Wages in Europe

The Great Recession has had a major impact on how wages are determined in Europe. The implementation of the "six-pack" of 5 laws and a directive, the power given the European Commission to monitor EU Member States' economic performance, and the wage cuts and reduction in working hours have been a product of the Great Recession in the EU.

The approval of the "six-pack" in the EU on October 4th 2011 has had a significant impact on the determination of wages in the EU. EU Members States that do not comply with the EU Stability and Growth Pact, or find themselves in a macroeconomic imbalance position, will have broken the "six-pack" of five regulations and one directive implemented by the Council of the European Union and face a sanction of a yearly fine of 0.1 or 0.2 per cent of GDP (Erne, 2012). The Commission was empowered by the EU to create these procedures without democratic influences, and they in turn used broad legal definitions such as "imbalances" to allow the Commission to bend the meaning of the regulation as it pleases (Erne, 2012). This means that a small group of powerful elite EU experts are determining socio-economic priorities such as wages rather than Unions or Governments (Erne, 2012).

The Commission is bound by Article 1.3 of the Regulation No 1176/2011 to respect the bargaining autonomy of the social institutions and national practices of wage formation (Erne, 2012). But in practice, the Commission and the ECB have shown that they can affect the wage setting-processes in various ways, including "the provision of information or wage rules, changes in wage-indexation rules and the signalling role played by public sector wages (European Commission 2010: 15)." The Commission has, through the Troika's memorandum of understanding in Ireland, attempted to make the wage setting process more efficient by reviewing sector minimum wage agreements and attempting to eliminate them where possible (Erne, 2012). This effectively severs the Irish Union's capacity to set binding sector-wide wage rates (Erne, 2012).

Hayek (1997) argues that the use of economic agencies such as the Commission, free from the constraints to domestic popular pressures would enhance the quality of economic policy outputs. But the power wielded by the Commission and ECB over struggling EU member state Governments can lead to the implementation of extreme business friendly measures (Erne, 2012). Measures such as the decreto legge, ordered by Mario Draghi and Jean-Claude Trichet in Italy in 2011, called for out-right wage cuts and the hollowing out of collective bargaining structures in the country, and the sale of local public services (Erne, 2012). The power held by the ECB and Commission to overrule national institutions is evident in implementation of the decreto legge, which disregarded the national referendum held 8 weeks earlier that saw 95.5 per cent of