Economy Social Issues

Employment: The crisis, golden opportunity for employers

23 March 2012
Frankfurter Rundschau Frankfurt

Pressed hard by the recession and national debts, European governments are rewriting the labour law, whether watering down job protection or cutting wages. And employers are smiling.

In Greece, Spain, Italy and Portugal, the crisis is raging. All of southern Europe has been laid low. All of southern Europe? Not exactly. Some people in these countries are seeing long-cherished wishes come true. One is Juan Rosell, head of the Spanish employers' organization CEOE, who has been calling for a relaxation of job protection for years. Now the government has heeded his call. “It won’t be the last labour market reform,” prophesies Rosell, scenting victory. The crisis is his opportunity.

Businesses in Europe have the upper hand. Under pressure from recession and national debt, governments are rolling back workers' rights across the board and pushing down labour costs. The aim is to make locations for investors cheaper and therefore more attractive. “Europe is on its way to becoming an entrepreneur's paradise – on the backs of the workers,” complains Apostolos Kapsalis of the Research Institute of the Greek Trade Union Federation, GSEE.

Given skyrocketing unemployment rates and the cutbacks demanded by the European Union, trade unions are on the defensive. In Greece, the government has made drastic cuts to the minimum wage and to unemployment benefits. “Massive wage cuts will be the consequence,” says Michala Marcussen from French bank Société Générale.

Retirement age has also been pegged higher, which not only lets the state save on pension payments but also increases the numbers of job-seekers. This in turn fuels competition for those jobs. “In the European labour reforms, Greece is the laboratory rat,” says Kapsalis. “Here is where they’re testing how to carry out the rollbacks.” Similar moves can soon be expected in other countries, the trade unionist warns.

Employee rights on the chopping board

In Spain for example, where in February, and without negotiating with the unions, the government reformed the labour market – “extremely aggressively”, as even economics minister Luis de Guindos conceded. The big winners are the companies: “It's simply a matter of increasing their profit margins – and this, in the short term, can only be done by driving down unit labour costs,” says Patrick Artus, an economist at the French bank Natixis.

The wave of reform is washing across not just the smaller states. Even in Italy, Prime Minister Mario Monti is drawing up plans for swingeing cuts in traditional workers' rights. Iron-clad employee job protection is one of those rights on the chopping board. The government tried to get rid of it in 2002, but mass protests forced it to back down.

Today a new opportunity is dawning – and the Prime Minister intends to seize it. “When it comes to economic policy issues, Monti’s line is very close to ours,” says Emma Marcegaglia, head of the Italian industrial association Confindustria.

The model for EU politicians is Germany, where Agenda 2010 and wage restraint have been highly profitable for companies and where the crisis has long been over. “In international competition with rising powers like China and Brazil, Europe can stay in the race only if it’s as competitive as Germany,” Chancellor Angela Merkel said in January.

“The measures will turn out to be a burden on growth”

German wage levels and productivity have thus set the benchmarks for European competition – and in France too, which has seen its international market share drift to other countries, while Germany has been able to expand its market position. By Commerzbank's calculations, French and Italian car production fell between 2004-2011 by almost 30 percent, while in that same period the German car manufacturers saw their own output jump by 22 percent.

What’s already clear is that the labour market reforms are not short-term measures to tackle the crisis, but are here for the long run. The cost-cutting strategies are pitting the states against each other. Low-wage countries like Croatia and the Czech Republic are being forced to make their labour markets more flexible and push their labour costs downwards to become more competitive, says the IMF.

This competition between states is also desired by the EU, whose goal is to make Europe the most competitive region in the world by 2020. “We must come up with an agenda for growth,” said European Commission President Jose Manuel Barroso.

This increase in competitiveness through lower labour costs comes at the expense of income – and thus consumer spending. “The measures will turn out to be a burden on growth and on the labor markets for years to come,” predicts Natixis economist Artus. The question is whether those affected will go along with it. The Portuguese trade unions have just called a general strike, and the Spanish unions are coming out next. In Greece, the trade unionist Kapsalis is also launching a call for solidarity from the Germans:  “Today it’s us feeling the squeeze – tomorrow it’ll be your turn again.”

Translated from the German by Anton Baer

Factual or translation error? Tell us.