This is the abstract for a paper I recently presented at the European Consortium for Political Research (ECPR) conference in June, and the focus of a poster presentation I will be giving at the American Political Science Association (APSA), Washington, in Early September. The core question behind the paper is whether national or sectoral wage bargaining systems can internalise the constraints of the EMU and act strategically. European integration in currency and product markets has occurred without a corresponding political embeddedness at transnational EU level. This is often characterised empirically as a ‘institutional deficit’, or normatively as a ‘democratic deficit’. The policy decisions available to national governments in a monetary union are limited: fiscal and labour markets. Cost adjustments, due to the constraints of the EMU must be bourne by those who sell their labour. This assumes downward pressure and flexibility in wages. However, labour markets are the most regulated of all markets. Thus, the question is whether we will witness a liberal approach to employment and a corresponding laissez-faire attitude of government or a coordinated collective bargaining response? Collective bargaining regimes (institutions of wage setting, trade union density, bargaining coverage) condition the political response to the economic crisis. In terms of economic performance those with embedded and coordinated labour relations will be better placed to tackle the jobs crisis, maintain existing levels of employment and generate sustainable tax revenues.
The economic crisis is a collective action problem. In the absence of currency devaluations and high fiscal deficits eurozone governments are faced with the painful social process of competitive wage devaluations. This paper examines the strategic choices facing government and organised labour in how they respond to this problem. It will argue that the EMU contains an implicit neo-classical assumption that labour markets will automatically adjust to downward wage flexibility. This ignores the politics of collective bargaining and national structures of wage coordination. Labour relations systems are the most regulated of all markets. Based on this institutional embeddedness the paper will outline a typology of strategic choices facing government: neo-liberal economic orthodoxy, national concertation and euro-coordination. The paper will then argue that the structural pre-conditions of collective bargaining will mediate what strategy governments and organised labour adopt. It will subsequently examine the case of a peripheral economy in the EMU; Ireland, who tried and failed to negotiate a national concertation pact in 2009. The article will conclude by outlining why a Euro-coordinated investment strategy is the most optimal and logical solution for solving the collective action problems facing EMU countries in the current crisis.