Opinion of the Economic and Social Committee on 'Employment policy and the role of socio-economic organizations in the third phase of economic and monetary union'
Date: 1998-12-02
Institutions: European Economic and Social Committee
Subjects: ESC opinion, European Central Bank, employment policy, professional association, third stage of EMU, trade union

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Official Journal of the European Communities

C 40/37

3.7. Chapter IV (Emission control)

3.7.1.
The Committee feels it is extremely important
to develop common, ecologically-compatible methods
for the recovery and disposal of all controlled substances,
together with minimum professional qualifications for
maintenance staff. This is an area where measures to
curb the use of ozone-depleting substances can be
enhanced; it is therefore important to step up exchanges
on the best available technologies between the Member

Brussels, 2 December 1998.

States. In this field too, the EMAS (1) system could play
a positive role.

3.8. Article 20 (Sanctions)
3.8.1.
The Committee welcomes the new, more force-
ful wording of this Article, and wonders whether it might
be useful for the Commission to provide a regular report
on the outcome of Member State notifications. Greater
transparency could help eliminate the black market.

(1) Regulation No 1836/93.

The President

of the Economic and Social Committee

Beatrice RANGONI MACHIAVELLI

Opinion of the Economic and Social Committee on ‘Employment policy and the role of
socio-economic organizations in the third phase of economic and monetary union’

(1999/C 40/12)

On 29 January 1998 the Economic and Social Committee decided, under Rule 23(3) of its
Rules of Procedure, to draw up an opinion on ‘Employment policy and the role of
socio-economic organizations in the third phase of economic and monetary union’.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which
was responsible for preparing the Committee’s work on the subject, adopted its opinion on
20 October 1998. The rapporteur was Mr Thierry Dock.

At its 359th plenary session on 2 and 3 December 1998 (meeting of 2 December), the Economic
and Social Committee adopted the following opinion by 94 votes to three, with two abstentions.

1. The new conditions established by monetary union

1.3.
The third stage in economic and monetary union
will also signal the birth and coming of age of new
players.

1.1.
The advent of the single currency marks a vital
step forward for the European venture. It establishes
new conditions that are likely to alter the behaviour of
various players including the socio-economic organ-
izations. This behavioural change is in many respects
essential, as the success of European monetary union
will depend on it.

1.3.1. T h e E u r o p e a n C e n t r a l B a n k

1.3.1.1.
The objectives of the European system of
central banks are set out under Article 105 of the Treaty
establishing the European Community:

1.2. One of the major changes brought about by the
abolition of national currencies is the Member States’
loss of the exchange rate tool.

‘The primary objective of the ESCB shall be to
maintain price stability. Without prejudice to the
objective of price stability, the ESCB shall support
the general economic policies of the Community
with a view to contributing to the achievement of
the objectives of the Community as laid down in
Article 2.’

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1.3.1.2.
Among the objectives set out in Article 2, the
Union is instructed ‘to promote economic and social
progress and a high level of employment and to achieve
balanced and sustainable development, in particular
through the creation of an area without internal frontiers,
through the strengthening of economic and social
cohesion and through the establishment of economic
and monetary union, ultimately including a single
currency in accordance with the provisions of this
treaty’.

union will also depend on appropriate use of a third
tool: employment and labour market policies, including
wages policy.

1.3.3.2.
Socio-economic organizations, and in par-
ticular the social partners, traditionally play a critical
role in these areas. Their responsibility could be even
greater within monetary union.

1.3.2. T h e

c o o r d i n a t i o n

o f

e c o n o m i c

p o l i c y t h r o u g h t h e C o u n c i l

1.3.2.1. While determining the architecture and legal
foundations for the single currency, the European Treaty
also provides for a number of measures in respect of the
economic integration of the Member States.

Article 99 (ex Article 103) states explicitly
1.3.2.2.
that ‘Member States shall regard their economic policies
as a matter of common concern and shall coordinate
them within the Council’.

This involves in particular:

— setting broad guidelines for the economic policies of

the Member States and the Community,

— monitoring economic developments in each of the

Member States and in the Community,

— making recommendations to Member States that do

not conform to those broad guidelines.

