The European Labor Unions That Could Destroy Austerity

The government austerity budgets being put into place around Europe have raised the ire of powerful labor unions which have already proven this year that they can disrupt the business and government operations of  entire countries. These unions are so powerful that they can potentially force changes to austerity legislation to protect the wages and pensions of their members. These huge labor organizations can severely damage national economies by pushing national legislatures away from planned budget cuts, older retirement ages and new taxes.

The near-failure of the Greek economy in the spring touched off a round of suspicion about the debt of a number of Europe’s countries and the validity of the opinions which major credit rating agencies issue to guide investor decisions. As a result, ratings of the countries were slashed.  Governments needed to prove to the capital markets that they would not be swamped by their debt. The prospect of sovereign defaults began to be raised. Many experts still believe that the situation in Greece is so bad that the country will need to renegotiate its debt which would almost certainly cause it to be expelled from the eurozone.

Unions have a long history of using disruption to force both businesses and governments to make decisions that favor their members. This has been particularly true in the US. The coal worker’s strike of 1902 involved more than 130,000 people and was such a severe threat to the national economy that President Theodore Roosevelt needed to intervene to prevent a national crisis. The strike lasted 163 days. The 1952 United Steel Workers strike almost shut America’s industrial operations. These are only two of a series of labor stoppages that affected the US economy over the period of the last century and a half.

There are no longer unions in the US strong enough to hamper national economic activity through strikes because they have lost too much of their power. The most visible symbol of this is the way in which the UAW was forced to stand by as the American car industry was dismantled.

Europe is a different matter. The two largest unions in France shuttered much of the energy transportation operations across the country. The French government estimated that the action cost $200 million a day in lost business activity and damaged GDP recovery each day. Labor has struck both government operations and industry in most of the nations which have begun to institute austerity measures and the same unions are threatening to stage huge strikes again.

The challenges facing national governments which have begun austerity measures are extremely complex.  Cutting spending only helps the economy if government receipts do not collapse. Labor stoppages can also quickly erode tax revenue. Businesses that cannot operate lose sales and those lost sales eventually translate into lost taxes. Unions can negate austerity cuts if they damage GDP improvement or even cause GDP shrinkage by bringing parts of an economy to its knees.

Below is the 24/7 Wall St analysis of eight major European nations and their most powerful unions and labor organization. The analysis lays out the financial problems that cause these governments to take a road to austerity. Furthermore, it describes how they have decided to cut costs and raise taxes. 24/7 Wall St. has also looked at the power of the unions, many of which have already staged massive labor stoppages.

What the analysis shows is that the financial fate of many European nations is not entirely in the hands of their governments. Unions are a part of a power struggle which will decide whether austerity will survive. Labor will not only strike, it will head to  the ballot box. In many nations unions can both slow GDP improvement and possibly to vote out regimes with policies they oppose.

France:

Like most of Europe, France’s economy suffered heavily during the credit crisis. As a result, French debt as a percentage of GDP is expected to increase from 64% in 2007 to 84% in 2010. Recognizing that his country’s mounting debt exposure would place its prized AAA credit rating at risk, French President Nicolas Sarkozy called emergency meetings to discuss what cuts would be necessary to maintain France’s rating. The results of the summits shaped the set of major reforms being presented to French parliament. Included in the reforms is a three-year government spending freeze, and most controversially, a proposal to raise the minimum age of retirement from 60 to 62, and the age at which full pensions are paid from 65 to 67. This has infuriated a large part of the country, and increasingly violent protests have taken place for the last week throughout France.

Union Reaction:

Confédération Générale du Travail, Or General Confederation of Labor (CGT) –  The largest trade union in France, the Communist-rooted CGT, includes public and private sector employees – notably refinery, port, and utility workers. The confederation has been at the forefront of the recent protests, engaging in measures more radical than standard public demonstrations. Under orders from the union, workers have shut down the majority of the nation’s refineries, and France is experiencing a serious fuel shortage. One in three gas stations in the country are currently without fuel. This has affected every sector of the economy.

Force Ouvrière, or Worker’s Force (FO) –  The left-leaning FO represents another of the country’s large labor federations that includes workers in many sectors. While the FO has not engaged in the targeted strikes that the CGT has,  transportation workers (which are among the Union’s members) have severely hampered national rail yards and airports. Half of the flights in Paris’ Orly airport were cancelled last Tuesday.

Spain

Besides Greece, many analysts believe Spain has the most precarious major economy in Europe. With debt as a percentage of GDP increasing from 36.1% in 2007 to a projected 63.5% in 2010,  as well as a budget deficit of 11%, Spain’s fiscal woes led the three major rating agencies to downgrade the country one level from a perfect AAA score. Prime Minister Jose Luis Rodriguez Zapatero, in the face of significant political unrest, is currently imposing the largest spending cuts the country has seen in decades. The focus of Zapatero’s strategy includes reducing government wages, freezing pensions and cutting public project budgets.

