What’s EMU for?

 

Emilio Gabaglio
 

The European Trade Union Confederation has consistently supported the introduction of Economic and Monetary Union, as indeed we supported before it the Single Market, the ‘Common Market’, and the whole process of European integration. For us, all of these have been part of the ‘answer’ rather than part of the ‘problem’. Even if we tore up all the treaties, there would still be a highly unified European economy, which has meant that purely national policy instruments have become increasingly ineffective. The real task, therefore, is to build the mechanisms which will make the effective management of this European economy possible - and EMU is part of this process.

In the debate about how, and not whether, to get to EMU the ETUC has certainly had disagreements with the line followed. We said ‘yes’ to nominal convergence - we know that inflation, debt, and deficits have been real problems. But from the beginning, we stressed that real convergence had also to be targeted - ie growth, investment, and employment. The Delors White Paper in 1993 was a response to this view.

We have also been concerned about the speed and timing of the nominal convergence process. Cutting deficits quickly in a recession can of course make both recession and deficits worse. More recently, we have been concerned about ‘mechanical’ interpretations of the convergence criteria.

However, thankfully all this now seems to be behind us. Who now doubts that EMU will go ahead and on schedule? In the most recent ETUC Executive Committee discussions, there has been little wish to continue to rake over the coals of policy mistakes even though they contributed not only to unemployment but also to losses of support for the European idea.

For us, the debate now is no longer whether, or how, but what should we do with EMU once we’ve got it? Are stability and deficit/debt control ends in themselves or, post-EMU, should they be seen as providing the stable foundations on which to build a strong, growing and employment-friendly economy? And what is to be the nature of the post-EMU economic and monetary ‘architecture’, and what will be the trade union role within it?

At the national level, trade unions have always known that they can’t achieve all of their goals just through collective bargaining with employers. They’ve always had to try to deal directly with governments as well, whether on legislation or on overall economic management.

The ETUC has these roles too - and with EMU our role in the management of the European economy has to increase. In a joint position with the European employers in November 1996, the ETUC said that

"the three key variables of macroeconomic policy (monetary policy, fiscal policy, wage developments) are determined by three different groups of actors (central banks, national governments and social partners respectively)".

Let me start with our future relations with the European Central Bank. We know that the ECB will be independent, and that its "primary objective shall be to maintain price stability…" (Article 105 of the Treaty). One may or may not like that - but it can’t in any event be changed now.

We are moving into a future in which if the ECB thinks that the social partners are reaching unreasonable pay settlements (or equally that governments are being profligate), then we might be ‘punished’ by monetary policy being made more restrictive.

Faced with this, it is not surprising that the European Social Partners’ 1996 statement went on to say

"… an important objective is to build bridges with the authorities responsible for monetary and budgetary policies."

The Treaty, while insisting that the ECB will be independent, does establish a degree of accountability to the European Parliament. The ECB, for example, will have to address an annual report to the EP, and the President and other Executive Board members of the ECB can be asked to appear before EP Committees (Article 109b). We welcome this and the ETUC will therefore need to develop further its contacts with the Parliament to ensure that MEPs are aware of trade union concerns so that these can then be aired with the ECB.

However, the Social Partners also need direct contacts. If the ECB is going to be sending us ‘messages’ through interest rate increases, we want to be able to ensure that we really understand what they are saying - and we want to be able to send messages back to them.

In many countries, the Social Partners do have formal or informal contacts with their central banks, and it would be a retrograde step if moving forward to EMU led to such contacts being cut.

Work on building the bridges with the ECB started last December when a high-level Trade Union/Employer delegation met Mr Duisenberg, the President of the European Monetary Institute, who said that the ECB would have to be as transparent and open as was compatible with its responsibilities. Its task was to fight inflation, but it had in fact few means of actually achieving this. The Bank would therefore have to have a ‘big mouth’ - ie it would have to speak out to explain its positions.