1.3.2.3.
The coordination of economic policies is a
vital cog in the machinery that will enable monetary
union to fulfil its objectives. If Member States fail to
coordinate economic policies adequately, the single
currency may well turn out to be an enormous disap-
pointment. The procedures for coordinating economic
policies were clarified at the Luxembourg European
Council meeting in December 1997.

1.3.2.4.
The European Council’s resolution on the
coordination of economic policy during the third stage
of EMU states that economic policy and wage determi-
nation will remain national responsibility. Meanwhile,
it observes that a higher degree of coordination and
monitoring are essential since economic developments at
national level will have more far-reaching repercussions.

1.3.3. T h e

k e y
e c o n o m i c
a r e a o f w a g e s

r o l e
t h e
o r g a n i z a t i o n s

o f

s o c i o -
t h e
i n

1.4.
The central banks, the Council and the socio-
economic organizations will form the cornerstones of
EMU. Each will carry specific responsibilities, managing
monetary policy, economic policy and employment
policy respectively.

1.4.1.
If EMU is to achieve its set objectives, it will
not be possible for these players to work haphazardly.
Adequate coordination will be required, involving in
particular the efficient circulation of information.

2. The European Central Bank in the third stage of

monetary union

2.1.
The Treaty of Maastricht is extremely clear
regarding the independence of the ECB in carrying out
its brief.

2.2.
The Committee does not question that indepen-
dence but it is keen to establish the best way of making
the dialogue between the European Central Bank and
the socio-economic world as effective and democratic
as possible. Not only will the European Central Bank
have to build up and consolidate its reputation to ward
off an inflationary drift, but, first and foremost, it will
have to convince European public opinion of its policies.
It is that quality of dialogue and transparency that has
in the past enabled several national central banks to
establish that their objectives are not only legitimate but
also economically effective in the medium and long
term.

2.2.1. With high unemployment in various Member
States coupled with a certain public scepticism vis-à-vis
European integration, that task will not be easy.

It should also be stressed that monetary union
2.3.
will be launched before genuine economic or political
union has been achieved and that the ECB will be
particularly open to criticism. This is a unique situation
and the consequences must not be underestimated.
Dialogue with the Council and the European Parliament
are also essential elements.

1.3.3.1.
In the third stage of EMU, there will be a
greater need to steer monetary policy and economic
policy from the European level. The success of monetary

2.3.1.
For that reason, we fully endorse the establish-
ment of the Euro 11, which will pave the way for positive
dialogue between the ECB and the political authorities.

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2.3.2.
The Treaty also provides for regular hearings
in the European Parliament. Article 113 [ex 109 b)]
states that, besides presenting its annual report to the
Council and the Parliament, ‘The President of the ECB
and the other members of the Executive Board may, at
the request of the European Parliament or on their own
initiative, be heard by the competent committees of the
European Parliament.’

2.3.2.1. Given the democratic nature of the European
Parliament, we can only hope that this article will be
implemented in full.

2.4.
As representatives of socio-economic interests,
we believe that it is essential that the principal policy
strategies of the ECB should be submitted to the
Economic and Social Committee.

2.4.1.
The Committee is the prime institution bring-
ing together the various economic and social interest
groups. That makes regular exchanges of information
between the ECB and the organizations represented in
the ESC indispensable.

2.4.1.1.
A preliminary meeting between the European
Monetary Institute and the Section for Economic,
Monetary and Financial Questions was held in Frankfurt
in November 1997. This exercise was a useful one and
is worth repeating in the future.

2.4.2.
Contact with the Economic and Social Com-
mittee would provide the European Central Bank with
a dedicated channel for discussing and listening to the
concerns of the socio-economic organizations.

2.4.3.
Such contact already exists in various forms in
some Member States. The establishment of genuine
monetary union is the ideal opportunity to translate the
idea to European level.

2.4.4. Once EMU has been established, it would be
useful for the Economic and Social Committee to draft
an opinion every year focusing on the monetary and
exchange rate policies being implemented in the EMU
countries. The purpose of such an exercise would be
twofold. As well as briefing the different European
institutions on the ESC’s assessment of the monetary
and exchange rate policies being implemented, it would
also provide a golden opportunity to contribute to and
stimulate discussion within the various organizations
represented in the Committee.

In addition to contacts with the ESC, meetings
2.5.
between the ECB and the representatives of the social
partners would also seem appropriate.

