Workers say zealous eurozone reformers are eroding their sacred rights

Union powers and workers' protections have been severely curtailed to make Europe's struggling economies more competitive. Some say the cuts have gone further than necessary.

When European Central Bank president Mario Draghi recently told German tabloid Bild "The worst is over," he was talking about government budgets and European banks’ balance sheets. But for millions of workers across the continent, the worst of Europe's economic crisis might still be coming.

The trade unions and their supporters complain that the eurozone crisis is being used to create a different social model within Europe, a model that has lesser rights for employees, limits the influence of the unions, and grants business more power.

European workers have long enjoyed strong protection of their rights, but trade unions warn of a campaign to limit those rights, squeeze wages, raise the retirement age, and soften regulations that protect against getting fired. Such measures have been portrayed as a necessary part of bringing national debts under control and making European businesses competitive, but they go beyond what is needed to overcome the debt crisis, the unions say.

“Europe is turning into an entrepreneur’s paradise,” says Apostolos Kapsalis from the Labor Research Institute in Athens, which is part of the Greek trade unions confederation GSEE. “And Greece is the lab rat in this European reform experiment. In Greece they are testing how far they can go.”  

The reforms, particularly in southern Europe, are far-reaching. In Greece the minimum wage has been lowered from €750 to €590, while unemployment benefits have been cut from €460 to €320 per month. Collective bargaining through trade unions has been replaced in many sectors by wage agreements between individual companies and their employees.

In Spain the retirement age has been raised from 65 to 67 and companies can now change working hours and wages without consulting the trade unions if a company is facing economic difficulties. Italy's new government under Prime Minister Mario Monti has also raised the retirement age and workers now have to pay contributions for a minimum of 42 years, rather than 40, to receive a full pension. Companies are legally entitled to undercut wage agreements reached by collective bargaining, Italy’s strict dismissal protection is going to be liberalized.

The governments in these countries are risking considerable social upheaval – most recently, hundreds of thousands of Spaniards marched in protest last week – by dismantling some workers' protections, and some observers question their motives. 

“If you look at measures like the lowering of the minimum wage in Greece, or the relaxing of hiring and firing in Spain, these have no direct impact on the state budget,” says Martin Behrens, expert on industrial relations at the Hans Böckler Foundation, a research institution of the German trade unions.

For Mr. Behrens such measures represent a certain idea of how an economy, and how a welfare state should be organized. “It is quite obvious that within the European Union and its institutions, the proponents of an unrestrained free market society have the upper hand now. For governments which depend on financial support from the EU, this has consequences for their budgetary and social policies.”

From 'sick man of Europe' to powerhouse

Those who support austerity measures often quote Germany as an example for a successful implementation. Here, years of wage restraint and the so-called Agenda 2010, a reform package introduced in 2003 by then-Chancellor Gerhard Schröder which liberalized the labor market and cut unemployment benefits and pensions drastically, are seen as important reasons behind Germany’s booming economy and its solid budgetary situation.

From being “the sick man of Europe” in the 1990s, Germany’s economy has turned into the most competitive on the continent. According to a study by Commerzbank, the output of the French and Italian car manufacturers combined shrank by almost 30 percent between 2004 and 2011. In the same period, German carmakers increased their output by 22 percent.

Turning Europe into the most competitive region in the world by 2020 was the official aim of the so-called Lisbon Agenda, an EU initiative launched in 2000. Ten years later, with Europe in the grip of its worst economic crisis since World War II, the Lisbon Agenda was silently buried and replaced by Europe 2020, a more modest strategy aimed at “reviving the European economy.”

The current course, which demands sacrifices from large parts of the working population in the eurozone, is welcomed in the business world. “Prime Minister Monti is very much in line with our view of the situation,” said Emma Marcegaglia, head of the Italian industry association Confindustria.

But German trade unions point at the price to pay. While Germany’s unemployment rate is at a 20-year low of 7.2 percent, and while three quarters of the German population profited from the labor market reforms, one quarter did not. One quarter of all employees work for a low wage, every fifth child grows up in a household officially rated as poor. And the number of pensioners below the poverty line will grow faster in Germany than in any other Western economy, according to the OECD.

Hardly surprising, in southern Europe it is this side of the story people like Greek researcher Mr. Kapsalis remember. “The German miracle is not a miracle for everyone," he says.