Simon Deakin, From Constraining to Rebalancing: The Role of Transnational Social Rights in Shaping European Union Economic Policy in:

Wolfgang Däubler, Reingard Zimmer (Ed.)

Arbeitsvölkerrecht, page 353 - 361

Festschrift für Klaus Lörcher

1. Edition 2013, ISBN print: 978-3-8487-0674-7, ISBN online: 978-3-8452-4921-6,

Bibliographic information
From Constraining to Rebalancing: The Role of Transnational Social Rights in Shaping European Union Economic Policy Simon Deakin Social rights and economic policy European Union labour law has become an increasingly complex and technical field. Klaus Lörcher is at the forefront of those scholars and practitioners who have sought to bring order to this complexity and, in so doing, to find creative ways of mobilising transnational social rights in the face of multiple pressures for the deregulation of worker-protective labour law. These pressures come from many sources, one of which is the growing tendency to place social rights in opposition to economic policy considerations. The tension between social and economic policy, always present since the inception of the EEC in the late 1950s, was elevated to the level of outright conflict by the decisions of the Court of Justice in the ‘Laval quartet’ in 2007 and 2008.1 What Laval began has since been carried on by the reaction of the EU institutions to the Eurozone crisis which began in 2010. The Memoranda of Understanding (‘MoUs’) agreed between the ‘Troika’ of the European Commission, European Central Bank (‘ECB’) and IMF, on the one hand, and EU member states requiring financial assistance to avert the effects of the crisis, on the other, have had widespread repercussions for the labour laws of those countries, including decentralisation of collective bargaining, cuts in minimum wages, and a narrowing of the scope of employment protection legislation.2 These changes have been imposed as part of ‘structural adjustment packages’ which are the condition for loans made by or through the medium of the Troika. The policy of rendering labour laws more ‘flexible’ in order to restore economic ‘competitiveness’ is reflected not just in the terms of the MoUs but in a number of other legal instruments.3 Some of these, such as the European Stability Mechanism Treaty (‘ESMT’) and the Treaty on Stability, Coordination and Governance (‘TSCG’), operate at the I. 1 Case C-438/05 ITF v. Viking Line ABP [2007] ECR I-10779; Case C-341/05 Laval v. Svenska Byggnadsarbetareförbundet [2007] ECR I-11767; Case C–346/06, Dirk Rüffert v. Land Niedersachsen [2008] ECR I-1989; Case C-319/06 Commission v. Luxembourg [2007] ECR I-4323. 2 See the contributions to the special issue of the Industrial Law Journal on the Eurozone crisis, vol. 41, no. 3, September 2012. 3 For an overview, see Barnard, C., The Financial Crisis and the Euro Plus Pact, 2012, 41 ILJ 98. intergovernmental level, while others, such as the ‘six pack’ of Regulations and Directives agreed in 2012, are part of EU law. The European Semester process, which functions as a variant of the open method of coordination to channel the economic policies of the Member States, also has potentially deregulatory implications for national-level labour laws. It is becoming increasingly important for labour lawyers to understand the emerging corpus of European economic governance and to work out its implications for social rights at both national and transnational level. This means exploring the institutional logic of economic and monetary union (‘EMU’). It also entails consideration of the relationship within EU law between economic and monetary policy, on the one hand, and transnational social rights, on the other. Social rights are expressed in various ways in the EU Treaties, the Charter of Fundamental Rights and Freedoms and social policy Directives, and in general principles of EU law enunciated by the Court. The provisions of ILO Conventions, the European Convention on Human Rights and the Council of Europe’s Social Charter are also relevant sources of transnational social rights in this context as they may have an indirect influence on the interpretation of EU social rights.4 The debate over the relationship between social rights and economic and monetary policy is currently in a state of flux. Recent determinations of the European Committee on Social Rights5 and the ILO Freedom of Association Committee6 have pointed to the incompatibility of certain aspects of the MoUs with international labour standards. These decisions have, however, had little or no impact, so far at least, on the conduct of EU economic and monetary policy. How far social rights can serve as a constraint on a deregulatory economic policy is therefore an open question at this time. Constraining economic policy is, however, only one of the routes open to labour lawyers seeking to mobilise social rights in order to alleviate the effects of the crisis. Another one is to use social rights to achieve a rebalancing of the EU’s economic governance, away from the current focus on short-term fiscal stability, and towards a policy of sustainable growth. The role of social rights in the context of the crisis should shift from constraining to rebalancing. 