Salaries and Competitiveness: Difficult European Equation : Commission Denies Opposing Indexation as a Matter of Principle

European Social Policy, December 10, 2012 | Go to article overview

Salaries and Competitiveness: Difficult European Equation : Commission Denies Opposing Indexation as a Matter of Principle


"The Commission has always made clear that it does not oppose wage indexation mechanisms as such. [...] However, if indexation mechanisms are inflexible, they are a danger to cost competitiveness vis-a-vis a country's trading partners". This is the gist of the declaration adopted by the European Council of 28-29 June. At that meeting, which concluded with the adoption of country-specific recommendations for 2012-2013, Luxembourg, Belgium, Malta and Cyprus were extremely critical of the Commission's intransigence over their salary indexation mechanisms.

The indexing of salaries aims to compensate for increases in the cost of living. According to a survey published by the European Foundation for the Improvement of Living and Working Conditions (Eurofound), four countries still use this system: Belgium, based on a health index; Cyprus and Luxembourg, based on consumer prices; and Malta, based on retail prices. In Spain, indexing plays an important role in collective bargaining, although it is no longer institutionalised. Other counties had used this system in the past: Denmark (until 1982), France (1983), Italy (1992), the Netherlands (1982) and Poland (2009). For certain leaders, the aim seems to be the total elimination of this system over the medium term.

EURO PLUS PACT'

There are two conflicting views on salary indexation: on one side, those who think that this mechanism feeds inflation, and on the other, those who find that it can be sustainable and profitable over the long term if inflation levels are low and constant. Angela Merkel and Nicolas Sarkozy defended the first argument in February 2011, when they proposed a competitiveness pact that would have abolished wage and salary indexation systems in the eurozone. The outcry over this document led European Council President Herman Van Rompuy to present a more moderate version entitled Euro plus pact', which encourages a review of "wage setting arrangements, and where necessary, the degree of centralisation in the bargaining process and indexation mechanisms". The document was adopted on 25 March by the heads of state and government of the eurozone states and Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania.

RECOMMENDATIONS TO FOUR STATES

The Commission also supports a reform of salary indexation systems. In the framework of the European semesters' 2011 and 2012, it also sent a specific recommendation to the four member states that apply such a system.

This unrelenting effort by the executive infuriated Luxembourg's Prime Minister and Eurogroup President Jean-Claude Juncker, who put his foot down over adoption of the country-specific recommendations for 2012 at the European Council of 28-29 June. …

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