce out of any collective agreement coverage. Employers are more free to set wages to suit market conditions.
  • Social partners agreed on the Tarifeinheit that will further weaken sector agreements and favour enterprise-level ones.

Luxembourg 

  • Postpone regular wage indexation beyond 2014
  • Postponement of the automatic wage indexation system until the end of 2011.
  • Ratification of wage indexation for 2012, 2013 and 2014, which will divert €443 million from workers to employers.
  • The government will “offset the impact of an increased minimum wage in 2011 by allocating an amount equivalent to its overall cost to the Employers insurance fund.”

Spain 

  • In their 2011 recommendations both the Commission and BusinessEurope insisted Spain should decentralise wage bargaining.
  • In February 2012, the government passed a labor reform by which: company-wide agreements acquire stronger status than sector agreements and expired collective agreements are declared invalid before signing new ones.

France 

  • In 2011 recommendations both the Commission and BusinessEurope insisted France decentralise wage bargaining and freeze the minimum wage. 
  • For 2012, the EU asked to “continue to ensure that any development in the minimum wage is supportive of job creation and competitiveness”.
  • The French 2012 national program states the recommendations have been implemented “as of 30 November 2011, 91% of the industries in the general sector, 87% of industries in the metalworking sector and all but one of the industries in the construction sector had pay scales where the lowest wages matched the statutory minimum wage.”
  • In January 2012 the French government removed legal obstacles to the conclusion of agreements offering poorer working conditions in return for employment guarantees, the so-called “competitiveness employment agreements” or “'concession’ agreements”. 
  • The new socialist French government announced a cosmetic 2% increase in the minimum wage (+0.6% taking into account the official inflation).

Table 2 Increase 'flexibility', labor mobility

BusinessEurope’s priority for 2011 and/or  2012:

Promote “active labor markets”, labor mobility across countries and sectors, increase retirement age and relax job protection 

(incl. by ''reducing the excessive rigidities of permanent contracts'')

Europact provision:

“labor market reforms to promote 'flexicurity'... and increase

labor participation” and  “aligning the effective retirement age with life expectancy”

Priority 

country for BusinessEurope

EU recommendations for 2012/2013 

National programmes  / reforms

Belgium 

  • “Introducing a system in which the level of unemployment benefits decreases gradually with the duration of unemployment”.
  • Increase effective and statutory retirement age. 
  • On November 1 2012, a royal decree entered in force in which “The degressivity of the allowances was further increased so that...everyone will fall back after maximum 48 months onto a lump‐sum amount that will be slightly superior to social welfare benefits.”
  • On December 28, 2011 a royal decree increased early retirement age and working life thresholds.

France

  • “Older workers (should) stay in employment longer”.
  • Relax employment protection and make dismissals easier. 
  • “The French government introduced several measures to enhance the effects of pensions reform in 2011 in response to the Council of the European Union’s Recommendation 3. More industry-wide agreements to promote jobs for older workers were signed... The various policies implemented are starting to pay off: the employment rate for older workers was up by 2.8% between 2010 and 2011.”
  • The French government hasn't take measures yet to make lay-offs easier.

Denmark

  • Reduce pensions for the disabled while subsidizing employers to hire them. 
  • “Remove obstacles to competition... in the construction sector” or open up the construction industry for companies relying on cheap posted workers.
  • “Reforms of activation, cash benefit system, disability pension and flex jobs, will increase labor supply by a total of 28,000 persons by 2020.”
  • The Danish government hasn't yet announced measures on opening up of the construction sector.

Luxembourg

  • Take measures to prevent early retirement and  “increase the effective retirement age through linking the statutory retirement age to life expectancy”.
  • A pension reform will enter into force in 2013 increasing early retirement age limits. 

Hungary

  • Promote more “labor mobility”.
  • Complete elimination of the option of early retirement.
  • Promotion of the employment of disabled people by retaining on the labor market “individuals who are at present inactive due to health deterioration but are capable of engaging in gainful employment,” and reducing the number of benefit schemes to the disabled and “more actively enforcing criteria of employability”. 
  • The new labor code passed at the end of 2011 expands part-time employment at the expense of full-time and weakening unions’ right to represent workers.

Italy 

  • In their 2011 recommendations both the Commission and BusinessEurope insisted Italy should make lay-offs easier. 
  • Make “the outcome of judicial proceedings” relating to illegitimate termination of employment “less uncertain”.
  • Reduce compensations in case of invalid or unjustified firings.

