- The position of the German trade unions
Gustav Horn recently defended (see here) the unions against my accusation that they hold back too much in tariff policies (see here). Horn argues that if the unions could do as they wish, everything would be fine. In such a situation, they would indeed fight for higher wages, deflation in Europe would disappear and the German competitiveness would be significantly reduced. But, says Horn, the balance of power in the labour market prevents such actions. And for this, the unions cannot be blamed. He concludes by writing that:
“To blame only the unions for the unsatisfactory result is a very asymmetric approach.”
I thought by myself that it sometimes good to wait for a moment before replying, because every few weeks the unions themselves provide the best proof that his claim is simply untrue.
In the meantime, it is so far again. The most important German trade unionist, DGB-leader Reiner Hoffmann, was asked by Spiegel Online to give a reaction and how to explain how, in his opinion, the EU should be reformed. Hoffman responded by writing up a guest contribution (see here). Hoffman repeats Horn’s point: the unions lack the power to push policy in the right direction and this is not their fault. Well, fine. What could a trade unionist, who agrees with Horn’s position that Germany should raise wages in order to save the euro, write in response to the result of the Brexit referendum?
There is no doubt that he could rehearse some variation of a sentence that reads that Europe is not just a realistic option as long as Germany stubbornly goes on to refuse to discuss and alter its mercantilism, its absurd conception of the proper role of government in the economy and its refusal to allow fiscal stimulus policies. Hoffmann could write that it was a severe mistake of the last four German governments to focus on wage moderation. He could write that by now even the greatest doubters have to acknowledge that a monetary union can never be successful without strong unions. He could write that the monetary union cannot function without the assumption that unit labour costs in all countries rise year after year, implying that rising real wages grow in the longer term in accordance with productivity growth everywhere. If this does not happen, inevitably a redistribution in favour of capital is taking place, but this cannot be done without breaking up the euro zone. The consequences are too destructive. He could add that this is the reason why German workers need significant supplements to the normal increases, because this is the only way in which their European co-workers can have a chance to even out the situation with Germany and to prevent a collapse of the euro. What is more, he could have insisted that this is urgent in view of the danger that right wing nationalist parties are gaining ground.
- What do the trade unions want?
The drama is that Reiner Hoffman wrote nothing of this. He argued for a social Europe and for the fight against youth unemployment. Who prevented him from addressing the real problems, which, as Horn admits, are extremely closely related to the German wage policy? Was it the employers? Has the powerlessness of the German trade unions become so dominant that they no longer dare to say and write that what is clearly true?
No, if you understood the European problem or you want to understand it, you need write and act differently. It is impossible that a German top trade unionist, who worked for a long time in Brussels, knows nothing about the German problem. If he knows it and he continues to writes as if it does not exist, there can be only one conclusion: he wants, like almost everybody else in Germany – including, of course, the employers – obscure the basic fact that it was German wage dumping which drove a fatal wedge into the EMU. He tries by loud whistling in the dark to make the untenable German position look tenable. And this is fatal for organisations such as the trade unions.
One can, as I have said in many contributions again and again, not condemn the German trade unions for the emergence of the wage gap in the past fifteen years.
Figure 1.
Figure 1: The German wage gap.
It was a red – green government, which misdirected the economy on the basis of a nonsensical economic theory, that is responsible. It was this government that chose to pressure wages. The lacking readiness of and the capability to fight of the trade unions also played a role. If now the unions proceed to rationalise their former actions by concealing the consequences of these actions, they make themselves co-responsible for this mercantilist and – for the European partners – destructive policy.
- European wage divergence has to disappear
I explained on several occasions that there can be no functional monetary union if it is not possible to correct wage policies over the long term. This works neither in a neoclassical nor in a Keynesian conceptual framework (see, for example here). If Gustav Horn says, ‘Sorry, but the unions are simply not strong enough,’ one has to reach the conclusion that the monetary union must be dismantled immediately, because, as we know now firsthand, the Germans unions are not strong enough to correct the imbalances that have been created over time
Horn writes:
“Under these circumstances, it is in the best scenario only possible to achieve a common rule that deals with wage evolution in the long term. It is illusory in the current situation. Criticism about the lack of European alignment of wage development in Germany may be justified, but it remains the talk of Pharisees. Rather, the requirement is to initiate a laborious and lengthy process that construes European wage bargaining structures so that sustainable results can be accomplished.”
Well, then you just have to hurl at all committed Europeans who are all ‘Pharisees’ that it was all a big mistake! End the monetary union immediately! The German trade unions cannot, under any circumstances, provide the material you need for the construction and maintenance of a successful monetary union!
If that is indeed the case, the unions and their academic advisors are in actual fact only helping those who argue for the breakdown of the monetary union. However, until now, no one has heard anything about it. The loud silence of the union leaders in terms of a serious diagnosis, or as the Chancellor says, a “honest analysis” of the European problems, speaks volumes. Let’s not make ourselves any illusions: even those – like myself – who consider strong unions as absolutely indispensible and have always been willing to assist, cannot help but to reach the conclusion that at this moment in Germany a coalition of trade unionists and employers exist who, against all reason, try to cover up the German mistakes of the past and want to proceed as if nothing ever happened.
P.S.: Incidentally, it is factually incorrect when Horn and many others refer to a different financial policy as a possible solution to the European problems. It is true that Europe also needs another fiscal policy. But, first and foremost, the price and wage relations in Europe need to be corrected. Fiscal policy cannot achieve this. It is absurd, to say the least, to hope that German fiscal policy, in whatever conceivable political constellation, will decrease unemployment during the following coming years to such extent that the bargaining position of the German trade unions will increase so much that they will be able to successfully use their improved bargaining power to push for European corrections in labour relations.