Commission calls for reforms to address wage stagnation

Commissioners Valdis Dombrovskis, Pierre Moscovici, Marianne Thyssen, during the presentation of the European semester's autumn package. [European Commission]

The European Commission told member states on Wednesday (22 November) to prioritise policies that support wage growth, in light of the economic pain still suffered by many Europeans.

The Commission presented a package of documents that set the tone for the EU’s economic and fiscal policies for next year, as part of the bloc’s macroeconomic, fiscal and social policy coordination (the European semester).

Vice-president for the euro, Valdis Dombrovskis, told reporters after the college of Commissioners adopted the package, that Europe is benefiting from a “strong economic recovery”.

European economy beats expectations as risks decline

The European economy is enjoying a period of positive momentum as growth spreads across all member states, public accounts are expected to look healthier and risks are balanced for the first time in a long while, the European Commission concluded on Thursday (9 November).

However, “it is true that not all citizens are feeling this recovery”, although companies are seeing revenues increasing and governments are accumulating fiscal cushions.

“Wages are rising only slowly,” the Commission noted in the documents.

Asked if the Commission would support a pay rise, Dombrovskis said the European semester is putting “strong emphasis on inclusive growth and the strengthening of the social dimension”.

This emphasis is reflected in the Annual Growth Survey, a document setting the priorities that will frame the country-specific recommendations addressed to the capitals in spring.

“There is scope for supporting the continuation of the recovery, notably via structural reforms that create the conditions for boosting investment and increasing real wage growth in support of domestic demand, supporting internal and external rebalancing in the euro area,” the survey reads.

This year’s document put special emphasis on this issue, in particular on policies “to help the workforce to acquire the skills needed and promote equal opportunities in the labour market, fair working conditions, increasing labour productivity to support wage growth, and sustainable and adequate social protection systems.”

ECB keeps easy money pledge despite better growth

The European Central Bank left its ultra easy monetary policy stance unchanged as expected on Thursday (20 July), keeping rates at record lows and even leaving the door open to more asset buys if the outlook worsens.

Organisations including the IMF and the ECB have expressed their concern in regards to wage stagnation in Europe.

What reasons?

Speaking to the European Parliament last Monday (20 November), ECB President Mario Draghi said the bank so far found no “convincing evidence” to explain why wages are stagnant in Europe. As part of possible explanations, he mentioned low productivity, the priority given by employees to job security over pay rises, and wage negotiations being backwards-looking.

Despite being in the fifth year of the recovery, wages rose only by 1.6% at the end of last year, well below the historical average of 2.1%.

The deputy secretary general of the European Trade Union Confederation, Katja Lehto Komuleinen, welcomed the executive’s call for a pay rise and reforms aimed at increasing the wages. But the workers’ organisation said that this call should not be limited to countries with budget surpluses.

Central and Eastern Europe trapped in low wage spiral

Low wages have been harming Central European economies since the crisis. According to a recent study, salaries fell to below 30% of the German average while productivity grew steadily. EURACTIV’s partner La Tribune reports.

“The Commission is right that there is not enough convergence of living and working conditions across Europe. This is why investment, including public investment, is needed in every EU country, and why the east-west pay gap needs to be tackled with pay rises across the whole EU for upward wage convergence,” she added.

Commissioner Marianne Thyssen, in charge of Employment, pointed out that the recent adoption of the European Pillar of Social Rights should help as a compass to progress toward better convergence among the member states.

‘Let’s do our work’ on social policy, Juncker tells member states

Europe’s credibility hinges on national leaders agreeing social legislation that applies across the bloc, European Commission President Jean-Claude Juncker said on Friday (17 November) at a summit with leaders from EU countries in Gothenburg, Sweden.

Letter to Italy

As part of the European semester’s autumn package, the Commission assessed the draft budgetary plans submitted by all eurozone’s national governments, except Greece (under the bailout programme).

Five of the 16 countries with deficits below the 3% of GDP threshold showed a risk of non-compliance. But only Italy was a source of particular concern to the Commission, given the “persisting high government debt”

For that reason, the executive decided to send a letter to the Italian authorities and ask for more information on how they intend to meet its debt-reduction trajectory.

Moscovici: Italy, Portugal, Spain fiscal progress 'good news'

Portugal, Italy and Spain became yesterday (22 May) illustrative examples of the new period Europe enjoys. The executive congratulated Lisbon and Madrid for turning their economies upside down, just one year after they became the first countries that breached the fiscal rules, while it gave its blessing to Rome’s adjustments, one of the eurozone’s troublemakers.

The Commissioner for Economic Affairs, Pierre Moscovici, said the executive’s role is “never to cause problems or to point the finger at anybody”.

“We are here to find solutions through dialogue and that is the spirit in which the letter is intended,” he added as he recalled how the situation is improving in Italy.

The list of countries with deficits above the 3% ceiling shrank further as the Commission decided to close the excessive deficit procedure for the UK.

The executive’s autumn forecast confirmed a “timely and durable nature” of the correction of the UK’s deficit during the fiscal year 2016-2017.

Spain, which was sanctioned for breaching the fiscal rules last year, could exit the deficit procedure in 2018. Its deficit is expected to reach 3.1% of GDP at the end of this year, but Moscovici did not rule out a “nice surprise”.

Its budget was found broadly compliant with the EU requirements although it was sent without new measures as a result of the Catalan crisis.

Meanwhile, France’s national budget, the first one under Emmanuel Macron’s presidency, was “at risk of non-compliance”.

Still, Moscovici said while presenting the forecast in November that France could exit the excessive deficit procedure next year.