Traditionally, the social partners have played
2.5.1.
a key role in wage negotiations. Without in any way
calling into question the independence of the European
Central Bank, regular meetings with the ECB would
guarantee sufficient coordination between monetary
policy and the wage rises negotiated by the social
partners.

2.5.2.
Care should be taken to ensure that the dialogue
between the ECB and the social partners is on a par with
that existing at national level in several Member States.
Otherwise, there will be a serious risk of misunderstand-
ings that could be detrimental to decision-making. This
would be reflected in unemployment and slower growth.

That dialogue will not be easy to set up,
2.5.3.
particularly since negotiating mechanisms differ from
one Member State to the next. An imaginative way will
have to be found to ensure the relations between the
European Central Bank and the social partners are
as fruitful as possible, taking national diversity into
consideration.

2.6.
In conclusion, the European Central Bank will
be required to carry out an extremely delicate task in
the third phase of EMU. To do so,
it enjoys full
independence guaranteed by the Maastricht Treaty.

The Committee considers that the ECB will
2.6.1.
accomplish this task all the more effectively if it is able
to establish fruitful dialogue not just with the political
authorities, but also with the representatives of those
involved at grassroots.

3. Wage negotiations in EMU

3.1. On the employment market, working conditions
are as a rule negotiated collectively. That bargaining
may occur at several
levels: national, sectoral, or
company. Often, various levels of negotiation coexist.

3.2.
The links between the various forms of collective
bargaining and economic performance have been exam-
ined in a wide range of specialist literature (1).

3.2.1.
unanimous, but two types of conclusion stand out.

The conclusions of those studies have not been

3.2.1.1.
Some research highlights the fact that the
best employment results are obtained in systems where
bargaining is either highly centralized, or highly
decentralized.

— In the decentralized model (where the centre of
gravity for bargaining is at company level), compe-
tition between the players can be expressed force-
fully. The market has free rein and ensures that
employment and wage levels are determined on a
competitive basis.

— In the centralized model, socio-economic organ-
izations are more aware of the potential macro-
economic fall-out from their respective demands.

(1) See in particular OECD, Négotiation collective et perfor-
mance économique in ‘Perspectives de l’emploi’, July 1997,
Paris.

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The players bargain by considering the consequences
of the decisions taken and making a trade-off between
salaries, employment levels and competitiveness.

3.3.1. Wage cost control therefore has an added
dimension in EMU.

3.2.1.2.
The second theory highlights not so much
the degree of centralization in bargaining but rather the
level of coordination existing between the various
bargaining levels. Like the centralized system, a high
degree of coordination enables the socio-economic
organizations to take account of the macroeconomic
consequences of the decisions they are involved in. The
bargaining partners are more likely to consider the need
to avoid spiralling costs and inflation.

3.2.1.2.1.
Inflationary pressures may thrive on wage
increases which are not warranted in terms of pro-
ductivity gains. This triggers an increase in production
costs which may in turn drive prices up. This then
stimulates demand for further wage increases with the
risk of creating an inflationary spiral. If such inflationary
pressures are to be prevented it is important that
collective bargaining takes into account the need to keep
real wage rises in line with productivity trends.

3.2.1.2.2.
A system with adequate coordination
between the various levels at which collective bargaining
takes place is particularly attractive when the economy
is thriving. It is easier to control inflationary pressures.

The social partners have much more diffi-
3.2.1.2.3.
culty in contributing to that end under arrangements
which are poorly coordinated. Wage claims are made in
a more disparate fashion and do not take account of the
macroeconomic repercussions of the decisions taken at
micro level.

3.2.1.2.4.
The danger is, therefore, that the socio-
economic organizations will be unable to prevent
inflationary pressures, particularly in the event of an
economic upturn. Monetary authorities could then be
forced to step in, in particular by raising interest rates.
Such a combination of factors is hazardous, insofar as
it could damage the overall economic situation, yielding
poorer results in terms of growth and job-creation.

3.3. Wage costs are certainly not the only factor
shaping employment patterns. There are other equally
crucial parameters such as training of the workforce,
innovation processes, the thrust of demand for goods
and services, etc. It is nonetheless true that divergent
trends in costs, and in wages in particular, can land a
country in difficulties with competitiveness and the risk
of job losses. The single currency will make it impossible
for a participating Member State to devalue in order to
correct a disadvantage in terms of competitiveness.

