Tom Johnson Summer School

Tom Johnson Summer School Achieving Social Europe: From Theory to Practice Introduction I am delighted to have the opportunity to address you on this topic today and particularly welcome the fact that the event is taking place in a Fair Hotel. I would like to acknowledge the decision of the Labour Party to support the Fair Hotels Campaign which is helping to ensure workers in this sector enjoy representation and acceptable working conditions. I am going to talk about what the European Trade Union Confederation (ETUC) is doing to promote the development of a more social Europe. I will start by briefly introducing the ETUC and its role. I will outline what is meant by Social Europe from the ETUC perspective. I will discuss the ETUC’s assessment of how the current economic and financial crisis has been handled by European leaders and the EU Institutions. Next I will look at the ETUC’s proposals to restore jobs and growth and strengthen solidarity. I will then consider the effect on Ireland of measures to deepen European integration. I will finish by sketching the future prospects for Social Europe. Background information The ETUC comprises 84 national confederations representing over 45 million workers collectively. I am the Vice-President of the ETUC Youth Committee and I sit on two other committees dealing with social policy and pay/economic dynamics. The ETUC pursues its policy agenda at EU by lobbying the EU institutions on policy and legislative proposals and engaging with employer groups on European programmes and initiatives where possible. Moreover, the ETUC participates in social dialogue at EU level through the Tripartite Social Summit, involving the Commission, the Council, European employer organisations. This normally takes place just before the Spring European Council. What is meant by Social Europe? For the ETUC, Social Europe involves a number of key elements: 1. Fundamental social rights, including freedom of association and the right to strike 2. Strong social protection and progressive taxation systems 3. Social Dialogue 4. Workers’ rights 5. State involvement in the promotion of full employment and the provision of public services The EU Charter of Fundamental Rights, which has the same binding legal status as the EU Treaties, is an important expression of Social Europe, along with the body of legislation in the field of employment and social policy, regulating areas such as part- time work, working hours and health and safety. The value of minimum standards is to create a level playing field for workers, avoiding a race to the bottom based on competition. It is also positive that a Protocol identifying the importance of Services of General Economic Interest is included in the Treaties. Furthermore, the Lisbon Treaty introduced a ‘social proofing’ clause which means the objectives of promoting a high level of employment and social cohesion must be taken into account in developing and implementing EU policies. Promoting employment and protecting and enhancing working conditions are key objectives for the ETUC. The ETUC welcomed the commitment within the Lisbon Treaty which refers to the European Union as “a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment”. However, the current economic crisis has revealed a disconnect between what is provided for in the Treaties and what is happening in practice. The ETUC is concerned that recent developments have undermined the social dimension of Europe. Unbalanced crisis responses The collapse of US investment bank Lehman Brothers in September 2008 had major ramifications for the banking system in Europe which, in turn, fed through quickly to the real economy as credit flow contracted and confidence evaporated. Moreover, the extent of the financial and economic crisis in Greece has unfolded since early 2010 and has had a considerable contagion effect, particularly in the Eurozone. The unemployment rate in the EU was above 10% in Q1 2012 and the number of unemployed people stood at a high of 24.7 million, up by more than 2 million over the last year, including 10.3 million long-term unemployed. Government deficits have emerged as sluggish economic activity has resulted in lower revenue and increased welfare payments, not helped by the cost of injecting capital into weakened banks. Bernadette Segol, ETUC General Secretary, has summed up the concerns of the trade union movement, stating: “The idea that slashing government spending and depleting wages can actually create jobs and cure depressed economies may please Thatcherites but it remains deeply flawed. The doctrine that predominantly shaped policy options in Europe rests on equally flawed premises: the belief that markets can replace public policy in balancing economic, social and environmental needs.” - Public Finances Aside from the sizeable resources devoted to recapitalising Europe’s ailing banks, the response of governments to date – overseen by the EU institutions – has been dominated by an austerity approach: reducing public expenditure and shrinking social benefits in an effort to drive down deficit levels, which is seen as a key to restoring investor confidence.