4 On social rights in EU law and other relevant international instruments, see generally Bruun, N./ Lörcher, K./ Schömann, I. (eds.) The Lisbon Treaty and Social Europe, Oxford, 2012. 5 ECSR, General Federation of employees of the national electric power corporation (GENOP- DEI) and Confederation of Greek Civil Servants’ Trade Unions (ADEDY) v. Greece, Complaint No. 66/2011, Decision of 22 May 2012. 6 ILO, 365th Report of the Committee on Freedom of Association, November 2012, at paras. 784-1003. 354 Simon Deakin The asymmetrical design of economic and monetary union The Maastricht Treaty put in place two interlocking principles for the governance of the currency union which eventually became the Eurozone. The first was the principle of fiscal stability. This was reflected in the convergence criteria inserted into the Maastricht Treaty itself and subsequently expressed in the Stability and Growth Pact agreed in 1997. Through these means, member states were formally constrained to keep annual budget deficits and accumulated national debt to no more than 3% and 60% of GDP respectively. The second principle was that of price stability. The ECB and the individual national central banks were given the mandate of maintaining low inflation, through the conduct of interest rate policy. After the advent of the single currency in 1999, a single interest rate, set by the ECB, applied throughout the Eurozone. Between them, fiscal stability and price stability would, it was thought, achieve the broad alignment of economic policies and outcomes, which was regarded as the effective precondition for the maintenance of a currency union of sovereign nation states. The institutional framework of EMU reflected the view that excessive divergence of economic policies and outcomes would distort financial flows and induce resource misallocations as the single currency was being implemented and once it was in place. There were a number of other features to the institutional framework which emerged from Maastricht. The ECB was given a very specific and, indeed, narrow role in the governance of the single currency; just as important as what it was empowered to do was what it was to be formally prevented from doing. In particular, the central bank was explicitly constrained from acting as a lender of last resort to the member states. It could not lend directly to individual national governments or to the Union, and it was formally banned from buying public debt in the form of bonds or other securities issued by national governments.7 The reason for these constraints was the ‘moral hazard’ concern that member states would otherwise have reduced incentives to keep public deficits under control. The limitations on the powers of the ECB were among the factors cited by the German Federal Constitutional Court in its ruling on the legality, from the point of view of domestic constitutional law, of the single currency.8 There were also some notable omissions in the institutional design of EMU. While monetary policy was unified through the mechanism of the single interest rate, most aspects of macroeconomic policy remained, formally at least, at the level of the individual member states. How individual member states achieved compliance with the debt and deficit criteria was to be up to them; decisions on public expenditure and levels and modes of taxation continued to be made at national II. 7 These provisions are now contained in Arts. 123 and 125 TFEU. 8 BVerfGE, 89, 155, judgment of 12 October 1993. The Role of Transnational Social Rights in Shaping EU Economic Policy 355 level. Moreover, the convergence criteria were confined to fiscal and monetary indicators; no attempt was made to set targets for wages, employment or GDP.Some alignment of employment policies was achieved separately, under the Employment Strategy which was first developed around the same time as the Stability and Growth Pact was adopted in the late 1990s. The Employment Strategy was pursued through the flexible mechanism of the open method of coordination, rather than through legally binding targets as in the case of deficits and debt. In practice, this distinction between the ‘hard’ law of the convergence criteria and the ‘soft law’ of open coordination was more apparent than real. On the one hand, the fiscal convergence criteria were not rigidly enforced and the sanctions attached to them remained unused, partly because the rules were breached initially by the larger and politically more powerful member states. On the other, open coordination methods achieved some alignment of national laws and practices through policy learning and information diffusion. Even so, core aspects of social policy remained outside the framework of EUlevel economic governance. Wage determination remained in the sphere of state policy, as a consequence, in part, of the limited progress made