Spain 

  • In 2011 recommendations both the Commission and BusinessEurope insisted Spain should make lay-off easier.
  • Dismissals became easier and compensations were reduced.
  • Unemployment benefits recipients can be used in public services.

Slovenia

  • Raise retirement age.
  • Despite the fact that raising retirement age was rejected in a June 2011 referendum, in its 2012 national programme, the Government “will facilitate a rise in the effective retirement age”. In addition, “Pension incomes that are not based on paid contributions are to be reduced this year.”

Table 3 Making workers pay, reducing employers' 'indirect costs' and contributions

BusinessEurope’s priority for 2011 and/or  2012:

Making work pay: “improve” the interplay of tax and benefit system

Europact provision:

''tax reforms, such as lowering taxes on labor to make work pay 

while preserving overall tax revenues''

Priority 

country for BusinessEurope

EU recommendations 

National programmes  / reforms

Denmark 

  • “Improve the cost-effectiveness of the education system” (reduce public expenditure per student).
  • “Initiatives will be launched to give young people an incentive... to complete their education faster.”

Slovenia 

  • “A shift away from labor towards consumption and environmental taxation”.
  • “Broadening the tax base for VAT”.
  • “The Government has increased excise duties on cigarettes, cut tobacco, alcohol and alcoholic beverages.”
  • “A gradual decrease in the nominal corporate tax rate to 15%” and “increased tax reliefs, i.e. 100% on research and development investments”.

Finland 

  • Monitor excessive spending for elderly care. (“Carry out annual assessments of the size of the ageing-related sustainability gap” and “cost savings in public service provision… in order to respond to the challenges arising from an ageing population”.)
  • “The Government aims to... prolong working careers.”
  • “The Government updates the general government sustainability gap estimate annually and will decide on the measures required to close the sustainability gap by 2015”.
  • VAT is to be increased by 1% in 2013

BusinessEurope’s disappointment with member states and the push for “contractual agreements”

Despite the fact that current austerity policies are crushing European economies and worsening the social situation for millions of people, both the European Commission and BusinessEurope are promoting the same approach in their latest documents. 

This becomes even more clear with the publication of the Annual Growth Survey 201315 accompanied by the Draft Joint Employment Report, both published in November 2012 and starting this year’s European Semester.16

The 'restructuring' of Europe's economies is in the view of the Commission “disruptive, politically challenging and socially difficult – but it is necessary.”17 In reality this means that despite the majority of people who reject the current policies (“politically challenging”) and the millions being thrown into poverty (“socially difficult”) they won’t stop pushing this agenda. The indifference of those in power towards sovereign democratic decisions was demonstrated only recently when a whole range of important EU officials let the Italian people know that there is no alternative to austerity, despite the fact that a huge majority voted for parties rejecting exactly this course. 

The shared agenda of the Commission and BusinessEurope is austerity plus neoliberal structural reforms. As in their 2012 Country Specific Recommendations the Commission pushes for labor market reforms and praises those countries which have already taken steps in this direction.

In the aforementioned Employment Report they celebrate the fact “that wages and labor costs have started to support external imbalances” meaning that “real compensation per employee declined in about half of the Member States” which “contributed to the gradual improvement of the competitiveness of export-oriented growth.”18 On the other hand the Commission complains about “asymmetric employment protection” causing “labor market segmentation” with the result that “the likelihood of being employed on a permanent contract is lower in Member States with stricter employment protection legislation.”19 So on this topic as well, the Commission sees a need for lower protection and a roll-back of social rights.

In reference to this assumption the Commission assessed structural labor market reforms across the EU. They are particularly approving of two different approaches to structural labor market reforms in particular. First they pay tribute to a number of countries which have reformed unemployment benefits to “facilitate the return to work”.20  Hidden behind this euphemism are reforms in Belgium, Spain, Ireland, Italy and Sweden which reduced the amount and/or duration of unemployment benefits. Second, the Commission was satisfied by the reform of the wage setting mechanism in several countries, in particular Spain, Estonia  and Portugal, where collective bargaining is undermined by company level agreements or companies now have the right to opt out of collective agreements.21

The Annual Growth Survey for this year follows the same trajectory as last year’s Country Specific Recommendations (see above). These promote similar policies:

