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Economy

ORIGINAL FRENCH ARTICLE: Un document antisocial préparé dans le secret

by Gaël De Santis

An Anti-social Document Prepared in Secret by the European Commission

Translated Monday 14 March 2011, by Henry Crapo and reviewed by Henry Crapo

The Secret Pact: its complete text, here presented as obtained by the European Deputy Patrick Le Hyaric.

"Improved Coordination of Economic Policies in the Euro Zone" [1]

Danger! It contains the program of social regression that the states of the Euro Zone intend to implement in order to satisfy the voracious appetites of the financial markets.

For commentaries by members of the staff of l’Humanité, see the linked series of articles

Introduction by the journalist of l’Humanité

This document, dated 25 February and prepared by the president of the Commission, José-Manuel Barroso and the Council president Herman Van Rompuy, is the most recent avatar of a series of texts aiming to make the people pay for the debts contracted by the states in relation to the financial markets, ... debts contracted in order to save those markets. This test was presented last week to the countries of the Euro Zone, in order to prepare the extraordinary summit meeting on Friday.

At the end of that meeting the heads of state and of governments announced the dawn of a new era, that of coordination of the economic policies of the member states.

In fact, this is a headlong rush to implement ineffective policies.

As proof, the financial rating of Greek debt was lowered on Monday. As a result, Athens had to borrow money yesterday at an interest rate higher than that of a month ago. For the moment, the response of the European Union has been to create a European Fund for Financial Stability [2]. This fund borrows on the financial markets, with guarantee of payment by the states of the Euro Zone. The money thus raised is then loaned at 5 to 5.5% to states strangled by the markets. Up to now, Greece and Ireland have benefited from this type of arrangement.

But to provide for a continuing existence of such loans, Germany demands of its partners an iron-clad budgetary discipline, and an application of recipes it has prepared: moderation of salaries, increasing of the age of retirement, etc.

On 12 January, in a communication, the Commission made propositions in this sense. They were recycled and worked over the beginning of February, in the form of a "Pact for Competition" [3]
agreed to by the German chancellor Angela Merkel and Nicolas Sarkozy.

This is the most recent draft, which we present to you. It was concocted without consulting either the European Parliament or the national assemblies. This secret text is worse that the Treaty of Lisbon, in that it intervenes in domains heretofore of national competence, such as training of workers and systems for retirement.


The Complete Text

Improved Coordination of Economic Policies in the Euro Zone

Principal Elements and Concepts

The objective of this text is to deepen the economic pillar of the monetary union by encouraging the convergence of the economies of the Euro Zone. This requires a shift towards a higher degree of coordination of policies, in particular in domains of national competence that are essential in order to increase competitivity and to avoid any troublesome disequilibrium. In those domains that are of European competence, the legislative and other procedures will be fully respected. Competitivity is indispensible if we are to produce higher earnings for our citizens and development in the medium and long term.

1. Conditions for Success

To be effective in the political sphere, a pact must fulfill four conditions:

- a. It should be aligned with economic governance presently existing in the European Union, and should offer added value. The pact should be aligned with existing instruments, and should use them (UE 2020, the European semester, integrated lines of direction, the pact for stability and growth, and a new framework of macroeconomic surveillance). It should involve a special effort to go beyond what already exists and should include commitments and concrete actions that are more urgent and more ambitious than those already approved, and should be accompanied by a calendar for implementation.

These new commitments should then be included in a framework of regular surveillance. The Commission will be fully associated in these actions, in conformity with its competences. Non-member states of the Euro Zone will be invited to participate on a voluntary basis.

- b. It must be aimed, oriented toward actions, and cover those domains of action having priority, essential to favoring a real convergence and competitivity. Consequently, it should concentrate on those actions for which competences are assigned to the member states. In the chosen domains of action, common objectives should be agreed upon with heads of government. The participating member states should advance toward these objectives via their own policies. Each year, some concrete commitments will be made by the heads of government. In so doing, the member states will follow the best practices and reference values of the best performing governments in Europe, and in relations with their strategic partners.

- c. It must fully respect the integrity of the common market.

- d. The implementation of commitments and progress achieved toward the common objectives of the pact should be overseen politically by the heads of government in the Euro Zone and of the participating nations, on the basis of a report by the Commission. Furthermore, in the framework of the pact, the member states of the pact should commit themselves to consult their partners on major reforms that might have economic consequences prior to their adoption.

2 Objectives and Domains of Action

The pact will be built upon the commitments of countries to attain a series of objectives commonly agreed to in key political domains, and its implementation will be supervised on the basis of a series of quantitative and political indicators.

2.1 Key Objectives

The member states of the Euro Zone commit themselves to undertake all measures necessary to achieve the following objectives:

- encourage competitivity, notably by aligning the evolution of salaries with productivity;

- encourage employment by making work more attractive;

- contribute more to the viability of public finance, especially with respect to public debt as well as to systems of retirement and social security;

- reinforce financial stability.

The choice of political actions necessary to attain these objectives remain the responsibility of each country. States not members of the Euro Zone can join the process on this basis.

Each participating member state should present those measures that it plans to take in order to conform to the measures set forth in article 2.2, below. If a member state can show that action is not necessary on one or another measure (for example because it has already legislated the viability of the debt in its own body of law), it will not have to include them in their report. (The example of the debt is not chosen in innocence).

