A Critique of the Maastricht Road to European Monetary Union: Bringing Labour Market Analysis Back In
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1 A Critique of the Maastricht Road to European Monetary Union: Bringing Labour Market Analysis Back in Junko Ishikawa London School of Economics and Political Science Thesis Submitted for the Ph D Degree 1999 UMI Number: U119302 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U119302 Published by ProQuest LLC 2014. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 2 Abstract This thesis criticises the current project of European Monetary Union, based on the Maastricht convergence criteria. It attempts to reinterpret the issue of economic convergence by looking into structural aspects from a political economic point of view. Taking a structural approach, I examine the socio-political sustainability of EMU. The thesis applies the theoretical framework set forth by the French regulation school. Drawing on the regulationists’ notion of ‘regime’, the concept of structural / regime compatibility among member states is introduced. The need to study non-monetary regimes in assessing the viability of monetary union is stressed by drawing on the historical experiences of monetary unions in the 19th century - the Latin Monetary Union, the Scandinavian Monetary Union and the American Monetary Union. Among the non-monetary structural regimes, the examination of national labour market regimes is crucial. After the loss of exchange rates as a means of adjustment, labour market adjustment becomes the key in coping with asymmetric economic shocks. Labour market flexibility is considered to be the main weapon of adjustment in post-EMU Europe. The comparison of three main labour market regimes in Europe - France, Germany and Britain - shows that they diverge substantially in their adjustment mechanisms and in the nature of their flexibility. Following Robert Boyer, I argue that there is fundamental incompatibility in national ideologies, concepts and practices of labour market policies in Europe. Without a common labour market regime, such differences could lead to major tensions between the Anglo-Saxon model of ‘external flexibility’ and the continental European model of ‘internal flexibility’. The thesis aims to show where the difficulties lie for the management of the future ‘Euroland’, including Britain, in order to indicate the tremendous task facing European policy makers. 3 Table of Contents List of Tables 7 List of Charts and Figures 9 List of Persons Interviewed 10 Acknowledgements 12 Introduction 13 Chapter 1 The Maastricht Approach to EMU 21 1.1. Pros and Cons of Convergence: Economist vs. Monetarist Argument 22 1.2. "Regime" as an Overarching Structural Framework 25 1.3. The Debate Over the Convergence Criteria 28 1.3.1. Criticism of the Convergence Criteria 31 1.3.2. The Need for Additional Criteria? 36 1.4. Why Labour markets did not become an issue? 39 1.5. Fundamental Critique of Convergence Criteria - Is There a Need for a Different Kind of Criteria? 41 1.5.1. Monetary Union and Political Union 42 1.5.2. Summary 45 1.6. The European Monetary System (EMS) 46 1.6.1. The ERM Crisis 48 1.7. Has the EMS/ERM Facilitated Domestic Structural Reform? 50 1.7.1. Empirical Evidence 53 1.7.2. The Case of France and Italy 56 1.7.2.1. France 57 1.7.2.2. Italy 62 1.7.2.3. Conclusion 68 Chapter 2 Review and Critique of the Literature Analysing Monetary Union 70 2.1. Perspective of Political Scientists / Economists 71 4 2.1.1. Theories Focussed at the Systemic Level of Analysis 72 2.1.1.1. Integration Theories 73 2.1.2. Theories Incorporating Domestic Level of Analysis 75 2.2. Perspective from Economic Historians 79 2.2.1. German Monetary Union 81 2.3. Perspective from Economists 84 2.3.1. The Theories of ‘ Sound Money’ 84 2.3.1.1. Credibility 85 2.3.1.2. Central Bank Independence 87 2.3.2. What is the Theory of Optimum Currency Areas (OCA)? 89 2.3.3. Operationalising the Theory of OCA 91 2.3.4. Criticism of the Theory of OCA 97 2.3.5. The Extension of the OCA Framework 102 2.3.5.1. Why Labour Markets? 