  • “Align retirement age with life expectancy.”22
  • “Ensure cost-effectiveness and sustainability”23 in the healthcare sector. 
  • Reducing the tax burden on labor while increasing taxes on consumption and related to property and environment.24
  • “Reductions in social security contributions” for new recruits.
  • “Simplifying employment legislation” (flexible working arrangements) to “reduce labor market segmentation”.25
  • Adapting wage setting systems and minimum wages to make them fit with productivity developments and “job creation”.26
  • Strengthen the “link between social assistance and activation measures”. 27
  • “Lowering the overall administrative burden on enterprises. Particular obstacles to activities in job-rich sectors such as construction, business services, logistics, tourism and wholesale trade should be overcome.”28

All these proposed measures share a common aim with the Country Specific Recommendations adopted last year for 2012 and 2013: to lower the standard of living of the broad majority to “rebalance” the European economies in order that profit share rises and export within Europe but especially with other parts of the world is privileged over internal demand. This fits perfectly with the interests of BusinessEurope. 

A common agenda without the instruments to enforce them

While BusinessEurope is very satisfied with the CSR and the Commission’s approach towards structural reforms, they also see reasons to complain. Big business views national governments hesitant to implement the recommendations as a key problem.

In late 2011 BusinessEurope demanded: “National Reform Programmes must clearly reflect these commitments [to competitiveness enhancing structural reforms, A/N] and real implementation must follow. Unfortunately, this was not only the case in the 2011 exercise. Many National Reform Programmes lacked ambition and vision.”29 In another document some days later BusinessEurope continued this doctrinaire tone when it told national governments: “So, no more lip service in Brussels. But a real commitment from all member states[...].”30

For both the BusinessEurope and the European Commission there is a dilemma. While the Six Pack and the Fiscal Compact give the Commission important powers to enforce austerity, they still lack the same instruments to enforce neoliberal structural reforms in member states, unless a country enters the diktat of the Troika. The European Semester is therefore a welcome instrument to set the agenda, but lacks strict enforcement mechanisms to ensure that member states follow it. 

In response to this type of concern the European Council asked President Herman Van Rompuy in cooperation with the Commission and the European Central Bank to present new proposals to deepen Economic and Monetary Union. 

Among different ideas – including further control over national fiscal policies – one in particular is noteworthy with regard to BusinessEurope's dissatisfaction with the commitment to structural reforms. In an report in June 2012 Van Rompuy found that the key was “to make the framework for policy coordination more enforceable”31 as a response to this problem Van Rompuy proposed so called “contractual arrangements”32 in October 2012. The idea is that member states would enter these agreements on a mandatory basis with the European institutions, namely the European Commission,33 and agree on structural reforms within a certain time frame. Contrary to the Country Specific Recommendations and the National Reform Programmes, these agreements would be binding.  

Conclusion

A clear consequence of these labor reforms is that real wages in the eurozone are falling, collective agreements are being undermined, and social benefits cut.34

 This is the unambiguous result of the austerity policies pushed by BusinessEurope and the European Commission prioritising the reduction of unit labor cost above all else. As the European Trade Union Confederation (ETUC) puts it: “Austerity is about 'disciplining' wages to boost business' profits.”35

While banks are saved with tax-payers money (€4.5 trillion or one third of the EU GDP up to now) and corporations' profitability and competitiveness are kept high, the large majority of European citizens are experiencing a serious deterioration in their capacity to meet their needs. This fact alone undermines one of the central EU dogmas that assumes corporate competitiveness is always beneficial for society at large. 

In fact, the implementation of these policies are undermining democratic processes in EU member states. The Spanish and French governments are implementing very different programs than the ones they won an electoral mandate for. These two countries, together with Belgium, are neglecting collectively concluded labor agreements. The Slovenian government has explicitly ignored the results of a referendum against the raising of the retirement age. Meanwhile, Greece's shock therapy, as we have seen, is not just undermining labor agreements but violating fundamental rights. 

Corporate employers’ lobbies are making the best of the atmosphere of crisis and the new economic frameworks, as they are able to focus their influence at the EU level and not having to worry about democratic accountability mechanisms that could block the deeply unjust reforms they’re demanding. 

Unfair austerity policies pose a serious threat to democracy, and employers' lobbies – pushing for these policies – profiting from the results, should be held to account. 

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