It couldn’t ‘negotiate’ with the Social Partners - but Mr Duisenberg did agree that there should be regular meetings (one or two a year) between us and the Executive Board of the Bank (President, Vice President and four others).

We also raised the fear that the Bank would only care about inflation and not at all about unemployment. Mr Duisenberg said that while stability would indeed be the Bank’s priority, once it was ensured the ECB would support the Union’s general economic policies (as the Treaty says it should - Article 105 again). He explicitly rejected the idea that the ECB would, or should, go in for monetary ‘over-kill’ in order to prove its credentials.

This statement is to be welcomed - though fears still remain that not just the Bank, but even the national authorities responsible for budgetary policy might take the view that the objectives of the ‘general economic policies’ should also just be stability. After all, with their ‘non-accommodating, stability oriented policies’ that is the position of many governments now. EcoFin has often appeared to be more ‘central bankist’ than the central banks.

With the Bank being the guardian of the monetary economy in the post-EMU architecture, we therefore must ensure that there is also a European ‘economic authority’ which can become the guardian of the real economy. If the ECB is to support the general economic policies of the Union, once stability has been assured, who is then to be responsible for the formulation and oversight of these policies?

To make progress, we have to realise that EMU will radically change many things - new problems, yes - but new opportunities too. Official attitudes of mind that were built up pre-EMU will not necessarily serve of us well post-EMU.

Pre-EMU, the very notion that national governments could, never mind should, manage the level of demand became discredited. The failed attempt of the Socialist government in France in the early 1980s to reflate its economy, which seemed to benefit its neighbours more than itself, is often cited as an example of this - but there are many others.

On top of this came increasing deficit and debt problems - and the adoption of the Maastricht convergence criteria - which seemed to rule out any active role for budgetary policy. ‘Monetarism’ became the new orthodoxy, and ‘stability’ the watchword.

Post-EMU, however, excessive caution, and not just profligacy, will be vices to be guarded against. We can’t just assume that the EMU-economy will be all right on ‘auto pilot’ - and nor do we have to. Within the continental-wide, EMU-economy, policy levers are being re-attached. Compared to the member states taken separately, where between a quarter and three-quarters of their economies depend on trade, Europe as a whole is very self sufficient, with less than ten per cent being imported/exported.

This means that most of the effects of measures, for instance to ensure that the macro level of demand is satisfactory, will remain in the Union and not lost to other countries. Moreover the major inflation, deficit and debt problems that many countries have faced should soon be largely behind us.

It is important, therefore, that a significant step forward on building the economic pillar to complement the monetary one was taken with the decision of the Amsterdam European Council in June 1997 to add an employment chapter to the Treaty.

About three years ago when the ETUC sat down to plan how to influence the Amsterdam intergovernmental conference, we had to decide whether to try to change the EMU provisions themselves, or whether we should instead seek to complement those provisions with specifically employment-related ones.

Conscious that the former would be construed as an attack on EMU, and fiercely resisted as such, we chose to go for a new chapter on employment. This was given little chance of success, even months before the IGC concluded in June 1997, but in the event we, and our allies, won through.

The new approach calls for an integrated policy-mix of macroeconomic, structural and labour market policies. It lays down procedures, modelled on the EMU-related ones, for fixing EU-wide Employment Guidelines, for transposing them into national action plans, and then for monitoring and amending them. Commitments were made that the existing EMU guidelines will also be focused much more on employment - and we’re beginning to see that happen with the Commission’s Annual Economic Report for this year. In addition, both trade unions and employers, at all the various levels, are too fully involved in the new procedures.

The Luxembourg Jobs Summit in November last year established the first set of Employment Guidelines. They included three ‘European employment convergence targets, namely that all young and long term unemployed people should be given a new start in terms of a job, training or work experience, and that the number of unemployed people benefiting from training and retraining programmes should at least be doubled. The Social Partners were also called upon to negotiate on issues related to training, work organisation and the reduction of working time - and the ETUC and its affiliates are willing to do this.