Union Reaction:

Spain’s largest unions have expressed outrage at the measures. At the end of September, the public sector workers of the country’s largest unions went on strike, shutting down television stations, newspapers, some transportation and all of Spain’s auto plants. Spain’s problems are made worse by the fact that any unions members who lose jobs may not find new employment for years. The unemployment rate in Spain is 20%.

Comisiones Obreras, or Workers’ Commissions (CCOO): The largest trade union in Spain, the CCOO was founded in the 1960’s under the Communist banner, and leans heavily to the left. CCOO formed a coalition with the country’s other major union, UGT, during the general strike on September 29th, and have continued to call Zapatero’s austerity measures unsustainable.

Unión General de Trabajadores (UGT): The nation’s second major union, UGT is rooted more in democratic socialism than Communism. It nevertheless continues to work closely with the CCOO since the general strike in September.  UGT and CCOO have continued to decry Zapatero’s budget cuts, and a second, larger strike may arise if labor continues to be affected by the country’s austerity movement.

Also Read: Is the United States Getting More Corrupt?

Greece

After a series of downgrades to junk status by the major ratings agencies, the country became the canary in the coal mine of the European credit crisis. After receiving $145 billion in bailouts from the IMF and the EU – one of the largest in history – Greece remains in a state of economic turmoil. In order to deal with its massive debt, projected at more that 130% of GDP in 2010, the Greek government under Prime Minister George Papandreou is proposing large-scale public employee cuts, wage reductions, and pension reform.

Union Reaction:

Sporadic protests and labor strikes have occurred since the country’s credit crisis, including a major dock strike in June, as well as widespread participation in the September 29th Europe-wide strike, which shut down the country’s public transportation for a day.

General Confederation of Greek Workers  (GSEE): GSEE is Greece’s largest trade union, encompassing 800,000 members and 83 separate worker organizations, all in the private sector. GSEE played a major role in the dock workers strike in June, as well as the Europe-wide strike in late September. Citing the government’s continued austerity policies, GSEE is planning another major strike, set to begin on December 15th.

Civil Servants’ Confederation (ADEDY): Unlike France and Spain, Greece’s two major labor confederations are neatly divided between the private sector (GSEE) and the public sector (ADEDY). ADEDY was responsible for a major rail strike in the country two weeks ago, and was also responsible for the recent debacle in which civil servants scheduled to be fired as part of the cuts demonstrated inside of the Acropolis, shutting down the tourist site for two days before riot police eventually forced them out with tear gas.

The UK

Britain’s deficit issues have contributed to one of the most dramatic debt increases among the Major EU economies. The gross government debt of the UK has increased from 44.1% in 2007 to a projected debt of 76.7% in 2010. Last week, Britain, which has maintained a perfect AAA rating throughout the crisis, unveiled its updated budget. Prime Minister David Cameron’s new budget included dramatic cuts in public sector jobs and wages, the creation of a 12-month limit for unemployment benefits, and a planned increase of the retirement age from 60 to 66. By 2015, if the budget stays on track, the U.K. will have fired 490,000 public workers, roughly 1% of the working population of the country.

Union Reaction:

Trades Union Congress (TUC): The TUC is the single major umbrella union which encompasses most of the trade unions and roughly six million British workers. The TUC has suggested that it would strike if the government continues to cut jobs, wages, and benefits.

Unison: Unison is the second-largest union in Britain, and the largest to incorporate exclusively public employees. In June, when Prime Minister Brown’s austere reforms were much more minor, this is what Unison had to say on the subject: “We begin that fight, here, today. We will organise. We will organise public meetings and street demonstrations, in towns and cities, up and down the country. We will build lasting community alliances, to defend our public services… We will promote an alternative economic political and social agenda.” This is the largest union strictly in the public sector.

Ireland

A few years ago, Ireland was Europe’s biggest success story. The small country had one of the fastest growing emerging economies, primarily because of international investors and exports. When the housing market collapsed, Ireland was hit particularly hard, and its unchecked growth ground to a halt. In March 2009, S&P downgraded Ireland from AAA to A+, pointing to what it called “poor management of public finances.” As the Irish economy continued to contract and unemployment continued to rise, Irish Prime Minister Brian Cowen became one of the first European leaders to adopt austerity as a government policy. Cowen raised taxes and cut salaries for nurses, educators, and other public professions. Even thought the country has had these policies in place for nearly two years, it is still unclear whether austerity will help Ireland in the long-term. Its budget deficit is decreasing, but its debt and GDP continue to rise.

