Monetary Union and Wage Bargaining Institutions in the EU

Abstract

This article considers the question of how monetary union in the EU is likely to impact the preferences of governments, employers, and unions regarding the organization of wage bargaining. European Monetary Union involves a decentralization of wage bargaining (centered at the national level) in relation to monetary policy (centralized at the European level). Drawing on recent literature and on the experience of two member states (Italy and Spain), which, prior to EMU, underwent periods of intense bargaining fragmentation, the author argues that the imposition of restrictive monetary policy in a fragmented wage bargaining context in which workers nonetheless have substantial bargaining rights tends to have perverse effects. These effects ultimately led governments and bargaining actors in Italy and Spain to seek a reorganization of bargaining that gave national actors greater control over wage setting. The article considers to what extent a similar dynamic might play out in the Euro zone.