Wednesday, 30 August 2017

The next grand bargain ?

President Macron’s tour of central European capitals last week was ostensibly about reforming the EU posted workers directive. The directive, that came into force as long ago as 1996 and has been tweaked a few times since, is clearly in need of reform. As a half-way house between freedom of movement and no movement at all, the idea of posting workers from one EU country to another for a short period of time, abiding by the host country’s minimum wage regulations but escaping their, usually higher, social contributions, does not in itself seem a bad idea as a way of contributing to the gradual convergence of living standards. That being said, it has clearly been abused by unscrupulous employers, some of whom have gone so far as to set up shell companies in countries like Bulgaria and Romania solely to be able to employ cheap labour in high-cost countries. Abuse of directives however would not normally be a priority concern for a French President; once a Directive has come into force, it is, after all, the European Commission’s job to police it. But by publicly insisting that the Directive is “against the spirit of Europe” and engaging with some of the governments most directly concerned, including the firing of a well-aimed warning shot across the bows of the Polish government, Macron has given us some clues as to his underlying motives for taking up the issue in the first place.

Macron has said on more than one occasion that Europe should “be more protective”, a somewhat enigmatic phrase, the meaning of which is now starting to become clear. In doing so, it throws light both on France’s domestic and European agendas. As I have written here before, the French in general enjoy a high level of social protection and have not taken kindly to “posted” workers undercutting them on building sites or driving endless streams of lorries the length and breadth of their motorways. Opposition politicians and trade unions have been quick to talk of unfair competition, unbridled liberalism or uncaring capitalism. Macron knows only too well that such feelings can generate populist reactions of the kind that gave Marine le Pen and her Front National an unprecedented harvest of votes in the recent elections and that were also one the major reasons for the outcome of the Brexit referendum.

However, now that Britain is heading for the exit, its influence on policy waning fast in the halls and corridors of Brussels, is this not an auspicious moment for a young, newly elected and ambitious French President to seize the initiative and, together with Germany, push France's agenda of  “deeper integration”, a coded phrase for more harmonisation along French lines, more regulation, greater protection and less competition, in a word, less anglo-saxon liberalism, of which the UK has always been seen by the French as the champion?  This being said, Macron is also fully aware that French levels of regulation, worker protection and the resulting high levels of public spending are unsustainable and one of the reasons for the higher levels of unemployment in France than in most other EU countries. He even went so far as to point this out himself, clearly for the benefit of French public opinion, in a joint press conference with the Austrian Chancellor, Christian Kern, in Vienna last week. The question is therefore, how far can Macron go in reducing these levels of regulation and protection while ensuring that their basic principles gradually spread to the rest of the EU but still stay strong enough in France to stop a majority of voters from expressing populist-driven rage at the next election?

At a time when many in France see the forthcoming reform of the French labour market as little more than a capitalist plot to give more flexibility to employers to the detriment of workers’ rights, it is therefore significant that Macron is seeking to curtail competition on labour costs from the rest of the EU, and particularly its newer and poorer members, by insisting on reining in the effects of the posted workers directive.  Of course, those members would like to enjoy the same generous levels of heath care and pension provision as those enjoyed by French workers and pensioners. Eventually, they probably will. The issue for them, as for all other members of the EU is how best to achieve it and how long it will take. Macron’s preferred solution is more widespread French style regulation and he is starting to sketch out the series of compromises necessary to persuade other members to adopt it. He seems prepared to offer a (slightly) less regulated French labour market and greater fiscal discipline. What will he expect in return? For Poland, for instance, to step back into line on democratic freedoms and the rule of law in return for continued unrestricted access for its workers to the rest of the EU? For Hungary and the Czech republic to take in more refugees in return for continuing massive regional aid from Brussels? For Germany to relax somewhat its strictures on fiscal deficits and show greater solidarity with other members of the Eurozone as a price for its industry’s privileged access to a market of 500 million consumers?

A lot, some might say the very future of the EU itself, will depend on what compromises are struck and, crucially, how they are sold to national public opinions.  The forthcoming meetings on the reform of the posted workers directive will give a first clue, as will, in the middle distance, the political horse-trading over the future Presidents of the European Commission and the European Central Bank. This autumn, we should have the ECJ ruling on Uber v. Barcelona, that will establish whether Uber is considered under EU law as a mere digital platform or, on the contrary, a fully fledged employer subject to licensing regulations and the attendant obligations towards its workers.  In any event, Macron’s ideal spin will be: “no need to fear too much deregulation or EU low-cost competitors because they are now, thanks to France, moving towards our levels of worker protection”. Not only will such talk be designed to reassure French public opinion but, more fundamentally, it will be true to the agenda of integration and harmonisations that France has pursued ever since the start of the EU. The original grand bargain was massive support for French agriculture in exchange for tariff-free access for German industry to the rest of the area, overseen by a French style administration in the shape of the European Commission.  General de Gaulle, it may be remembered, was adamant that the UK should not be allowed to pollute the EU club with its anglo-saxon economic liberalism and vetoed its entry in 1963. Another Frenchman, Jacques Delors, President of the Commission from 1985 to 1995 was the leading light behind other major advances in integration, like the Schengen agreement (1985) the single European act (1986) and the Maastricht treaty (1992) that established the Euro, after President François Mitterand had been instrumental in persuading Chancellor Helmut Kohl to give up the Deutschmark for the single currency, in exchange for France's support for German reunification.

Many years and many more member countries later, but once again without the UK, the time could be ripe for the next grand bargain. It will take some time for its contours to become visible but President Macron and his administration are already working on it. Engaging the governments of the poorer countries of the EU is clearly the first move in an interrelated sequence of events that will take some years to play out.

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