The missing link. Labour unions, central banks and monetary integration in Europe1

This article examines the problems of the single currency in light of the organization of labour relations in the Member States and their interaction with monetary policies. Continental (western) Europe consists of two very different systems of employment and labour relations, roughly coinciding with ‘coordinated market economies’ in the north-west of the continent, and ‘Mixed Market Economies’ in the south. These differences in employment relations and wage-setting systems implied that, against the background of a relatively restrictive one-size-fits-all monetary policy in place since 1999, the north-west of the continent systematically improved its competitiveness, while the south lost competitiveness in parallel. Small differences between the two groups of countries at the start of EMU thus were accentuated and, against the background of low growth and an almost closed E(M)U economy, the northern coordinated market economies accumulated current account surpluses while the GIIPS (Greece, Italy, Ireland, Portugal and Spain) ran into severe balance of payments problems in 2010 and 2011.