in the Maastricht Treaty on putting in place mechanisms for the harmonisation of collective labour law. Freedom of association, the right to strike and the regulation of pay were explicitly excluded from the competences of the Union, at least in the context of the specific powers to adopt directives in the area of social policy.9 The result was the emergence of an institutional framework for EMU that can best be described as asymmetrical. The Union, through the ECB and the national central banks, had exclusive competence in the area of monetary policy, which enabled a single interest rate regime to be put in place with a view to maintaining price stability. Macroeconomic policy, on the other hand, was a shared competence, with the Union and the member states in effect competing for influence. Social policy was even more fragmented, with member states retaining exclusive control over most collective labour law matters, and an uneasy sharing of competences operating in other areas. Design flaws of the single currency and their implications for social policy The asymmetrical construction of economic and monetary union was a design flaw which was to have far-reaching consequences for the single currency and for social policy. The immediate cause of the Eurozone crisis which began in 2010 was fiscal instability in member states whose economies were hit by the effects of the wider III. 9 See now Art. 153 (5) TFEU. 356 Simon Deakin global financial crisis which had begun two years previously. Fiscal deficits in the debtor states were the consequences of reduced growth, which depressed tax revenues, and increased social security and welfare expenditures which were triggered by rising unemployment. A further element in the rise in public debt in these states was the absorption by governments of the costs of rescuing banks and other private sector financial institutions whose solvency had been placed at risk by the severe slow-down of economic growth after 2008. Although the ‘shock’ of the 2008 recession was the immediate cause of the Eurozone crisis, longer-term, structural causes are to be found in the flawed design of the single currency. The design problem had several aspects. The first was that the post-Maastricht settlement did not provide an adequate basis for the convergence of macroeconomic policies and outcomes across the different member states. The Stability and Growth Pact was designed to ensure that fiscal deficits were kept under control. Despite the unwillingness of the EU institutions to operate the sanctions associated with the convergence criteria, the expected alignment was largely achieved. With the exception of Greece, the member states which were later to need financial assistance all achieved compliance with the public debt and deficit limits during the 1990s and 2000s. However, this short-lived fiscal convergence masked a more fundamental economic divergence. The distinction between creditor states and debtor states which emerged after the global financial crisis of 2008 was prefigured in the different growth models pursued by Eurozone states during the 2000s. The debtor states were those which were most dependent on asset price inflation and a credit boom led by the private sector for stimulating growth prior to the crisis. This was particularly the case in Ireland, Portugal and Spain, and to a lesser extent in Italy and Greece. When the crisis arrived, these countries faced fiscal deficits not because of over-generous welfare state expenditure, but because the fall in tax revenue from the slowdown in economic growth was especially severe in their cases, while their governments were forced to absorb additional losses from the need to rescue and recapitalise stricken banks. In the creditor states, fiscal deficits were containable for the same reasons, in the converse sense: these economies had not been so dependent on credit-led growth and their governments faced less exposure to the risks posed by an over-indebted private sector. The economies of the ‘core’, influenced by the German example, sought to enhance their competitive position through a combination of targeted capital investment and below-productivity wage increases. This policy mix was successful in achieving superior export performance, at the cost of constrained internal demand and lower levels of growth than those achieved in the ‘periphery’.10 10 Armingeon, K./ Baccaro, L., Political Economy of the Sovereign Debt Crisis: The Limits of Internal Devaluation, 2012, 41, ILJ, 254. The Role of Transnational Social Rights in Shaping EU Economic Policy 357 There were additional design flaws in monetary and social policy. Monetary policy was too rigid: the single interest rate policy distorted local economic policy choices, exaggerating the dependence of the periphery on low-cost finance and exacerbating the effects of a credit boom there, while cementing in the dependence of the core on export-led growth. Social policy, on the other hand, was too flexible: in the absence of a programme of labour