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Labor Law and Economic Governance in the EU


Marco Rocca (@MarcoRocca_) is a researcher (chargé de recherche) in European, international and comparative labour law at the French National Centre for Scientific Research – University of Strasbourg.

This post comes out of the early career workshop ‘Law and Political Economy in Europe’which took place at the Centre for Socio-Legal Studies, at the University of Oxford, on the 7th of October 2019. For all the posts this series, click here.

PoliticsineuropeAt the Oxford Workshop, I explored the relationship between the EU economic governance and labor law. In particular, I looked into legal tools of austerity politics and analyzed the role of the Court of Justice of the European Union (CJEU) in cementing this agenda.

During the economic crisis, leadership at the European Central Bank, and the EU Commission resorted to new tools of economic governance across the EU. Their implementation shows how the law can be instrumentalized to actively reduce the ability of trade unions and labor regulations to bring about the decommodification of the factor of production that is labor. This of course builds upon power imbalances in a given situation, in this case, between ‘creditors’ and ‘debtors’, ‘core’ and ‘periphery’ of the European Union.

Some of the crisis-related tools of EU economic governance are well known outside Europe, since they mirror legal tools that the Global North already deploys in the Global South, like the infamous Memoranda of Understanding (MoU). In the European context these agreements were signed between the so-called Troika, composed by the EU Commission, the European Central Bank (ECB), and the IMF, and Member States in need of financial assistance. These documents included a list of conditions, distilling austerity policies into a set of concrete reforms to be enacted in exchange for said assistance. Many of these reforms were in the field of labor law, particularly in the case of Member States from the “Southern periphery” (like Greece and Portugal).

Reforms requested by MoU generally were meant to improve competitiveness vis-à-vis commercial partners who were, ironically enough, often other EU Member States. Aid recipient states were meant to engage in internal devaluation by increasing labor supply and wage flexibility, through the reduction of employment protection legislation and the decentralization of collective bargaining. Many nations acceded to these demands, which proved resistant to political changes even after the end of the MoU. Italy and Spain were also targets of similar quasi-Memoranda, in the form of “secret” letters sent by the ECB.

EU economic governance leaders also added a new approach during the crisis. They began generating Country Specific Recommendations (CSRs), which are drafted yearly by the EU Commission and adopted by the Council. Interestingly, Member States covered by a MoU are excluded from CSRs, suggesting a functional continuity between the two sets of instruments. Around a half of these recommendations deal with labor and social rights. The political economy of these recommendations, has been, particularly up to 2014, very much in line with the content of MoUs, with a series of Member States being encouraged to lower employment protection legislation, shift the focus of collective bargaining from sectoral to company level, stop wage indexation, and align wage dynamic with productivity, while, in general, containing wage increases in the name of competitiveness.

Though their name suggests a rather “soft” instrument, the actual implementation of these recommendations can be taken into account in the context of Excessive deficit procedures and of access to structural funds. A recent example is the closing of the EDP against Italy in 2016. On that occasion, the Commission looked kindly on Italy for following its Country Specific Recommendation regarding a far reaching reform of labor law, which reduced protections against unfair dismissals. Because Italy had implemented this reform, the Commission considered the country to have met its debt criteria, despite the worsening of the Italian public finances. Although it has yet to happen, if the EU Commission recommends a sanction, only a qualified majority in the Council can overturn it, suggesting a shift in power between the more political forum (the Council, representing Member States) and the more technocratic one (the Commission). This eternalizes the logic of conditions to aid, particularly for countries still suffering the aftermath of the crisis (the Southern periphery) or reliant on EU funding (the Eastern periphery).

Looking at these momentous changes, one must first take stock of the utter failure of legal procedures to provide any shelter for citizens being impacted by reforms requested by MoUs or ‘recommended’ by CSRs. Indeed, the CJEU itself constitutionalized the MoU, by concluding that assistance to Member States was only admissible “provided that the conditions attached to such assistance are such as to prompt that Member State to implement a sound budgetary policy.” Furthermore, the CJEU completely internalized the ‘state of emergency’ logic of the crisis, by finding that austerity policies were in pursuit of a general interest and, as such, able to justify the restriction of fundamental rights. This is perfectly, if chillingly, epitomized by the words of an Advocate General to the CJEU who stated “it does not seem open to debate that the objective of […] meeting obligations resulting from the Memorandum of Understanding and the stand-by agreement concluded between Romania and the Commission and the IMF is an objective of general interest.”

We should also be wary of formalistic approaches which neglect the actual reality of power relationships. For example, in another recent decision of the CJEU, it denied that a Portuguese law, taken in application of the MoU, was to be considered as ‘implementing EU law’, since the said MoU is an international agreement. This of course runs directly against the central role of EU institutions in the Troika. The result is far from neutral, as it prima facie excludes national measures taken to implement a MoU from the scope of the EU Charter of Fundamental Rights. Considering how CSRs are generally interpreted as mere soft law instruments, it seems likely that a similar conclusion would be reached in their regard. Again, under the pretense of a quintessentially neutral interpretation (formalism), this would expand a ‘zone of exception’ for the rule of law in the field of economic governance.

Finally, it is important to highlight how the specific European context brings about its own flavor of neoliberal constitutionalism, protecting the implementation of austerity policies over fundamental rights. However, the twist to this story is that some of those cases dealt with the restriction of an eminently liberal (in the British sense) right, that is, the right to private property. Here the CJEU found that ‘the objective of ensuring the stability of the banking system in the euro area’ would justify a restriction of this right. One can only wonder how such an approach could be repurposed in order to justify restrictions to private property in the future, this time perhaps in the name of genuinely general interests, such as, for instance, the protection of the environment and the fight against climate change.