EU ironies: The Troika meets the Working Time Directive?

Oh the irony. The EU/ECB/IMF troika are now working their ever living tails off to push the Greeks and Portuguese towards more flexible labour markets, and less top-down regulation – and the European Commission is, in parallel, putting pressure on Italy and Spain to do the same. Simultaneously, however, the same European Commission is clinging on like a leech to the most top-down piece of labour market law imaginable (well almost): the EU’s Working Time Directive (WTD).

Well, these twin efforts might now be heading for a clash. Reports floating around yesterday suggested that the EU/IMF/ECB troika wants Greece to do more to flush out its rigid labour market by, amongst other things, raising the maximum number of working days per week to six. The reports are still sketchy - supposedly from leaked emails – so should be taken with a pinch of salt. Still, it paves the way for a pretty weird situation.

The leaked plans suggested the troika would demand the following to boost flexibility of labour arrangements:

• Increase the number of maximum workdays to 6 days per week for all sectors.
• Set the minimum daily rest to 11 hours.
• Delink the working hours of employees from the opening hours of the establishment.
• Eliminate restrictions on minimum/maximum time between morning and afternoon shifts.
• Allow the consecutive two week leave to be taken anytime during the year in seasonal sectors. 

Now the Working Time Directive:

• A maximum working week of 48 hours
• A rest period of 11 consecutive hours a day
• A rest break when the day is longer than six hours
• A minimum of one rest day per week 

In addition, a range of ECJ cases have extended the scope of the WTD even further (sick days spent on holiday can be reclaimed, doctors who sleep on-call are actively working etc).

The latest Troika plans, if true, would not break the WTD it seems, but they’re clearly taking Greece to the limits of what is permissible under EU law – lest they want to push Greece to seek a UK-style opt-out from the WTD (leading to a bizarre scenario, whereby the Commission urges an opt-out from its own rules). One step further and the acquis communautaire would get in the way. In addition, a hardworking Greek who wants to follow the Troika’s recommendations by putting in a six day working week, better be sure to clock out right on time, after eight hours have gone by, or he would be engaging in activities illegal under EU law.

This raises a second question: if the Troika was tasked with working out a competitiveness plan for the entire EU, would the WTD – and many other onerous EU regulations, and the EU budget for that matter – survive?

We suspect not.

Suggested reading material for the Commission

Bearing in mind that it is often said that someone's choice of newspapers reflects their particular political prejudices, the details of the newspaper subscriptions of the EU Commission’s spokespeople, revealed by Handelsblatt’s Ruth Berschens, are very telling indeed. Ruth writes that:

"All 32 spokespeople and their deputies read the British Financial Times, at least eleven order the French Le Monde, while six order the Italian Corriere della Sera and the Spanish El País. German papers on the other hand do not reach such lofty readership heights in Brussels. Currently not a single spokesman has a subscription to for example, the widely circulated Süddeutsche Zeitung”. 

Now of course, you can read a paper without a subscription and we're sure that the Commission keeps an eye on the German debate in various different ways. Still, it's an indication of something. While all the papers above are certainly respectable and informative, they are limited by the fact that they are all quite close to the establishment in their respective countries, and also generally afford the Commission relatively favourable coverage. Limiting your reading to the above papers will certainty not give you the widest perspective of what is really happening on the ground. There is also a great big German-sized geographical hole.
 
As Ruth herself goes on to point out, this leaves the Commission flying blind in the face of public opinion in the EU’s most crucial player: 

“How can EU officials and European politicians understand German sensibilities, if they do not speak any German and do not consult the German media? Short summaries of German newspaper article translated into English are not enough to suddenly make eurocrats experts on Germany. The flip-side of this low sensitivity to the domestic political constraints of the federal government are the completely exaggerated expectations of Germany.” 

Here are a few recent comments from the German media from the last few months that the Commission’s spokespeople may have missed: 

“Eurobonds undermine confidence in the fact that we can learn any lessons from the causes of the crisis. Athens’ sloppiness and denial would be tolerated while inaction would be seen as an attractive course in other countries. Why bother with reforms, why bother to make welfare systems, labour markets and the public sector sustainable when money will just fall from the sky?”- Florian Eder, Die Welt’s Brussels correspondent, 25th May 

“Hands off ‘Made in Germany’… this label is the envy of the world…Made in Brussels is the exact opposite – expensive regulations that shackle the economy.”- Prof. Ernst Elitz, founding director of Deutschlandradio, writing in Bild, 17th January 

