Jobs pact becomes laboured process

Date: 15/04/1999

Ambitious German plans for an employment pact for Europe have been scaled back so much that they are unrecognisable. Tim Jones explains why

EVER since the single market glinted provocatively in Jacques Delors' eye, vote-hungry politicians have talked about balancing commercial freedoms with a strategy to protect old jobs and create new ones.

The upshot has been more an attitude than a policy, known in Brussels shorthand as 'social Europe', and its philosophical core is a willingness to think about jobs first and markets second.

The social charter, which first laid down minimum standards for equal opportunities, working hours, rights for migrant workers and labour union recognition, is now ten years old.

A decade on, Germany's government of Social Democrats and Greens is trying desperately to salvage the European employment pact it unveiled last autumn; first as a job-creating contract with the people and now as a bland wish-list.

The previously ambitious pact, which will be discussed in detail for the first time by EU finance ministers this Saturday (17 April), was not hacked to pieces by 'liberal' opposition to job protection but by the realities of other Union policies.

Employment policy - like those to protect the environment or promote equal opportunities for women or black people - cannot operate in a vacuum. Protecting and fostering jobs permeates all aspects of policy; ranging from the tax levels which governments set at every budget to the cost of borrowing, now established fortnightly by the European Central Bank.

Everybody's favourite model for a 'pact' to create jobs - the 17-year-old Wassenaar Treaty between the Dutch government, labour unions and employers - was in fact a much more general agreement to redirect macroeconomic policy.

The unions, then led by the current Prime Minister Wim Kok, came to a realisation that the country's centralised wage formation process was fatally flawed. The productivity of the Netherlands' competitive export sector was setting the pace for pay rises across the economy, with the result that jobs were being steadily shed elsewhere.

With the treaty, the unions accepted greater fragmentation of wage bargaining into sectors, and the result has been a halving of unemployment over nearly two decades.

Germany has not even started down this road yet, while the French, Belgian and Spanish labour markets still favour those already working ('insiders') over the under-25s. The British system has, if anything, become too fragmented and reliant on unqualified workers.

The real work on finding employment needs to be done at home. Yet over the past three years as never before, it has become accepted that governments should campaign in Brussels for an EU-wide expansionary policy to create jobs.

It always sounds good. In 1993, this approach formed the basis of the then European Commission President Jacques Delors' White Paper on Growth, Competitiveness and Employment, which argued that globalisation and the internal EU market for goods, services and capital required a multinational approach to job creation.

The idea of Trans-European Networks - a €100-billion web of cross-border transport, communications and energy transmission projects - was revived from a hidden chapter of the Maastricht Treaty as a job-generating tool. But Delors' campaign for large amounts of money to be allocated by the EU to help finance the schemes fell on the deaf ears of finance ministers, who were tightening taxpayers' belts in the run-up to monetary union.

Within a year of taking office, Delors' successor at the Commission, Jacques Santer, had resuscitated the plan under the new name of a 'confidence pact for employment'.

At a summit in Florence in 1996, he came within a whisker of persuading former German Chancellor Helmut Kohl to approve an extra €1 billion for the TENs projects. His failure meant that the pact had to concentrate on bringing the Brussels representatives of the EU's trade unions and employers together to discuss wage and benefits trade-offs they could not possibly deliver back in the member states.

While well-meaning, the pact was always a political gesture. Nevertheless, the left in France, the UK and Germany believed the propaganda claims that Delors and Santer had been defeated in their job creation plans by an alliance of right-wing, penny-pinching governments in Bonn and London.

On coming to power in mid-1997, French Socialist Premier Lionel Jospin and his cabinet called for the pact to enforce budgetary discipline in the euro zone to be supplemented by a commitment to protect and create jobs.

In the end, they settled for the blandest of declarations by the June 1997 Amsterdam summit, a promise to hold a 'jobs summit' in Luxembourg four months later and a new programme to invest in 'human capital' by the European Investment Bank.

Under its Amsterdam Special Action Programme (ASAP), the EIB has invested more than €3 billion in infrastructure for universities, schools and hospitals, and lent €500 million via local venture capitalists to small, innovative firms.

Not to be deterred, the German coalition decided to make the same pledges after it took office last autumn. Its short-lived Finance Minister Oskar Lafontaine pursued a strategy of higher effective business taxes and cajoling the ECB to cut interest rates, while Chancellor Gerhard Schröder sought a Bündnis für Arbeit (Alliance for Jobs) at home and a European employment pact on the Union stage.

Its high point was last December's EU summit in Vienna. In the run-up to the meeting, Schröder and Jospin agreed to turn the vague talk about fighting unemployment into an agreement with real teeth. The Union would at last show its commitment to job creation by setting countries quantified targets and establishing sanctions for non-compliance. The accord would have been as tough as the 'stability pact' to ensure EU budgetary discipline.

That was as far as it got. For all their excited post-Vienna rhetoric, nobody meant it - except perhaps for Luxembourg Prime Minister Jean-Claude Juncker.

There was no way any government was going to set itself a target for creating jobs. Too many variables (multinational investment decisions, commodity prices, crises in Asia and Latin America, and even US stock prices) could knock it off course. Even Lafontaine refused to set himself a target for Germany alone within days of the ink drying on the Vienna summit's conclusions.

As a result, the German labour ministry did not know what to do with the pact as the new year began. Employment policy negotiators waited with bated breath. When the proposal arrived, it was a mouse. The Germans had given up their ambitious plans. Their most controversial idea - to “monitor and analyse wage trends” - fell far short of the quasi-incomes policy sought by Juncker, and smacked too much of wage-pegging for the UK and Spain.

Six months after they unveiled their ideas for a new direction for EU jobs policy, the Germans had fallen back on the same procedures established by the Luxembourg jobs summit in November 1997.

German Labour Minister Walter Riester has tabled extra proposals for pooling ideas on getting under-25s back to work and helping jobless people with disabilities, but these are hardly new or ground-breaking. The prescriptive approach has gone. Instead, Riester wants fellow ministers to study the ambitious youth employment schemes implemented in Denmark, Sweden and the UK. Bench-marking is back.

To cap it all, three years after Santer lost his campaign for an extra €1 billion for TENs as part of his confidence pact, the Berlin summit rejected the Commission's call for TENs funding to be doubled between now and 2006. They allocated €200 million less each year to the projects than Transport Commissioner Neil Kinnock had demanded.

If the pact is agreed on schedule at the Cologne summit in June, it will be a shadow of its former self. Judging by the usual EU political cycle, the employment lobby will have to wait approximately three years for the next round of rhetoric about jobs pacts.