law harmonisation, Eurozone states pursued divergent approaches to wage determination. In the ‘core’ states, centralised wage determination based on multi-employer collective bargaining was used to coordinate wage increases and constrain earnings growth. In the ‘periphery’, mechanisms for coordination of wage bargaining were less effective, with the result that unit labour costs (wages net of productivity) increased more quickly there than in the core.11 As the Eurozone crisis developed, these design asymmetries continued to shape the response of the European institutions, with highly adverse consequences for national labour law systems. The principle of ‘conditionality’ which was written into the MoUs and the ESMT, and which was confirmed by the Court in its judgment in the Pringle case, focused on reforms in the area of social policy as the means of restoring competitiveness in the debtor states. Decentralisation of collective bargaining, abandonment of the ‘favourability principle’ (Günstigkeitsprinzip) and the liberalisation of hiring rules affecting fixed-term and part-time work were all part of policies of ‘internal devaluation’. The objective here was to achieve a one-off cut in unit labour costs. Prior to the advent of the single currency, member states dealing with the consequences of an economic shock had the option of achieving unit labour cost reductions through currency devaluation. This was also the route followed by the United Kingdom and Iceland in response to the 2008 crisis. It could not be replicated within the Eurozone without the disintegration of the currency union which the creditor states were determined to maintain, in part to preserve their own competitiveness. The policy of internal devaluation was offered up for want of any alternative given the need to preserve the single currency within the institutional framework set for EMU; social policy had to provide the flexibility which was the converse of a rigid monetary policy. But it may be that internal devaluation proves to be ineffective at best, and even, if recessionary economic conditions continue, counter-productive. It will be ineffective because one-off reductions in unit labour costs which reflect wage cuts rather than productivity improvements will not be sustainable. It will be counterproductive because, in depressing real incomes in the debtor states, it will make it more difficult for their economies to achieve economic growth and thereby restore fiscal equilibrium over the medium term. 11 Johnston, R./ Hancké, R., Wage Inflation and Labour Unions in EMU, 2009, 16 JEPP, 601. 358 Simon Deakin A new role for social rights? Rebalancing economic policy Since 2010 the single currency has faced an existential crisis which has already induced some much needed flexibility in the economic governance of the Eurozone. The ECB’s market interventions, beginning with its purchase of Greek bonds on secondary markets in 2010 and culminating in the Outright Market Transactions programme of 2012, stabilised the currency union by reducing the costs of servicing public debt at a critical juncture for several Eurozone states. The Court’s Pringle judgment,12 in upholding the ESMT, implicitly confirmed the legality of the central bank’s interventions. The actions of the ECB have been highly controversial as they have appeared to go beyond the limits placed on its powers by the TFEU. In Pringle the Court had to resort to some highly formalistic reasoning to save the ESMT and, by extension, validate the central bank’s actions. Any other conclusion, however, would most likely have made the single currency unsustainable. The actions of the ECB are not unusual for a central bank charged with protecting its currency at a time of economic emergency, and should arguably have been taken much sooner than they were. But they are only a short-term palliative. Unless economic growth returns to the Eurozone, fiscal stability will not be achieved, and the future of the currency union will continue to be uncertain. Going forward, the critical issue is how to rebalance the economies of the Eurozone and of the wider Union in order to achieve growth over the medium term. The structural adjustment policies so far pursued in the MoUs and embedded in the ESMT do not provide a plausible basis for growth. Most likely, they will make matters worse. In shifting the costs of ‘adjustment’ on to the poor and economically disadvantaged, they undermine prospects for economic recovery by taking demand out of the economies of the debtor states. These policies are also likely to be challenged at some point on the grounds of their incompatibility with the social rights acknowledged by EU law, including relevant provisions of the CFREU. This type of legal challenge will, however, face some significant obstacles. The Pringle case has opened a window to such a challenge through the Court’s insistence that when the Commission and the ECB exercise powers under the ESMT, they must act in accordance with EU law, an argument that can be extended