Towards growth and a “social contract” for Europe

European leaders should shift their focus from austerity to growth, not least to fight unemployment, says the ETUC, which urges a Social Progress Protocol to be attached to the European treaties. 

The received wisdom in Europe today is that austerity and budget discipline are the way out of the deep crisis that Europe faces. Cutting pay and social welfare, attacking bargaining mechanisms and making employment contracts ultraflexible: that is the current paradigm, the Berlin-Brussels consensus, offered as the way forward and enshrined in the Fiscal Compact agreed by most EU governments last January.

This solution is not working and will not work. It stifles growth and blocks job creation. We can no longer ignore its disastrous social consequences and the subsequent rise of nationalism in many European countries, which brings into question our solidarity-based values. We need to change the narrative.

The OECD and the International Labour Organisation say that austerity without growth is a dangerous deadend. International Monetary Fund (IMF) managing director Christine Lagarde has expressed concerns on behalf of the organisation. Even credit rating agencies have joined in the chorus.

Now the need for growth is being voiced increasingly in Europe. Mario Draghi, president of the European Central Bank (ECB), has suggested complementing the “Fiscal Compact” with a “Growth Compact”, and Herman Van Rompuy, president of the European Council has sent a letter to the heads of state encouraging them to foster growth. Angela Merkel is also calling for growth. We even hear that a “Marshall Plan for Europe” is under discussion, though Berlin denies it.

The reality is that concrete proposals commensurate with the disaster before us are missing, in stark contrast to the sharp minutiae of the fiscal plans now on the table. The ETUC is for sound budgets, but the fiscal compact calls for a balancing social contract. We can now hope for a major step change, impulsed by the new French president.

On 18 April the European Commission issued an employment package: “Towards a jobs-rich recovery”. While the proposals rightly put the focus on the daunting challenge of tackling high and persistent unemployment, there are major reservations about their ability to deliver. Unemployment is hitting a new record. Youth unemployment is endemic; it affects nearly half of young Spanish people. Poverty is increasing and 8% of Europe’s active population now faces extreme poverty. In this dire situation, the response offered by European leaders is to tighten the screws. The Fiscal Compact, enshrined in an international treaty setting budgetary discipline in stone, backed by sanctions, does not respond to mounting problems with employment and job insecurity. The treaty only addresses these challenges in accounting terms, without any political vision.

Inequality is growing. Social movements are emerging to protest against injustice and insecurity. Social justice must be the top priority on all political agendas at both national and European level. If European leaders drop this priority to focus on austerity measures alone, particularly in countries that are already in difficulty, we should not be surprised if poverty levels increase and if inequality leads to social and political instability. Europe’s trade unions are advocating a social and democratic Europe, not the budgetary, financial and technocratic Europe that has been presented. The recession will make an already poor social situation even worse.

The existing framework for European economic governance consists of the European semester, the Euro Plus Pact and the “six pack”. Thanks in large part to the efforts of European trade unions and their members, the “six pack” that came into force last year includes a clause stipulating that national systems of collective bargaining must be fully respected. A similar notion appears in passing in the international treaty, but whether it is just is open to doubt.

The crisis is also used as a pretext to tell us that a drop in pay would free up competitiveness and boost the economy, leading to a win-win situation. However, the ETUC believes that wages are a driver of economic growth rather than a barrier to it. If the rules of economic governance focus on wages and working conditions as factors for competitive adjustment, countries will compete in terms of wages, working conditions and, more broadly, social spending. And workers again shoulder the burden.

The European social model safeguards social cohesion. It was developed as part of a social understanding that emerged in western European nations out of the ashes of the Second World War and covers public services, social protection and collective bargaining. But now neo-liberal forces are using the crisis to bring the social model into question. For them, social protection and decent wages hinder economic recovery and the very foundations of a model of cohesion and solidarity are anathema.

Undermining social cohesion means weakening political stability too. Social exclusion and uncertain futures pave the way for populists who advocate national self-sufficiency as a cure for all ills. The rise of the extreme right in Europe should give us cause for concern. European leaders and all defenders of deregulation must take this rampant phenomenon into account because some measures, such as austerity, feed into it.

©Reuters/Wolfgang Rattay

There are alternatives. The European Union needs an economic union with a strong social dimension. What we need is a real recovery plan for employment and lasting growth. We want Europe to sign a social contract, not just a fiscal pact. Europe needs investments for a sustainable, green economy. This should include investments in the transport and energy sectors. Europe needs an industrial policy that invests in leading edge sectors and the sectors of the future.

The ECB must have a clearer mandate and should aim to promote price stability, full employment and the convergence of financial conditions among member states. The ECB should be required to act as a “lender and buyer of last resort” for sovereign debt, which should be partially pooled through euro-bonds.

There should be a wage safeguard clause, imposing full respect for the autonomy of social partners to bargain collectively and preventing the fiscal pact from interfering with wages, collective bargaining systems, collective action and unionisation.

We need provisions to safeguard growth: the exclusion of public investments that support potential growth from the “balanced budget rule”; protection of the public revenue sector through a financial transactions tax, by committing to tackle tax evasion, fraud and competition; and a structural role for European social dialogue to avoid a blind implementation of rigid economic rules that could harm the economy.

A Social Progress Protocol must be attached to the European treaties to guarantee the respect of fundamental social rights. The ETUC is advocating a “social contract” for Europe. Such a contract would prioritise investments in support of a sustainable economy, quality jobs and social justice, while combating inequality.


Ségol, Bernadette (2012), “The Crisis: the Response of the European Trade Unions”, Global Labour Column Number 88, February. 

Coats, David, ed (2011), Exiting from the crisis: Towards a model of more equitable and sustainable growth, TUAC, ITUC, ETUI.

The European Trade Union Confederation 

The Trade Union Advisory Committee to the OECD (TUAC) 

©OECD Observer No 290-291, Q1-Q2 2012

Economic data

GDP growth: -9.8% Q2/Q1 2020 2020
Consumer price inflation: 1.3% Sep 2020 annual
Trade (G20): -17.7% exp, -16.7% imp, Q2/Q1 2020
Unemployment: 7.3% Sep 2020
Last update: 10 Nov 2020

OECD Observer Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Digital Editions

Don't miss

Most Popular Articles

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2020