Union Reaction:

Services, Industrial, Professional and Technical Union (SIPTU) – Despite the fact that its members were hurt badly by national wage and employee reductions, Ireland’s massive public employee trade union endorsed the administration’s austerity measures, calling them necessary to avoid suffering the same fate Greece did. At the urging of SIPTU’s leader, Jack O’Connor, SIPTU and most of Ireland’s largest union federations agreed to a strike ban, which will last until 2014. In exchange, the Irish government and employing parties have agreed to not impose any further reductions.

Portugal

Portugal had one of the highest budget deficits of any major EU nations in 2009, at 9.3%. Its government debt has increased from 63.6% in 2007 to a projected 83.1% in 2010. In January of last year, Standard and Poor’s downgraded Portugal’s sovereign debt from AA- to A+. a day after neighbor Spain announced its own plans to introduce austerity to avoid Greece’s fate, Portugal did the same. The Portuguese government, under Prime Minister Jose Socrates, outlined measures to cut wages and halt production on public works projects that employed large numbers of people, such as a new airport in Lisbon. As the country tries to narrow the third-largest budget gap in the Eurozone, administrators face an upcoming strike from the nation’s two largest unions.

Union Reaction:

União Geral de Trabalhadores or General Federation of Workers (UGT), and Confederação Geral dos Trabalhadores Portugueses General Federation of Portugese Workers (CGTP) – Earlier this month, the Secretary General of UGT was quoted as saying: “the country is living a difficult situation… but it’s not possible that sacrifices are demanded always from the same people.” (the middle class, and public servants)  For the first time in decades , Portugal’s two major trade unions, socialist UGT and communist CGTP are planning a coordinated strike on November 24th,  which is expected to extend well beyond the public sector, and could potentially be devastating to a portugese GDP which is already suffering.

Italy

Italy has the second-highest debt as a percentage of GDP of any major European nation, which has increased from 103.5% in 2007 to a projected 118% in 2010. In May, as worries increased about credit issues as countries like Spain were downgraded, Italian Prime Minister Silvio Berloscuni passed an austerity budget designed to reduce the nation’s heavy 5.3% deficit to 2.7% of GDP. The plan reduced municipal and regional budgets by several billion dollars, increased the minimum retirement age for some public employees, slashed the number of state employees on the payroll, and cut pay across the board. Last week, Standard and Poor’s cut Italy’s credit from AA- to A+.

Union Reaction:

Several small strikes have taken place in the past six months, notably one in June which involved several hundred thousand protesters, but labor unions have been dormant as of late.

Confederazione Generale Italiana del Lavoro or General Confederation of Labor (CGIL) – The only major Italian union which poses a serious threat to the country’s economy is the CGIL. The socialist-leaning organization, which constitutes a majority of public employees, has threatened to initiate a repeat of the June strike, but so far has been unable to arrange a major event like the kind we’re witnessed in France, Greece, and Spain. “We have a government that only cares about public finances,” the head of the organization said recently, “They are taking advantage of the crisis in order to weaken labour rights. “

Federazione Impiegati Operai Metallurgici (FIOM) – While the union federations like CGIL have been unable to organize large-scale protests,  groups of laborers have arranged their own walkouts. Upon the recommendation of CGIL, FIOM, the largest trade union of metalworkers in the country, struck for 24 hours earlier this week. The strike was mostly for the purposes of demonstration and relaying the workers’ message to the public, and Italian infrastructure remained largely unaffected.

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Germany

Even though it is forced to support much of the EU economy on its back, Germany has maintained a stable credit rating throughout the European credit crisis, and its exposed debt has increased by a relatively small percentage, from 63% in 2007 to 75.3% in 2009. As the poster child of stable credit, Germany’s perfect AAA rating has never been in doubt. Under Chancellor Angela Merkel, the country became one of the forerunners of the European austerity movement, and is one of the few countries which adopted the policies without being forced into it by the ratings agencies. Against strong public sentiment, Merkel’s economic strategy aims to reduce the country’s budget by 30 billion Euros through 2013, and features heavy cuts in government jobs and hours, as well as unemployment benefits. The chancellor is also introducing a tax on the Nuclear industry and on financial transactions along with 80 billion  euros in budget cuts.

Union Reaction:

At the beginning of June, Michael Sommer, leader of the German Trade Union Association (DGB), and Dieter Hundt, president of the German Employers Association (BDA), agreed to a no-strike deal with major employers. These are Germany’s two largest trade unions, and the move is a serious blow to the anti-austerity movement in the country.

IG Metall – The largest German metalworkers trade union has been active in decrying the country’s austerity movement. In August, citing a recovering national economy, steelworkers within the union demanded a pay increase of 6%. Their demands were refused, and the union began limited strikes at the end of last month. This may set a precedent for other groups, as sentiment that Merkel’s conservative budget is unnecessary now the crisis in the country has passed.

Michael B. Sauter, Douglas A. McIntyre