"In dealing with Member States, the European Commission is rigorous. There is no measure that is too harsh when it comes to restructuring their budgets... However, when it comes to the salaries of the 45,000 EU officials, they exercise anything but restraint - this not only damages the credibility of all savings claims, but the reputation of the EU as a whole.”- Hendrik Kafsack writing in FAZ, 2nd March 

“In wanting to protect taxpayers, the UK is on the right side in the debate over bank capital rules... If Europe does not lead the way, the next crisis will again be an expensive one for taxpayers.”- Alexander Hagelücken, Süddeutsche’s economic correspondent, 4th May 

While we would encourage the Commission to go directly to the source and consult as many original German newspapers as possible, they could do far worse than signing up to our daily press summary which pulls together various sources from all over Europe…and it's free!

What will proposals for a fiscal and banking union mean for the Eurozone and the UK?

Ahead of this week’s EU summit, Open Europe has published a briefing note summarising the various ideas floated for a fiscal and banking union in the wake of the eurozone crisis, analysing their potential impact on the UK and the eurozone. Given the embryonic nature of many of the ideas, Open Europe concludes that none constitutes a realistic short-term, or even medium-term, solution to the crisis. In particular, Germany’s insistence on an effective veto over other member states’ spending over a certain level as a precondition for fiscal burden sharing is itself a huge political obstacle that may not be overcome anytime soon.

The briefing also notes that it’s virtually impossible to separate a fiscal union from a banking union, as they are interdependent. Open Europe estimates that, taken together, an EU bank resolution fund and deposit guarantee scheme will need to be worth at least €600bn to be credible, with a direct credit line to either ECB or national treasuries. However, in a crisis situation, this amount could be far higher. Since 2008, for example, the EU has approved €4.5 trillion in national state aid to financial institutions in Europe – an EU banking resolution fund must be prepared to inject similar amounts. This fund could initially be built upon the existing ESM framework, although it would require a substantial rewriting of the ESM treaty and a large increase in its lending capacity.

We’d note that a banking union in the eurozone does come with merits, but it is effectively a fiscal union via the backdoor given that eurozone governments will ultimately have to jointly stand behind all the banks in currency union. Therefore, there is a very real risk of banks in one country free-riding off the backs of taxpayers in another is therefore huge and the Germans are absolutely right in insisting on fiscal safeguards to avoid this happening. But this is also why banking union, even in an optimistic scenario, is years away.

For better or worse, a banking union will inevitably have an impact on the UK’s place in Europe and add pressure on the Coalition to seek safeguards ensuring that a more integrated Eurozone is compatible with the UK’s economic and political interests. A key question for the UK is whether it really wants the ECB tasked with supervising a banking union in which cannot take part itself, and how to avoid barriers to financial trade in the Eurozone for UK firms if this happens.

For the full report see here.

The EU and the NHS: the long arm of Brussels

Yesterday we had two reminders of how far the EU's power reaches into the workings of member states. In this case, we're talking about the National Health Service.

MPs debated the impact of the Working Time Directive on the NHS - an issue we looked at here.

Charlotte Leslie MP, who organised the debate, sums up the problems in an article in the Times this morning:

"Doctors warn that the European Working Time Directive, which limits medics to working a 48-hour week, is having a devastating effect on patients’ treatment, doctors’ training and the expertise of future consultants. It was brought in to stop people working 100-hour weeks. But combined with the last Government’s complicated New Deal contract, the directive has put a straitjacket on doctors’ ability to train and to care for patients.

It imposes a 'clock-on-and-off' shift system that means junior doctors no longer get enough quality training with a consultant and patients become products on a conveyor belt. The lack of continuity means things go wrong.

Matters have been made worse by two European Court of Justice rulings. First, on-call time is counted in working hours even if the doctor is asleep in hospital accommodation. Second, if doctors have to go beyond their allotted shift time, they must take compensatory time off immediately. This all costs."  

During the debate, Ms Leslie said that the UK had to look at radical steps to deal with the issue and recognising the depth of reform needed added, "we must ask why we are in this situation, and we must look at the treaties." She cited our recent research on EU social policy, which includes the WTD, saying:

"Open Europe has suggested an interesting double-lock mechanism for negotiating our way out of what was the social chapter and creating a situation in which we are not bound by the rulings of the European Court of Justice. Those are big, radical steps and will take time, but it is something that we should look at.”

Unsurprisingly, the minister present at the debate ruled out the UK taking unilateral action to protect the NHS from the directive. 