2.2 Indicators of Performance and Political Reforms

Progress toward the above-mentioned objectives will be politically supervised by the heads of government, as explained in section 1b, in the light of present commitments presented by the member states, on the basis of a certain number of indicators covering competitivity, jobs, budgetary viability, and financial stability.

 a. Encourage Competitivity

Progress will be evaluated on the basis of the evolution of salaries with respect to productivity. The unit costs of manpower will be supervised over a period of time, in comparison with developments in other countries of the Euro Zone and their principal commercial partners. For each country, the unit costs of manpower may be evaluated for the economy as a whole and for each of its major sectors (industry, services). Large and sustained increases may indicate an erosion of competitivity. Nations confronted with major challenges in this regard should be identified and should commit themselves to meeting these challenges within a given time frame.

Each country will be responsible for those political actions it chooses in order to encourage competitivity, but particular attention will be paid to the following reforms:

(i) While maintaining respect for national traditions of social dialogue and industrial relations, measures to assure the evolutions of costs in line with productivity, such as:

- the re-examination of the fixing of salary levels in order to increase decentralization of the process of negotiation, and to improve the mechanism of indexing.

- pay attention to salary moderation in the public sector (taking into account its importance as a signal to other sectors).

(ii) Measures to augment productivity, such as:

- more forceful opening-up of protected sectors by measures taken on a national level to identify, and to remove, unjustified obstacles to professional services, such as quotas, store closure provisions, including those in network industries, and restrictions on the retail sector, such as disproportionate restrictions on hours of store-opening or zoning, in order to favor competition and efficiency, in full respect for communal gains.

- special efforts to improve systems of education and to promote research and development, to surpass the objectives fixed in Europe Strategy 2020.

- revision of commercial judicial systems in order to reduce paperwork and to reduce by half the time necessary to obtain judgements concerning commercial affairs.

b. Encourage employment

A job market that works well is a key element for competitivity in the Euro Zone. The indicators should be the long-duration unemployment rate and that of the young.

The political reforms may include:

- reforms of the labor market, in order to promote "flexi-curity", to reduce undeclared work and to more often link allocations to training sessions and employment grants;

- fiscal reforms, such as shifting the burden of taxation of wages to consumers, in the form of indirect taxation (thus rendering work more attractive), and taking measures to facilitate access to the labor market of second household members (if we follow the Anglo-Saxon usage, a second wage in the household is most frequently earned by a woman).

 c. Improve the viability of public financing

In order to assure a complete implementation of the pact for stability and growth, the highest attention should be paid to:

Viability of social allocations and retirement funds

This will be evaluated on the basis of the indicator of distance from viability. This indicator measures whether the levels of indebtedness are sustainable with current policies, notably with respect to systems for retirement and social welfare, taking into account demographic factors. Those countries confronted with major challenges concerning retirement and social welfare should be identified and should commit themselves to meeting those challenges within a given time frame.

 The necessary reforms to assure viability of social welfare and retirement payments may include:

- alignment of retirement age with life expectancy,

- reduction of plans for early retirement, the creation of incitements for employing older workers, and promotion of continuing education.

National budgetary rules

Over and above the directive concerning the framework for national budgets, which form part of the governance package (package for economic governance), the member states of the Euro Zone should make more ambitious commitments to assure full conformity with the budgetary rules of the European Union, as set forth in the pact. They should keep the right to choose the specific national legal framework they will use, but should make sure it is sufficiently binding in character (as by modification of the constitution or other supreme law).
The exact formulation of the rule should equally be decided by each country (for example, it could take the form of a "brake on indebtedness", which would be tied to budgetary equilibrium or a regulation of spending.) In each of these cases, the Commission should have an opportunity to review the rule before its adoption in order to assure that it is compatible with and in favor of the rules of the European Union, as agreed to in the pact for stability and growth.

3. Initiatives of the European Union

In addition to the measures in Article 2, particular attention should be paid to subjects upon which the Commission has presented, or will soon present, a formal proposition:

a. Fiscal Coordination

The elaboration of a common and consolidated framework for taxation of private enterprise should be a preferred route to take in order to assure the coherence of national fiscal systems, without harmonizing the levels of taxation. In coming weeks, the Commission has the intention of presenting a legislative proposition for a common, consolidated scheme for taxation of companies. If necessary, this can equally well be accomplished by "reinforced cooperation".

b. Financial Stability

A solid financial sector is essential for global stability of the Euro Zone. A complete overhaul of the European Union framework for the supervision and regulation of the financial sector has been launched.

In this context, the member states commit themselves to enacting national legislation for the resolution of banking crises, in full respect of communal achievements [4] What is more, the heads of government should be regularly informed by the European Council on Systemic Risk ( a working group within the European Central Bank [5]) concerning those cumulative potential risks in the financial sector that require specific action.

4. Specific engagements for the coming 12 month period

In order to exhibit a real commitment to change and to give the pact the necessary political elan to achieve our political objectives, each year the member States of the Euro Zone will agree on the highest level of concrete objectives to be obtained in a period of 12 months. The choice of specific measures to be implemented will remain the responsibility of each country, but the choice will be guided by considerations mainly on those subjects mentioned in Article 2, above. These commitments will equally be reflected in national reform programs and programs for stability proposed each year, and will be evaluated by the Commission in the framework of the European semester.


Commentaries are provided by members of the staff of l’Humanité, see the linked series of articles

[1Coordination améliorée des politiques économiques dans la zone euro

[2FESF

[3Translator’s note: The French word "compétitivité" is designed to be used to describe or measure the viability of an economic sub-system in a competitive environment, and it is often a struggle to decide whether, in a given context, it should be translated as "competitiveness", "competitivity", or simply as "competition". See the Wikipedia article for a discussion of the fallacies hidden within the term.

[4Translator’s note: l’acquis communautaire, which normally refers to gains achieved by workers in earlier times. (Is this intended here?)

[5BCE


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