23 of the 27 Member States are subject to the ‘Excessive Deficit Procedure’ with various deadlines to comply with the rules of the Stability and Growth Pact. The imperative for Member States to concurrently cut spending and/or raise taxes threatens to shrink the European economy without the realistic prospect that exports to the flagging world economy will pick up the slack.

- ‘Structural Reforms’ & Competitiveness Even before the current economic crisis in the EU, globalisation was prompting demands to reduce pay rates, relax workplace protections and cut welfare payments in order to compete with emerging countries such as China. During the crisis, wage deflation has been deployed as a preferred tool to restore competitiveness. Ireland is a prime example, with cuts to pay in the public sector and alterations to the Joint Labour Committee wage setting system for low-paid sectors such as catering and cleaning.

The European Trade Union Institute (ETUI) has undertaken a study on changes that have been made to labour law and industrial relations systems across 21 Member States in the EU. A key trend is the introduction of measures to make labour markets more ‘flexible’. For instance, under the Troika programme, Portugal has committed to reducing overtime rates by 50%, except where otherwise agreed by collective agreement. The maximum duration of fixed-term contracts has been increased in Greece and the Czech Republic and the Netherlands has allowed for more renewals. In Greece a new ‘youth contract’ has been initiated which pays 20% less than the normal pay rate; involves a two-year trial period and does not provide access to unemployment benefits. Severance pay has been cut in the Czech Republic and redundancy benefits have been reduced in Portugal and Spain. In addition, there has been moves in Italy, Greece, Spain and Portugal to shift national level bargaining to sectoral or company level, resulting in a dilution of the role of trade unions.

- Euro Plus Pact

The ETUC is particularly concerned about the possible implications of the ‘Euro Plus Pact’, agreed by Euro area leaders and six other member states in March 2011. The commitment to compare unit labour costs prioritises productivity developments over the impact of inflation. Furthermore, public sector pay is to be linked to supporting competitiveness in the private sector, risking downward pressure on wages across the economy. The introduction of labour market reforms to promote ‘flexicurity’ raises fears about the deregulation of labour rights without improving security. The age of retirement is to be aligned with demographic trends, delaying pension entitlements and discouraging early retirement schemes. Other pledges include reviewing the sustainability of health care and benefit systems.

- Fiscal Compact Treaty

The ETUC has previously supported EU Treaty changes in the process of integration. However, the ETUC opposes the new Treaty on the Stability, Coordination and Governance in the Economic and Monetary Union (the Fiscal Compact Treaty) based on the futility of an austerity approach which is not counter-balanced by a credible investment strategy for jobs and growth. The ETUC declaration on the subject in January 2012 states: ‘The need for economic governance is being used as a means of restricting negotiating mechanisms and results, attacking industrial relations systems and putting pressure on collectively agreed wage levels; to weaken social protection and the right to strike and privatise public services. The ETUC actively resists these attacks, which, cumulated over the years, will dismantle a social model which is unique in the world”.

