Experts argue over impact on employment

Date: 28/11/1996

By Michael Mann

WILL the great dream of EMU create or destroy jobs? It is often said that a lot of different interpretations can be put on the same information. This has never been truer than in the debate on the employment consequences of a single currency.

Economics Commissioner Yves-Thibault de Silguy is in no doubt that the EU's principal ideological goal of monetary union is perfectly compatible with its most pressing social goal of getting Europe's 18 million jobless back to work.

“Lots of work has been done on this. What we do not do is present arbitrary figures on the positive or negative effects of EMU. But we are convinced that the impact of the euro will be positive for jobs,” said one of his aides.

The Commissioner has often focused on the unemployment issue during his charm offensive to sell the euro to an increasingly sceptical public.

He points to a sharp reduction in the jobless total in Denmark between 1982 and 1986 resulting from strict budgetary consolidation. In the same way, the growth in France's public deficit between 1989 and 1993 saw unemployment rise from 9&percent; to 12&percent;.

Wim Duisenberg, who becomes head of the European Monetary Institute in July next year, believes that “although the direct effect of EMU on employment in the EU is not likely to be large, the indirect effect will be substantial and overwhelmingly positive”.

Not everybody agrees. British Labour MEP Ken Coates, for one, has suggested the headlong rush towards EMU could cost as many as 10 million jobs.

Coates claims the process must be accompanied by wide-ranging structural measures based on special Union bonds and expanded involvement from the European Investment Fund.

Commission officials describe as “irresponsible” attempts to quantify the supposedly negative effects of EMU using what they claim to be outdated Keynesian economic models.

But the pessimists' warnings have gained credence in the light of recent protests around the Union against governments' efforts to tighten their belts in a last-gasp attempt to meet the convergence criteria.

A forthcoming report by the UK's Employment Policy Institute (EPI) highlights the problem facing the champions of EMU.

“The evidence seems to suggest that the euro could become hard pretty rapidly as part of a low interest-rate regime, which will be good for jobs. The problem policy-makers face is that the pain involved in getting there means the process has been tainted as a job destroyer,” said an EPI analyst.

The report calls for a distinction to be made between the EMU process itself and the recent fiscal policies of Union governments, which have been deflationary and have largely stifled attempts to stimulate growth and job creation.

With its members in the front line of any employment market changes, the European Trade Union Confederation (ETUC) has been monitoring the move towards monetary union carefully. A supporter of the ultimate goal, the ETUC nonetheless cautions against paying too much attention to 'budgetary discipline' and 'convergence' at the expense of other, more tangible factors.

“The stress post-EMU must be on ensuring not just that solid foundations of stability are maintained, but that they are built upon so that jobs are created and living standards improved. The link in many people's minds between EMU and unemployment must be broken,” says General Secretary Emilio Gabaglio.

The unions argue that when member states are drawing up stability programmes, they should be required to set targets for growth, employment and investment as well as inflation, interest rates, public debt and deficits.

The ETUC believes the key to ensuring a decent balance between social and economic considerations lies in adding an employment chapter to the EU treaty, an initiative being spearheaded at the Intergovernmental Conference by the Swedish government.

The employment effects of the euro will depend to a very great extent on the attitude of the new European Central Bank. Former French Prime Minister Edouard Balladur made this point clearly last week in expressing his preference for a model based on the American Federal Reserve, with its concentration on jobs and growth, rather than the German Bundesbank, “which is obsessed with inflation in a world where there is no inflation”.

Though they might disagree wholeheartedly about the outcome of the EMU project, member states still trying to decide whether it is a good idea to sign up or not face the same problem. By the time they actually find out, it will be too late.