That was a definite step forward - and we’re already seeing in the formulation of national employment action plans that the whole exercise is being taken very seriously in all member states.

However, an apparent ‘step back’ was the decision of the same Amsterdam Summit in June 1997 to also adopt a ‘Stability Pact’, which outlined very detailed procedures, with sanctions, for ensuring that very low inflation would be pursued just as much post-EMU as pre-EMU. This seemed to confirm fears that, whatever the Employment Chapter said, the real priority post-EMU would continue to be just stability.

The ETUC fought back by insisting that the next European Council - in December 1997 in Luxembourg - should adopt a ‘Pact on Economic Coordination’ to complement the Stability Pact. We didn’t quite get this, but perhaps because governments began to realise that referenda on the Amsterdam Treaty had to be won, the steps forward were resumed with the Luxembourg Council adopting not only a resolution on ‘Economic Policy Coordination in Stage 3 of EMU’, but also deciding to establish the ‘Euro X Council’.

It’s true that this new body is surrounded by controversy because it’s task will primarily be to coordinate more closely the economic policies of just the first wave of EMU members, but in time this problem should sort itself out.

What is important is that there has been the political recognition that post-EMU a economic authority of sufficient status is required that can look the ECB in the eye. The task now is to seek to ensure that Euro X is progressively transformed so that it becomes a genuinely ‘European’ body - which means getting all countries involved and strengthening the roles of the Commission and the European Parliament.

Bringing all this together, the ETUC believes that the time has come again to act, both through monetary and budgetary policies, on the demand side of the European economy as well as on the supply side - and that EMU in fact makes it possible again to do this. In particular, the future economic authority’s job should be to seek to ensure that the level of overall demand in the economy grows at a rate which will allow the potential of our economies to be realised - and we can’t just assume that this will happen automatically, and certainly not if budgetary policies just mimic monetary policies.

Rather precise objectives exist for inflation - around 2%, and for deficits - ‘close to balance’ over the cycle as a whole. We don’t object as such to this - particularly since it is now recognised that during a recession, or to confront an asymmetrical shock, member states will be able to profit once more from the possibility of deficit financing. However, with the increased room for manoeuvre that EMU will bring, we also need targeted objectives for the overall stance of European macroeconomic policy.

The ETUC believes that in the period ahead the target for the growth in European nominal demand should be about 5 to 5½% per annum, and that real demand - deducting the ‘target’ level of inflation of around 2% - should increase by 3 to 3½% corresponding to a growth rate of the same amount.

The Commission has said that such growth rates are within our grasp and that they would increase employment rates from about 60% to 65% within five years, and reduce the overall European unemployment rate to 7%.

But what about the Asian crisis? This well illustrates the need for Europe to function on both an economic as well as a monetary pillar. The crisis could affect the European economy seriously but it doesn’t have to. Its effects can be contained if they are counteracted positively and collectively. That requires that we make use of the progress that has been achieved on the ‘economic’ agenda. And that’s why we need a target on nominal and real demand so that we can monitor the situation closely and take preventative action in good time.
 
 

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To conclude, in the run-up to EMU difficult adjustments have been made - and not always in the best ways. Too often, individual belt-tightening has contributed to collective strangulation and to higher unemployment. That’s very regrettable, but it’s also largely water under the bridge. The issue now is what should be done with EMU once it’s fully in place?

Is the message to Europe’s citizens to be more of the same, more belt-tightening? Or are we all - the EU as a whole, the Social Partners included - going work, if not always together, then at least in the same direction, to use the regained room for manoeuvre that EMU will give Europe to ensure that a policy-mix of budgetary, monetary, structural, and labour market policies ensures that our potential is realised?

In other words, to use the firm foundations of stability to build a society of full employment. That will be the ETUC’s objective.

 

19-03-1998
 
 

* General Secretary European Trade Union Confederation. Bld Emile Jacqmain 155 – 1210 Bruxelles


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