ETUC Proposals for recovery and solidarity The ETUC is campaigning for a European New Deal, rejecting excessive cuts in social benefits, public services and pay. In 2010, the ETUC proposed the establishment of a European Investment Plan worth 1% of GDP for each of the following three years. The ETUC insists wages are the motor of the economy, not the enemy, and rejects growing income inequality. For the ETUC, the key to unlocking competitiveness is quality and innovation rather than driving down wages. The ETUC favours robust social safety nets to absorb economic shocks and promote solidarity. Moreover, the ETUC is in favour of a Youth Guarantee to provide training and/or job opportunities. The ETUC advocates a longer-term approach to correcting public finance deficits, requiring significant change such as action by the European Central Bank (ECB) and greater coordination of tax affairs. The ETUC has called on the European Commission, governments and employers at EU level to develop a “Social Compact” for Europe. The ETUC has put forward a number of important elements including a wage safeguard clause which would ensure the protection of national systems of collective bargaining from unjustified interference; decent wages for all and a reduction in precarious work; greater involvement of social partners in economic policy-formation; broadening the mandate of the ECB to have regard to employment and extending its role to lender of last resort for Member States; partial debt pooling and the eventual issuance of Eurobonds; essential investment in areas such as sustainable infrastructure and green technologies; project bonds; effective financial sector regulation; a financial transactions tax; fair taxation; harmonisation of the corporate tax base and a minimum rate of corporation tax. In addition, the ETUC has emphasised the need for a ‘Social Progress’ Protocol to be attached to the EU Treaties. This would re-establish the primacy of social rights over economic freedoms in the wake of rulings from the European Court of Justice (Laval, Viking, Luxembourg cases) which called into question the right of trade unions to seek to uphold collective agreements. Implications of deeper European Integration for Ireland Within the current Treaty framework, there is scope to enhance the social dimension of Europe by implementing the social safeguards contained within the Lisbon Treaty and by undertaking to uphold and strengthen legislative protections, for example in relation to the posting of workers, health and safety, working time rules and active inclusion. Moreover, the development of a more Social Europe raises a number of complex and difficult issues regarding the prospect of transferring further competences to the EU level, for example, in the area of taxation. Ireland is particularly sensitive about retaining control over corporate tax given the country’s reliance on multinational companies. Nonetheless, it is essential to have a full debate on the future shape of the European Union and the measures that are required to best serve workers and citizens. The current focus on a banking union and closer fiscal union must not lose sight of the need to provide a social dividend for society. The current organisation of the European Union is underpinned by two key principles: subsidiarity and proportionality. The former means that the EU can only intervene if it action at EU level is the most effective response. The latter requires that action taken at the EU level must not exceed what is necessary to achieve the objectives contained within the Treaties. Equally, the EU can only act in the areas that power has been conferred upon it within the Treaties. It is necessary to strike the right balance between further action at EU level to bring about a more social Europe and the preservation of decision-making on budgetary and other policy areas as close to citizens as possible where appropriate. Up to now, Member States have retained control over social spending and taxation decisions. However, the recently introduced European Semester and ‘Six Pack’ of legislation has increased the role of the European Commission and Council in assessing and ensuring national budgetary plans move towards compliance with the Stability and Growth Pact. Ireland is already subject to extensive supervision under the Troika programme. Greater fiscal and economic coordination at EU level should not be dominated by an austerity approach if Europe is to generate growth and jobs. The involvement of the social partners at EU should be expanded in response to these developments. The prospect of further fiscal and economic union raises profound questions about how democratic legitimacy can be maintained in the context of new arrangements for budget and policy formation. The proposals put forward for consideration by the President of the European Council, Herman Van Rompuy, include the possibility of imposing annual upper limits on deficit and debt levels; pooling decisions on budgets; the power to require changes to budget packages and the eventual creation of a Treasury Office at EU level and common debt issuance. Further economic integration is also under examination, involving greater enforcement of policy coordination, for instance in relation to labour mobility and taxation. A full roadmap is due to be presented in October and must be assessed according to whether the measures envisaged will strengthen or weaken the European social model. In this context, the framework should not be rigid but rather must give enough space to allow for growth, social solidarity and social inclusion.