Meanwhile, on the same day, we had the European Commission calling on the UK to drop an allegedly unlawful restriction stopping unemployed EU citizens who want to reside in Britain from claiming the NHS as their “sickness insurance”. Such insurance is a condition to reside in other member states under EU free movement rules. UK officials argue that the NHS cannot be seen as an insurance policy to EU citizens without health insurance and that the controls are essential to ensure the NHS is not overburdened with bills for treating non-UK citizens who are not working or economically active. The Commission has threatened the UK with legal action at the ECJ if the rules are not changed.

To put it simply, Article 7 of the EU’s Free Movement Directive states that for EU nationals to have a right of residence in the UK for more than three months and if they are not working they must:

"have sufficient resources for themselves and their family members not to become a burden on the social assistance system of the host Member State during their period of residence and have comprehensive sickness insurance cover in the host Member State;"

The Commission’s complaint is that the UK doesn’t consider access to the NHS to be sufficient to meet this requirement.

From the UK’s point of view, the concern is that EU nationals would have the right to treatment on the NHS but with no means for the NHS to be reimbursed for the care. If the EU national does not have his/her own health insurance or a European Health Insurance Card (EHIC), the NHS would be left with no one to invoice for the treatment.

As we've said before, EU free movement comes with benefits to Britain but it needs to be managed with extreme care and, in order for it not to lose all support from the public, the UK and other member states need some discretion in protecting their welfare and public health systems from abuse and/or being overburdened.

Given the UK public's attachment to the NHS, the EU's interference in this area could lead to powerful forces being unleashed.

What next for the Netherlands?

The political situation in the Netherlands continues to look uncertain, following the fall of the Dutch government, largely due to EU-imposed austerity targets.

Yesterday the Dutch Parliament debated the crisis (which we live-tweeted) with at times heated exchanges. So what has come out of it and where are we at?

• Outgoing PM Mark Rutte announced that he would propose 12 September as the election date, despite many parties calling for a June election to allow the new government to get on with business. 

• There is still disagreement over an absolutely vital issue: how to deal with EU austerity rules. The Dutch government has to present its 2013 budget to the Commission before 30 April, which needs to comply with the EU's 3% deficit limit or, says Rutte, the Netherlands could face a fine of up to €1.2bn (though it would take a lot for that to actually come to pass).

• Diederik Samsom, the leader of the social democrat PVDA, remains opposed to sticking to the the 3% rules, saying that going beyond that limit (his proposal is 3.6%) is allowed in "exceptional circumstances" - which was immediately denied by PM Rutte.

To put the Dutch economic problems into context, we are talking about a country with a deficit of 4.7% and debt to GDP of 65% (2011 figures), although high household debt and falling house prices are creating some trouble right now. Many countries would love to have this problem (the UK, for one). The problem, of course, is that these figures do not conform to the eurozone orthodoxy of austerity - of which the Dutch have been major cheerleaders, and in many ways the Dutch have made a rod for their own backs here.

In any case, talks are ongoing and a new debate is scheduled for Thursday. Our bet is on the political parties reaching an agreement to send to Brussels before the deadline and that will serve to appease the Commission.

But this runs far deeper than whether the Dutch can pass this year's budget, it raises fundamental questions about whether the country will be able to prodcue stable government in the longer term. Political fragmentation in the Netherlands has been a feature of the last decade. In 2003 the three 'mainstream parties' (PvdA, CDA, VVD) held 114 (76%) of the 150 seats in parliament. In 2010, this was down to 82 (54%). In 2012, who knows?

The one to watch is clearly Geert Wilders and his populist PVV party - if they gain, passing the EU fiscal treaty will be far more difficult in the Netherlands, as will eurozone politics in general. However, interestingly, Wilders is currently polling at the lowest level in two years, at 12.6%. What's also interesting is that the left-wing Socialist Party (SP), which has also been quite critical of the EU in the past, is polling close to 20% (governing VVD at 22% and centre-left PVDA at 16%).

But as we've noted before, the Dutch crisis is an indication of how unsustainable the current eurozone path is, and the tension involved in having key decisions on spending and taxation subject to supranational rules rather than votes in national parliaments.

Yesterday, Bild presented a list of eurozone countries where governments have already collapsed over the euro: the Netherlands, Ireland, Portugal, Italy, Greece, Spain, Slovakia and Slovenia.

The eurozone crisis used to be perceived as the the core versus the indebted periphery. What happened this week in the Netherlands has bent these assumptions.  But the common theme is that voters feel powerless to change the status quo. Whichever mainstream party they vote for, the answer is the same. For as long as this persists, no one should be surprised by the alternatives that people might seek.