Explaining the Political Economy of Social Pacts in the EMU.

New Political Economy 

The economic crisis is a collective action problem. In the absence of currency devaluations, eurozone governments are faced with the painful social process of wage devaluations. This paper examines the strategic choices facing the government and organised labour in how they respond to this problem. It will argue that the European Monetary Union contains an implicit neoclassical assumption that labour markets will automatically adjust to downward wage flexibility. This ignores the politics of collective bargaining. Labour relations systems are the most regulated of all markets. Based on this institutional embeddedness, the paper will outline a typology of political choices facing national governments: neoliberal market adjustment, national or sectoral concertation and euro-coordination. Institutional pre-conditions of collective bargaining mediate what strategy governments adopt. It will subsequently examine the case of Ireland that tried and failed to negotiate a national pact in 2009. Social partnership was a central institution of Ireland's political economy for 20 years but could not internalise the adjustment constraints of the current crisis. The voluntary and exclusive nature of Ireland's corporatist wage pacts weakened the power resources of labour and enabled the government to pursue a neoliberal strategy of adjustment. As an institution, it was dependent upon the political executive of the state.

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» http://www.tandfonline.com/doi/abs/10.1080/13563467.2011.613456#.Ud7Skq62Hgk