to other inter-governmental contexts such as the MoUs. However, Pringle also decides that financial assistance will only be lawful if accompanied by strict conditionality in the form of measures aimed at restoring fiscal equilibrium. This is unpromising ground on which to mount an argument to the effect that structural adjustment policies are constrained by the need to respect social rights. IV. 12 Case C-370/12, judgment of 27 November 2012. The Role of Transnational Social Rights in Shaping EU Economic Policy 359 If a more convincing argument for social rights is to be made, it should be dovetailed with arguments of an economic nature, rather than being set up in opposition to them. Social rights in EU law fall to be interpreted against a backdrop of economic and monetary policy founded on the twin objectives of fiscal and price stability. While it might seem heterodox to do so, social rights should be presented as contributing to economic stabilisation, rather than undermining it. In the short run, putting a floor under wages and terms and conditions of employment will shore up internal demand for goods and services in the indebted states and help prevent a slide into economic depression. In the medium term, employment protection and worker representation laws, if combined with active labour market policies and effective vocational training institutions, will help improve labour productivity, thereby lowering unit labour costs and promoting competitiveness.13 This is a practical argument for a legal agenda which should begin the process of addressing the design flaws in the single currency and rebalancing the European economy. 13 On the economic arguments around labour laws, see Deakin, S., ‘The Evidence-Based Case for Labour Regulation’, in Lee, S. and McCann, D. (eds.) Regulating for Decent Work: New Directions in Labour Market Regulation (Basingstoke: Palgrave Macmillan, 2011). 360 Simon Deakin Austerity and the Importance of the ILO and the ECHR for the Progressive Development of European Labour Law: A Case Study from Greece K. D. Ewing Introduction In this tribute to Klaus Lörcher, I propose to show how a combination of ILO standards and ECHR rights could be used to confront the conduct of the European Commission and the European Central Bank, which along with the IMF imposed a number of deregulatory initiatives accepted by the Greek government. The attack on labour standards in Greece not only represented one of the greatest challenges to working conditions for some time, but also revealed a contempt for legality and an indifference to legal obligations on the part of the EU institutions concerned. The starting point is the agreement concluded between the Greek Ministry of Finance and the European Commission, the European Central Bank and the IMF (the Troika).1 In return for financial support, the Greek government undertook not only to reduce public sector pay, but also to change the legal framework for wage bargaining in the private sector. This would be in addition to minimum entry-level wages, a new control system for undeclared work, the extension of probationary periods, the increase in the use of part-time work, and the ‘recalibration’ of collective dismissals. The Greek Confederation of Trade Unions (GSEE) developed an impressive legal strategy in response to these measures. As a result, there has been an examination of a wide range of questions by the ILO Committee of Experts, while several complaints relating to the European Social Charter have been upheld by the Social Rights Committee.2 In addition, litigation was initiated in the national courts, challenging many of the Troika-imposed changes as being contrary to the Greek constitution. But there has been no reference to the CJEU, nor yet any complaint to Strasbourg. I. 1 Space does not permit a full consideration of the terms imposed. The details of much of what follows is drawn from ILO, Report of the High Level Mission to Greece (Geneva, 22 November 2011). 2 See Cases 65/2011 and 66/201: ts/Complaints_en.asp.

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Die wachsende Bedeutung des internationalen Arbeitsrechts schlägt sich in vielen Bereichen nieder: Tarifautonomie und Streikrecht werden durch die Rechtsprechung des EGMR mitbestimmt, die ILO-Übereinkommen stellen einen Mindeststandard dar, der auch in einer Wirtschaftskrise nicht unterschritten werden darf. Nicht jeder nationale Gesetzgeber und nicht jedes Gericht hat dies aber bisher erkannt. Von daher ergeben sich viele Kontroversen, in Deutschland u. a. bei der Kündigung kirchlicher Mitarbeiter und bei der überlangen Dauer gerichtlicher Verfahren deutlich werden.

Die insgesamt 35 Autoren sind in der Wissenschaft, aber auch in internationalen Organisationen, in Ministerien und als Richter tätig. Der Band verbindet Theorie und Praxis; als Leser bekommt man nicht nur Stoff zum Nachdenken, sondern nicht selten auch ganz konkrete Handlungsanleitungen. Bislang gibt es kein vergleichbares Buch in der rechtswissenschaftlichen Literatur.