3.3.2.
There are various avenues open to the socio-
economic organizations, who are in the front line
of wage negotiations. Countries may opt for greater
centralization or, conversely, greater decentralization in
collective bargaining. Each model has its pros and cons.

The essential aspect for EMU is that, irrespec-
3.3.2.1.
tive of the system adopted, there is adequate coordination
between the various levels and fora where collective
bargaining is taking place, particularly in relation to
wages. It is a question of ensuring that haphazard
negotiations do not help fuel inflationary pressures.
This risk is particularly acute during economic upturns.

the socio-economic organizations
3.3.2.2. Whilst
should be taking care to consolidate the coordination of
collective bargaining, an additional dimension should
be gradually introduced. Wage changes in neighbouring
countries, particularly if they belong to the EMU, are
increasingly important. Good coordination between the
various bargaining levels within the national context is
not good enough. The European dimension must be
taken into account.

3.3.3.
Collective bargaining patterns are developing
differently across the EU. Studies show that some
Member States are decentralizing whilst others are
attempting to boost the level of coordination in collective
bargaining relations.

3.3.4.
In the latter instance, the method is tripartite
agreements or social pacts (Portugal, Italy, Ireland,
Spain). The European or transnational dimension is
sometimes catered for explicitly (Belgium).

3.3.4.1.
The processes underway are complex in
nature. Some countries manage, without any underlying
conflict, to combine intensified dialogue at intersectoral
level with, for some issues, increased empowerment for
economic and social partners at company level.

In some cases,

3.3.4.2.
the involvement of civic
representatives in tripartite dialogue along with socio-
economic organizations
consensus-
building.

can facilitate

3.3.4.3.
Recent tripartite agreements have enabled
several Member States to boost policies conducive to
employment and growth. Such agreements are crucial
insofar as they help to capitalize on the consequences of
the economic situation while consolidating it at the
same time.

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4. Precautions to be taken against asymmetric shocks

the event of a shock. It is therefore crucial to have sound
public finances. It should be noted that few Member
States currently have genuine budget margins.

4.1.
The abolition of national currencies could create
new difficulties for Member States in the event of an
asymmetric shock within the monetary union.

4.1.1.
An asymmetric shock means an unexpected
event with a direct or indirect impact on socio-economic
parameters: employment, production, inflation.

4.1.2.
By contrast to a symmetric shock, affecting all
the Member States’ economies in a similar way, an
asymmetric shock would affect one country or group of
countries only.

4.1.3.
An asymmetric shock may result from a natural
phenomenon (earthquake, etc.) or an economic situ-
ation, putting a country out of synch with the economic
cycle in the other Member States. It may also be triggered
by factors both outside and inside the country, or by an
inappropriate decision.

4.2.
In the past, devaluation was one of the tools
available to deal with asymmetric shocks. Obviously,
this avenue will no longer be open for countries belonging
to the monetary union.

The ECB meanwhile, will not be able to take
4.2.1.
account of the quirks of the economic cycles of each
participating country. Alternatives to devaluation will
have to be applied. Some of them will be largely the
responsibility of the social partners.

4.3. Other options place governments in the front
line.

4.3.1.
The most dangerous option would be one
compelling Member States, in the event of an asymmetric
shock, to indulge in all-out competition at the expense
of neighbouring countries. The battleground could
be in the area of taxation, environment or working
conditions, with a distinct possibility of an escalation.
Harmonization, especially of draft legislation in the field
of corporation taxes or taxes on savings, is all the more
necessary in the context of monetary union.

The ‘pact for stability and growth’ defined the
4.3.2.
principles that should guide Member States in the area
of budget policy. In the event of an asymmetric shock,
a state could always use available budget margins,
within the limits of the 3 % deficit ceiling. Social
spending and public budgets in the wider sense are the
main instruments which Member States may deploy in

4.3.3.
The limited scale of the European budget
vis-à-vis the gross domestic product of the Union,
will leave little room for automatic stabilizers. This
constitutes a major difference between the European
Union and the United States of America. The Treaty
nevertheless enables
to take specific
measures to benefit a single state.

the Council

4.3.3.1.
Article 100(2) of the Amsterdam Treaty states
that ‘Where a Member State is in difficulties or is
seriously threatened with severe difficulties caused by
exceptional occurrences beyond its control, the Council
may, acting unanimously on a proposal from the
Commission, grant, under certain conditions, Com-
munity financial assistance to the Member State con-
cerned.’