It remains important for national political parties and social actors to have a key role in shaping national policies and priorities, based on their electoral mandate. Governments exercise choice on how fiscal and other targets are to be met at national level. The role of the Labour party should be emphasised in this respect, despite the limited room for manoeuvre implied by the constraints of the funding programme agreed with the EU/IMF. Labour’s emphasis on growth measures and job creation and its motivation to build a more equal society must be brought to bear, to the greatest extent possible, in coalition and in engagement with the Troika. The Irish electorate passed the Fiscal Compact Treaty in May this year. The ICTU’s decision not to make a recommendation on how to vote shows the complexity that sometimes arises in the relationship between the ETUC and its member confederations. Some trade unions in Ireland, such as Impact, came out in favour of the Treaty, while others, like Unite, were opposed. SIPTU insisted that without a credible investment plan the proposition could not be endorsed. Access to funding from the European Stability Mechanism was a key concern for many voters. The on- going challenge in operating the new budgetary and fiscal architecture is to ensure adequate flexibility is built in to the way the rules are applied, so as to arrest negative impacts on growth and social progress. Agreement was reached at the European Summit on 29 June to create an authorative banking supervisor at EU level and to allow the European Stability Mechanism to directly recapitalise banks. Crucially, Eurozone leaders committed ‘to examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme”, which offers some scope for Ireland to re-engineer the burden of banking debt on the state over the long- term. This is an important step towards achieving greater solidarity in Europe but the extent to which the move will benefit Ireland is not yet known and will require further determined negotiation. Other proposals that are being examined at EU include a common European deposit guarantee scheme and a European bank resolution system. The development of a banking union will only be effective if it produces greater financial stability and more social certainty for citizens; it must not be exploited to protect unjustifiable interests in the financial markets. Future Prospects for Social Europe It is welcome that the election of French President, François Hollande, has pushed the issue of growth up the EU agenda and that acceptance is growing among leaders that a one-sided austerity approach is self-defeating. Tackling the unemployment crisis across Europe is a vital social imperative for the continent. The €120 billion stimulus package agreed at the latest European Summit on 28-29th June is significant, particularly the decision to increase the lending capacity of the European Investment Bank by about €60 billion through a capital injection of €10 billion and the investment of €5 billion in project bonds. The use of €55 billion from unspent structural funds will be helpful although additional funding would have been an extra boost. Action is required domestically to stimulate growth. SIPTU and the Irish Congress of Trade Unions (ICTU) have put forward an investment plan worth €3 billion each year for the next three years, which would be kept off the State’s balance sheet where possible. It is encouraging that the government has examined the proposal and is working to advance a stimulus plan. What matters is that the initiative is of a scale commensurate with tackling the problems facing the country. It is encouraging that the policy direction in Europe is shifting, at least to some degree, towards growth. The March Social Summit focused on measures to promote growth and jobs, with particular attention on youth unemployment, the need to invest in education and training and financing for SMEs. The ETUC reiterated its call for a European stimulus plan to generate quality jobs based on a renewed European industrial strategy and re-emphasised that the recipe of wage moderation/cuts and the erosion of job security is not working. Europe’s social model remains under pressure. While the European Growth Survey 2012 may signal some shift towards acknowledging the importance of “growth-friendly expenditure, such as education, research, innovation and energy”, the ETUC detects little change in the overall message of fiscal austerity. Similarly, the economic guidelines issued by Finance Ministers on 22 June 2012 to Euro Zone countries include a recommendation to “Implement structural reforms, which also promote flexible wage adjustments…”. The ETUC will continue to promote a model for recovery based on sustainable growth, quality jobs and fair wages in a new Social Charter. Parties of the left can play an important role in supporting this effort at national and EU level. Loraine Mulligan, Vice President of the ETUC Youth Committee Sources ETUC Resolution 5-6 June 2012 – ‘A Social Compact for Europe’ The Athens Manifesto, ETUC, 2011 - 2014 The crisis and national labour law reforms: a mapping exercise, ETUI Trade Union Memorandum to the Spanish presidency, January – June 2010, ETUC. Annual Growth Survey 2012, European Commission ETUC Resolution (Investing for growth and jobs – ETUC reaction to the Annual Growth Survey 2012) “ Whither Europe? Looking ahead to the future of Social Europe”, speech by Bernadette Segol, General Secretary of the ETUC ETUC Declaration on the “Treaty on stability, coordination and governance in the economic and monetary union”, 25 January 2012 ETUC Proposal for a ‘Social Progress’ Protocol Tripartite Social Summit: for an investment policy to create decent jobs, ETUC, 1 March 2012 The European Social Model, ETUC briefing Economic Crisis in Europe: Causes, Consequences and Responses, Directorate General for Economic and Financial Affairs, European Commission, 2009. Delivering Growth & Jobs – Funding a major new investment programme for Ireland, ICTU, May 2012 EU Employment and Social Situation, Quarterly Review, June 2012, European Commission ‘ Towards a genuine economic and monetary union’, Report by President of the European Council, Herman Van Rompuy, 26 June 2012