The Impact of the ‘Great Recession’ on European Industrial Relations

The origin of the European economic crisis can be traced to the reckless behavior of banks in private global finance markets. In Germany, several years of wage restraint depressed domestic demand. To stimulate economic growth the ECB maintained historically low interest rates which created a surge in interbank lending. This had the perverse effect of creating a surge in cheap credit for peripheral countries with lax domestic financial regulation. Irish banks borrowed the equivalent of 60 percent of GNP on international wholesale money markets in 1997. By 2007 this had risen to over 270 percent. Most of this was channeled into property speculation. The result in Ireland and Spain was a colossal real estate boom. The rapid rise in house prices was considered ‘good inflation’. Credit was issued on the basis of property values not real wages. The effect was a boom in domestic demand and increased employment growth in construction. This bubble inevitably burst. To prevent the collapse of the international financial system, European governments socialized the bad debt of private banks. The outcome is a sovereign debt crisis.

In the absence of currency devaluations or exchange rate adjustments trade unions and government are now faced with the painful social process of wage devaluations and public spending cuts. This places the entire burden of adjustment on to the labour market. The construction of the EMU in the absence of political union generated structural imbalances across the European single market. Seventeen countries with diverse labour, fiscal, and wage policies adopted a shared currency. This institutional diversity meant that each country adjusted and internalised the constraint of EMU in different ways. It also meant that there was significant variation in how member states responded to the economic crisis. Domestic political coalitions and the configuration of national labour relations systems have led to different procedural and employment outcomes. Ireland has adopted a market rather than a negotiated adjustment whilst Germany and Finland have adopted a collective bargaining response. Irish unemployment has soared to 14 percent whereas it has remained relatively stable in Germany and Finland.

There is a technical consensus emerging amongst European elites that a shared monetary union is not possible without coordinated fiscal and labour market governance. The decisions taken in response to the Eurozone crisis, therefore, will have significant implications for national institutions of labour relations. To understand the process and trajectory of change that is underpinning the next phase of European adjustment requires a theoretical and empirical analysis. This is precisely what Maarten Keune and I will do in our comparative political economic study of Ireland, Germany and Finland. We will examine variation in trade union density, collective bargaining coverage, wage setting institutions and labour regulations to assess how these institutions condition actor strategies in response to the crisis. In this regard it is a theoretical contribution to the future evolution of national labour relations in the context of European varieties of capitalism.

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