4.3.4. One aspect of monetary union that is all too
often ignored is mobility. Various studies on the United
States have shown that it is largely geographical mobility
that enables the country to adjust following an asym-
metric shock in a region. In Europe, there is far less
mobility. However, the latest Commission report on
employment showed that mobility in Europe is not so
weak after all. But there are major obstacles to the
mobility of non-Community migrants, people who are
dependent on social security benefits and, to a lesser
extent, unemployed people.

4.3.5.
In the past in Europe there was massive worker
migration to areas which had invited workers from
elsewhere. In the current climate of high unemployment,
there is a risk that mobility will foster racism.

4.3.6.
Such a risk must not be ignored, but should
not cause the issue to be wound up without due
consideration. The mobility issue must, in the Com-
mittee’s view, be placed on the Community agenda.
European integration cannot be allowed to develop into
a political union where only poor people or foreigners
are unable to circulate freely.

Governments are the first concerned by the
4.4.
implementation of the tools mentioned above. Other
avenues that may be explored in the event of an
asymmetric shock would put the socio-economic organ-
izations in the front line.

4.4.1. Wage flexibility is often quoted as a necessity
in monetary union. It could fill the gap left by exchange
rate fluctuation, particularly in the event of an asym-
metric shock.

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4.4.1.1. Differences in the levels of taxation and
similar charges create a considerable discrepancy in
European Union countries between the cost of labour
and the nominal wages received by workers.

4.4.1.2. Wage flexibility does not necessarily mean
undermining the purchasing power of the workforce. If
need be, wage deductions for collective and social
security benefits could be modified to provide a tempor-
ary buffer. Such a policy would enable a country hit by an
asymmetric shock to benefit from a quasi-devaluation.

4.4.1.3.
of social security and collective benefits.

This could of course undermine the financing

4.4.2.
The socio-economic organizations, with sup-
port from governments, in accordance with national
circumstances, must play an anticipatory role. The
principle would be to build up reserves when the
economy was thriving. Those funds would be used in
the event of a crisis to cushion the shortfall in revenue.
That approach would achieve a triple objective:

— engendering sufficient wage cost flexibility to cope

with an asymmetric shock,

— underpinning the purchasing power of the labour

force,

— guaranteeing stability for the funding of social

benefits.

4.4.3.
plementing this type of scheme.

Certain Member States are already im-

4.5.
Be that as it may, it is clear that not only the
socio-economic organizations are equipped to help a
Member State deal with an asymmetric shock. Other

Brussels, 2 December 1998.

tools, such as budgetary or fiscal policy, need to be
made available.

5. Conclusions

5.1.
In many respects, the introduction of European
monetary union is likely to alter the behaviour of
many of those involved, including the socio-economic
organizations.

5.2. Without genuine economic and political union,
the task facing the European Central Bank will not be
easy. To carry out its brief, the ECB has been given full
independence. The Committee is convinced that the
ECB would be well advised to launch exploratory
dialogue with both the political authorities (Council,
European Parliament) and the representatives of those
involved at grassroots level, particularly the Economic
and Social Committee.

5.3.
The socio-economic organizations will hold
important responsibilities under monetary union. They
will be directly involved in wage negotiations. In order
to avoid fuelling inflationary pressures, the economic
and social partners should seek to enhance coordination
between the different levels and fora conducting wage
negotiations. With monetary union, it will no longer be
possible for participating Member States to devalue in
order to correct a competitive disadvantage.

5.4.
Lastly, the socio-economic organizations could
usefully consider mechanisms for cushioning asymmetric
shocks. While the economic and social partners have
some tools at their disposal, important responsibilities
also rest with government authorities in the Member
States, which should, if necessary, be able to activate
stabilizers, using budgetary or fiscal policy in particular.

The President

of the Economic and Social Committee

Beatrice RANGONI MACHIAVELLI