103 2.3.6. The Labour Market Institutions and Economic Performance 106 2.3.7. Keynesian Approaches to Employment and EMU 108 2.3.8. EMU and Unemployment 111 Chapter 3 Analytical Framework - Regime Compatibility 114 3.1. The French Regulation School 115 3.1.1. Theoretical Framework of the Regulation School 116 3.1.1.1. Analysing a Regime of Accumulation - Fordism 121 3.1.1.2. The Role of Money / Credit 124 3.1.2. Advantages and Limitations of the Regulation School Approach 126 3.2. Analysing Domestic Regimes 130 3.2.1. Anti-Inflation Regime and Structural Compatibility 131 3.3. Analysing Labour Market Regimes 133 Chapter 4 Lesson from History Part I: Latin and Scandinavian Monetary Union 137 4.1. The Comparison of the International Monetary Regime of the 19th Century with the Present Regime 138 4.2. The Rationale behind the Study of Historical Monetary Unions 141 4.3. Historical Background 141 5 4.4. The Latin Monetary Union 142 4.4.1. Evaluation of the LMU 147 4.4.1.1. Why did the LMU Fail? 147 4.4.1.2. Lessons to be Learned from the LMU Experience 150 4.5. The Scandinavian Monetary Union 152 4.5.1. The LMU versus the SMU 154 4.6. Lessons from Historical Monetary Unions 157 Chapter 5 Lesson from History Part n: American Monetary Experience and the Sectional Conflicts 163 5.1. Banking in America from Independence to the Outbreak of Civil War 163 5.2. The Federalists versus Anti-Federalists 165 5.2.1. The First Bank of the United States 165 5.2.2. The Second Bank of the United States 168 5.2.3. Free Banking 170 5.2.4. Civil War and the Dawn of a National Currency 171 5.3. The Diversity of American States and the Civil War 174 5.3.1. Statistical Observations of Sectional Differences 175 5.3.2. Socio-Economic Regimes of the North and the South 178 5.3.2.1. The Northern Economic Structure 178 5.3.2.2. The Southern Economic Structure 179 5.3.3. Emerging Disputes between the Two Regions 181 5.3.4. Conflicts of the Southern and Northern Economic Structure and the Cause of the Civil War 184 5.4. Lessons for Europe • 186 Chapter 6 Labour Market Regimes in Europe 1: Background Analysis 191 6.1. Overview of Labour Market Performances 191 6.1.1. Employment and Unemployment 192 6.1.2. Economic and Employment Structure 198 Chapter 7 Labour Market Regimes in Europe 2: Labour Market Institutions and the Concept of Flexibility 202 7.1. Labour Market Flexibility (LMF) - Concept 203 7.1.1. Labour Cost Flexibility 203 7.1.2. Numerical Flexibility 205 7.1.3. Functional Flexibility 207 6 7.2. Diverse Paths to LMF 209 7.2.1. Two Distinctively Different Regimes of Labour Market Adjustment 211 7.3. Labour Market Institutions 212 7.3.1. Mode of Industrial Relations and Employment Management 214 7.3.1.1. Trade Union and Employment Representation 214 7.3.1.2. The Role of the State 216 7.3.1.3. Collective Bargaining 217 7.3.1.3.1. Level and Coverage of Collective Bargaining 217 7.3.1.3.2. Decline in Sectoral Collective Bargaining 219 7.3.1.3.3. Trend towards Decentralisation 220 7.3.1.3.4. Industrial Democracy 220 7.3.2. Regulatory Framework 225 7.3.2.1. Regulations on Dismissal 227 7.3.2.2. Regulations on the Right of Industrial Action 231 7.3.2.3. The Level of Regulation and the Extent of Employment Protection 233 7.3.4. Social Security Regimes 234 7.4. Labour Market Regime Differences and Their Implications 238 7.5. Diverse Character of Labour Market Institutions and its Implications for Monetary Union 241 Chapter 8 Labour Market Regimes in Europe 3: Operationalising the Criteria of Labour Market Flexibility 243 8.1. Labour Cost Flexibility 243 8.2. Numerical Flexibility 251 8.3. Functional Flexibility 262 8.4. Evaluation 269 8.5. Implication for EMU 272 Appendix to Chapter 8 275 Conclusion 278 Bibliography 284 7 List of Tables 3.1. Variety of Regimes of Accumulation in Dominant Economies 119 4.1. Structure of Employment in 1870 in Selected LMU Countries 150 4.2. Structure of Employment in 1870 in Selected SMU Countries 156 4.3. Per Capita Levels of GNP and Industrialisation 158 4.4. Per Capita Levels of GDP and Industrialisation in EMS Countries 159 5.1. Per Capita Wealth in the 13 Colonies in 1774 176 5.2. Regional Per Capita Income as Percentage of National Average 176 5.3. Income Originating from Sectors by Regions 177 5.4. Cotton Manufacturing in New England and the South in 1850 180 6.1. Total Unemployment Rate 194 6.2. Youth Unemployment 194 6.3. Long-term Unemployment as a Percentage of Total Unemployed 194 6.4. Share of GVA at Current Prices and Factor Costs by Branch in Total GVA in 1994 198 6.5.