Martin Rhodes

From governance to government: Banking union, capital markets union and the new EU:

European banking union and Capital markets union have emerged as two of the key pillars of European integration since the post-2008 financial crisis. Neither were anticipated prior to the financial crisis, nor was the rapidity of their construction. Both imply the same critical shifts in Europe’s institutional political economy. The first relocates national oversight and authority to supranational institutions (a political shift), while the second increases the power and responsibility of market actors by reducing national controls (an economic shift). If banking union aims to break the hold of national governments over banking entities to foster a less fragmented and more efficient European union banking market, capital markets union aims to remove national-level impediments to a single market for capital in which jurisdictional differences are minimized, investor freedoms maximized and business gains access to a greater range of financial resources.

It's the labour costs stupid! Or is it? The complex origins of southern discomfort in the eurozone crisis

Bob Hancké is a seasoned and expert observer of European labour markets, and Unions, Central Banks and EMU brings together incisive insights from his previous work, either single-authored or collaborative, with novel perspectives set out for the first time. His analysis provides us with the most fully developed version so far available of the ‘competitiveness argument’ regarding the underlying causes of the Euro-zone crisis. The book is written in a concise and vivid style and rewards careful reading. Anyone interested in the Eurozone crisis and the fate of the single currency should take its analysis very seriously. Hancké’s central claim is crystal clear: ‘it’s the labour costs, stupid!’. The Eurozone, in this analysis, has two distinct camps. In northern Europe’s ‘coordinated market economies’, powerful labour unions have been constrained by strong central banks from seeking inflationary wage deals, keeping unit labour cost growth low. Centrally coordinated wage systems set a floor under wages, creating a ‘productivity whip’, punishing companies with below-average labour efficiency. Sheltered-sector wage costs (including the public sector) have also been constrained by productivity growth. But as Hancké puts it, ‘this virtuous set-up in the northern EMU member states was almost perfectly mirrored in the southern periphery’: there, social pacts that kept wage costs down in the decade before EMU fell apart after membership was achieved, and relative unit labour costs rose fast due to undisciplined wage-bargaining in both the private and public sectors. Especially high wage-gains in the sheltered sector spilled into the traded sector, severely damaging competitiveness given low levels of productivity and the absence of a firm-level productivity whip. The consequences of these two broadly different ‘varieties of capitalism’ in Hancké’s argument are logical and straightforward: