Abstract
The Eurozone crisis has triggered profound political and economic changes across the debtor member states. This article shows how the crisis and the imposition of austerity policies by the Troika have (1) forced Spain (and by extension other Eurozone debtor states) to pursue internal devaluation as a means of economic adjustment through the reduction of real wages, (2) increased pressure for liberalizing labor market institutions, and (3) given Spain’s conservative government the opportunity and cover to pursue radical neoliberal labor law reforms. Spain’s 2012 labor law reforms went well beyond external demands. The crisis and the Troika’s policy demands generated mass unemployment, devastated Spain’s Socialist Party, and created the enabling conditions for economic reforms. But domestic partisan considerations led the conservative People’s Party (PP) to commandeer the crisis to weaken unions as the electoral and organizational base of the center-left opposition. The PP channeled reform into an attack on labor that decisively shifted power to employers. As organized labor relations were reduced to concession bargaining, real wages have plummeted for the vast majority of Spaniards, even as mass unemployment and economic stagnation persist. Analysis suggests the emergence of a winner-take-all economy that will have lasting consequences for the Eurozone and the European Union.
The Eurozone crisis has wrought political and economic transformation across the troubled debtor countries of Spain, Italy, Greece, Ireland, and Portugal. The direct driver of these changes is the imposition of fiscal austerity and the restructuring of the domestic banking and financial sector as the price exacted by the “Troika”—the European Commission (EC), the European Central Bank (ECB), and the IMF—for bank and sovereign bailouts. The second, indirect, driver of this transformation consists of the domestic policy reforms and broader economic restructuring following the imposition of austerity. This second set of changes concerns us here. We focus on the case of Spain to show how a structurally driven continental financial crisis produced a politically driven transformation of domestic labor law and relations that departs in substantial ways from the reforms demanded by the Troika and, in particular, the EC.
The Spanish conservative People’s Party (PP) pursued a strategic assault on labor and employee rights to secure partisan political advantage by weakening labor and empowering employers. A labor regime that in principle promoted the collective regulation of the employment relationship now—in both principle and practice—defers to employer discretion. This fundamental transformation illustrates how the Eurozone financial crisis has shifted the political economic balance of power away from labor in favor of business and employer interests.
Labor-repressive policies are located at the intersection of the economic interests of the creditor countries and institutions within the Troika, and the political interests of conservative parties and neoliberal partisans in the domestic polity. By sparing banks (particularly those at the core of the Eurozone in Germany and France) from their losses on peripheral country debt, the bailout agreements imposed those debts on the populations of the debtor countries. Adjustment has been pursued via “internal devaluation,” following economic theories predicting that reduced relative production costs will spur economic revival through increased international competitiveness. This deflationary internal devaluation has taken two routes: deep cuts in fiscal spending and labor relations and labor market reforms that diminish the power of unions and individual workers. 1
There is no doubt that the Troika’s specific policy demands have truncated national sovereignty in the debtor states in the realms of both finance and labor. More generally, the Eurozone crisis has biased politics and policy toward the disintermediation and disintegration of organized labor relations and their displacement by more fragmented and atomized forms of employment. However, it would be a mistake to conclude that the crisis has reduced EU member state governments, even in the debtor countries, to mere transmission belts pursuing legislation and fiscal retrenchment in the name of the Troika. Rather, domestic conservative political elites and their allies have leveraged the conjunctural exigencies of crisis and economic reform to reshape the character of political contestation.
Spanish conservatives embraced the language of necessity in the face of crisis to justify changes in labor relations designed to weaken, if not eliminate, the social and institutional base of the left and center-left in organized labor. Although many of these changes were welcomed by the Troika, they also differed in important ways from the policy reforms championed in Brussels, Frankfurt, and Washington. Whereas the Troika was centrally concerned with increasing the flexibility of wages and workplace organization with the ostensible goal of reducing unit labor costs, the Spanish reform agenda was primarily driven by the conservatives’ desire to dismantle established legal frameworks and institutional arrangements, displacing democratic forms of corporatist workplace regulation and strengthening corporate support for the right among Spanish business interests. The overlap across these two agendas, international and domestic, was considerable, but hardly perfect.
International demands for change enabled Spanish conservatives to mobilize state power to radically reform employment and labor market regulation through both formal and informal channels. Far-reaching revision of long-established legal arrangements imposed liberalization on labor markets long characterized by organized labor relations and widespread collective bargaining. At the same time, the conservative government pursued a strategy of regulatory forbearance, as authorities overlooked employers’ legal violations and abusive practices and limited the reporting of data that would make evident the full institutional and redistributional consequences of their legal changes.
We use Spain as our case because it is the pivotal debtor country in the Eurozone crisis and because it raises clear warnings regarding the future of social peace and democratic governance within the European Union. Because of the size and fragility of its political economy, Spain poses the most serious threat to the stability of the Eurozone and the European Union of all the peripheral debtor countries. The risks go beyond the economic and financial to the political. It is true that Spain’s economy poses a vastly greater threat to the Eurozone’s future should it default, but recent developments in Spanish politics may be even more disturbing, particularly since the array of structural economic forces and political interventions by the European Union and beyond have enabled and reinforced them. The implosion, fragmentation, and dysfunctional fractiousness of the Spanish party system since 2014 and the explosion of support for independence in Catalonia are the two clearest signs that these risks are grave and becoming manifest. There is a disquieting potential for malignant political trends within the peripheral countries, the Eurozone, and the European Union as a whole. For these reasons, the Spanish case exemplifies the economic and political stakes of the Eurozone crisis and the ways that crisis has been used to transform European and domestic political economies.
Like Hacker and Pierson, we see politics—and labor politics in particular—playing a critical role in driving inequality. 2 Labor reforms in Spain have weakened unions’ capacity to represent workers effectively. In the United States, anti-labor legal changes have unfolded over many decades at the state level since federal legislation enabled them in the late 1940s. In the Spanish case, regulation of the labor market is an exclusive and jealously guarded competency of the central state in an increasingly decentralized polity; in 2012 the conservative government enacted and implemented comprehensive anti-labor reform with striking suddenness, immediately and substantially reallocating power between employers and unions in favor of the former. These legal and institutional changes targeted a historically crucial pillar of the center-left opposition and created the conditions for a feedback loop, similar to that identified by Hacker and Pierson, in which income, wealth, organizational power, economic power, and ultimately political power concentrate among the owners and managers of the largest firms.
Because Spain, like other Southern European countries, has a welfare state that is both much smaller and less redistributive than that of its Northern European counterparts, labor law and organized labor relations have played an outsized role in containing inequality. 3 In a country where the percentage of the unemployed receiving benefits is quite low, rising unemployment has an especially pronounced effect on rising inequality. However, the rapid increase in inequality since the Eurozone crisis began has been driven not only by the spectacular rise in unemployment but also by a rapid and sharp decline in wages for new labor market entrants and those forced to change jobs and companies. Accordingly, the conservatives’ frontal attack on Spanish labor law—along with the legal protections and bargaining leverage it provided to unions and employees—has had and will have outsized distributional consequences, driving up inequality.
Spain, like other countries on the Euozone periphery, has long been characterized by comparatively high rates of tax evasion. 4 This makes it difficult to calculate real incomes, and even harder to measure inequality. Given that wage earners (at least in the formal economy) cannot easily evade reporting their principal income source, high rates of evasion are likely to favor entrepreneurs, rentiers, and others whose income derives substantially from capital or who can structure their income sources to facilitate evasion. Although the Troika has pressed the Spanish government to crack down on tax evasion in order to close budget deficits, these efforts have been limited at best. 5 Meanwhile, the conservative government decisively lowered capital gains taxes, which obviously favors higher incomes—at the expense of revenue collection. No available evidence indicates that lower capital gains taxes have reduced tax evasion; nor does the government appear to be markedly more aggressive in its pursuit of the largest sources of fraud. 6 Far from detracting from our argument that inequality has soared since the onset of the global financial collapse and Eurozone crisis, any bias in the data skews toward understating the highest incomes and thus the true level of inequality.
Labor Market Reforms and the Limits of National Autonomy
Since 1991, EU treaty arrangements explicitly preclude an EU role in wage-setting practices. 7 Despite this formal prohibition, standard neoliberal demands for wage restraint and more flexible wage bargaining structures have long featured prominently in EC policy advice to the member states. 8 Although the EC’s efforts at moral suasion accomplished little, recent analyses of labor market reforms across the European Union reveal a progressive encroachment by the EC and the European Council—often in concert with the Troika—on employment and labor relations policies long considered the exclusive domain of themember states.
As the financial crisis deepened, the European Union developed new tools that enable more direct incursions into national-level regulation of wages and collective bargaining. Beginning in 2011, the European Semester program raised the pressure on the member states to incorporate EC economic policy recommendations into national reform agendas subject to review by the Commission. By 2013, seventeen member states had been asked to reform wage-setting institutions. In March 2011, the Eurozone countries agreed to limit wage increases to productivity gains and to benchmark unit labor cost developments across the currency union as part of the “Euro-plus pact.” In October 2011, the “Six-Pack” of economic regulations raised the specter of direct sanctions for macroeconomic imbalances, including the obligatory reform of wage-setting institutions. 9
European Semester recommendations for Spain have included the decentralization of bargaining, the facilitation of opt-outs from sectoral collective bargaining agreements and the limiting of wage increases to real productivity gains. These recommendations were underscored by the Troika in its memorandum of understanding with Spain to bail out its ailing banking sector. 10
The Troika demanded the decentralization of collective bargaining for all countries receiving bailouts, 11 but as Table 1 shows, Spanish authorities were particularly assiduous in adopting the changes demanded by the EC and the Troika. For example, although Italy did not receive a formal bailout, critical ECB purchases of Italian bonds were (as in the Spanish case) conditional on the decentralization of collective bargaining and other labor market reforms. 12 Despite these common international pressures, the Italian assault on existing structures of collective bargaining and, particularly, sectoral bargaining, has been far less aggressive than the Spanish. Of all the countries implementing reforms under the boot of the Troika, the most radical decentralization of bargaining has occurred in the most intervened country, Greece, and in Spain. 13
Decentralization of Collective Bargaining Systems since 2010 in Countries under EU, ECB or IMF Surveillance.
Thus although the Troika has surely constrained national sovereignty regarding market regulation, the extent to which labor markets have been disorganized has varied substantially across the countries most subject to this intervention: the variation can be explained only by domestic politics. In the Spanish case, the Socialist government of José Luis Rodríguez Zapatero responded to structural economic and external political pressures by, among other measures, introducing labor market reforms in 2010 and 2011. Bitterly opposed by unions, these changes nevertheless sought to preserve a significant space for the collective regulation of labor markets at both the firm and sectoral levels. The conservative PP government led by Mariano Rajoy, in contrast, embraced the opportunity offered by the Troika when it took power in November 2011 to impose a thoroughgoing restructuring of the Spanish workplace and its broader political economy. Critical for our argument, these reforms departed substantially from the recommendations of the EC and the Troika, reflecting the PP’s particular partisan political and economic priorities. Neither the Socialists nor the Conservatives should be confused with mere transmission belts doing the Troika’s bidding.
In the remainder of this article, we clarify the logic underlying the PP’s reforms and demonstrate that claims of economic necessity and powerlessness before the EC and the Troika were little more than a useful pretext for reforms aimed at radically shifting the balance of power in Spain.
Making the Home Front Safe for Capital: How Partisan Responses to Crisis Have Transformed the Spanish Political Economy
Labor market reforms at the domestic level are an essential component of the political dynamics unleashed by the Eurozone crisis. Spanish labor market reforms—particularly since the conservative PP won an absolute majority in November 2011—have been informed not only by structural pressures deriving from the crisis but also by the government’s desire to transform radically the political economic balance of power, most starkly that between capital and labor. In January 2012, the Financial Times asked Luis de Guindos, the Economy and Competitiveness Minister, where growth and employment would come from. He responded, “labour reform and the financial sector, the banking industry. So the central point of the labour reform has to be modification of the system of collective bargaining in Spain.” 14 The new government would be careful to avoid “[contaminating] the sovereign risk with the banking risk.” The treasury did become highly contaminated; with respect to labor market reforms, however, de Guindos was true to his word. In February 2012, the government passed Royal Decree Law 3/2012, the most significant labor market reform of Spain’s democratic era. 15
The conservatives sought to redefine governance in the world of work by altering both the sources of authority and the ex post locus of authority in the workplace and in labor relations. Labor reforms at the national level centralized control over the substance of law (i.e., the content of substantive rights, duties, powers, and immunities) via formal legal change. These statutory and regulatory changes shifted the sources of authority in the Spanish labor market from collective or shared regulation toward neoliberal contractual relations backed by labor-repressive enforcement powers. This shift devolved the locus of authority and the right to exercise discretion to individual employers (either natural persons or firms). Previously, discretionary authority in the labor market was exercised both by employers and by labor market intermediaries including unions, employer associations, judges, and the Labor Authority. As Table 2 shows, the conservatives’ legal reforms decisively shifted discretion over labor market outcomes toward employers. Under the 2012 reforms, managers have been granted, effectively, legally privileged and enshrined discretionary power in determining whether and how labor is deployed.
The New Political Economy of Employment Relations in Spain.
Labor reform in Spain cannot be understood in isolation from the broader context of ferment and change triggered by the Eurozone crisis. Several critical links connect the domains of finance at the Eurozone level and labor market reform at the domestic level at the Eurozone periphery. First, demands and structural pressure for internal devaluation emanating from the pan-EU financial sector and the Troika have generated the political leverage to enable the PP’s drive for aggressive labor market reforms that had been long and successfully resisted by unions and their political allies in the labor bureaucracy (labor courts, the Labor Inspectorate, and the Labor Authority) and even among certain employers largely satisfied with the previous status quo. 16 Second, the character of labor market reform, like that of financial bailouts and reforms across the Eurozone, has been determined by primarily political rather than economic considerations. In the case of finance, policy responses to the debt crisis have served primarily to preserve precrisis structures of neoliberal financialization and governance across the Eurozone and European Union. In the case of domestic labor market reform, national-level legal reforms have been deliberately designed to undermine and recast the existing status quo by disintermediating labor relations and strengthening and imposing the (neoliberal) authority of the employer/firm and manager within a new legal framework defined by individual, atomized contractual employment relations. Finally, one can discern the centrality of law and legal change favoring powerful and privileged constituencies, inside the state and outside it, in responses to the Eurozone crisis. Of course, the particular beneficiaries of these legal changes and strategies have differed across these areas of law and regulation. Whereas policy responses in the financial domain primarily have served the interests of core country governments and banks, labor reforms in Spain have advanced the economic and, above all, the political interests of Spanish economic and right-wing political elites. 17
“Reforming” Spanish Labor Relations—The Socialist Reforms of 2010 and 2011
In 2010, under increasing pressure from the bond markets and the Troika, the Socialist government of José Luis Rodríguez Zapatero introduced legislative reforms that strengthened incentives to collectively negotiated internal flexibility. First, the reform limited the rights of individual workers to challenge collectively negotiated agreements in the courts. Second, it permitted the constitution of ad hoc committees to negotiate collective solutions in the absence of formal workplace representatives, providing a shortcut to internal adjustment for firms that had long been denied this option. The dominant national unions opposed this latter change more than any other. 18 The 2010 reform did not, however, permit firm-level negotiators to agree permanent opt-outs from sectorally bargained wages. As the crisis deepened and pressure from the Troika increased, the Socialists revised labor market rules again in 2011, permitting firm-level agreements to take precedence over sectoral accords absent the existence of a sectoral agreement at the national or autonomous community level that explicitly reserved certain themes for sectoral bargaining. In relatively organized sectors such as metalworking, construction and chemicals, the majority producer organizations managed to sign new sectoral agreements in record time during the fall of 2011 to avoid just such an outcome.
Both the 2010 and 2011 reforms sought to promote competitive adjustment through collectively negotiated internal flexibility rather than Spanish firms’ traditional approach to adjustment via employment levels. However, managers and workers in most smaller firms lacked the know-how and resources to pursue negotiated adjustment without far greater support from sectoral bargaining agents. Given the social partners’ limited human resources and organizing capacities, such support was unlikely to be forthcoming for most firms: 19 changes in employment level would surely have continued to be the dominant mode of adjustment in most workplaces without a works council. The unions’ angry resistance to the ad hoc committees was thus not motivated by the reforms’ employment consequences. Rather, they understood them as a challenge both to their control over the content of collective bargaining and to their role as the intermediaries between workers and the highly judicialized system of conflict resolution that had long been a critical resource for obtaining diffuse support from workers. 20
Despite the unions’ complaints, the Socialists’ reforms left intact the basic structure of authority in the Spanish labor market: while workplace actors gained somewhat more discretion, both the sources and locus of authority suffered only minor changes. Collective bargaining would continue to structure the setting of wages and working conditions, and disputes would still be resolved (as had long been the case) either through collective nonjudicial dispute resolution mechanisms or through administrative and judicial rulings. However much the unions disliked the Socialists’ reforms, they might well have nudged the social partners to build more articulated organizations capable of supporting collectively negotiated adjustment through workplace reorganization rather than through employment levels. Not surprisingly, the Troika complained that these reforms did not go far enough: the IMF prefaced its comments on the Socialists’ reforms with the subtitle “Bolder Reform Needed” and the complaint that “the success of these reforms will depend on implementation by social partners and by the courts.” 21
Shortly after the November 2011 general election, the the national employer association, the CEOE, and the two dominant national unions, CCOO and UGT, signed the II Agreement for Employment and Collective Bargaining, 2012–2014 (II AENC), renewing and expanding a similar agreement signed in 2010 shortly before the first Socialist reform. The agreement, like those signed periodically since the late 1990s, provided guidance rather than binding rules for negotiators of sectoral- and firm-level agreements. Nevertheless, in the context of a severe economic crisis, worker representatives would find it difficult to ignore these wage guidelines. Specifically, the agreement called for salary increases of no more than 0.5 percent in 2012, 0.6 percent in 2013 and again 0.6 percent in 2014.
More crucially for our current purposes, the agreement featured a number of commitments designed to modernize the structure and content of collective bargaining. First, the accord defined more clearly the conditions under which firms in difficulty could temporarily bypass limits on internal and salary flexibility set out in sectoral agreements. Second, sectoral bargaining units were mandated to expand firm-level negotiators’ powers with respect to working time, job descriptions and variable compensation. Finally, the sectoral units were encouraged to promote full and part-time permanent contracts over precarious ones. All of these recommendations sought to increase the dynamism of collective bargaining, making it more responsive to local conditions; in this sense, the social partners responded to the Socialists’ 2010 and 2011 reforms by at least appearing to promote a more agile and more inclusive process of negotiated workplace adjustment.
“Transforming” Spanish Labor Relations—the Conservatives’ 2012 Reform
In the event, the social partners’ commitment to these proposed changes would never be tested. On February 10 the newly arrived government of Mariano Rajoy took advantage of the PP’s absolute majority to pass aforementioned Royal Decree Law 3/2012, effectively neutralizing much of the agreement reached just two weeks earlier by the social partners. This was the first time the Spanish Legislator had ever used the law to neutralize an agreement between the main social partners.
22
The law’s preamble blamed the country’s employment regulations for the explosion in umployment provoked by the crisis and justified the extent of reforms by reference to the demands of international actors and markets: The economic crisis has rendered evident the insustainability of the Spanish labor model. The country’s labor market problems are not conjunctural, but rather structural, . . .and require a major reform that, in spite of the legal changes experienced in recent years, continues to be demanded by all of the international and European economic institutions that have analyzed our situation, by the international markets that are enormously uncomfortable with the situation of our labor market and, above all, by the data of our labor market reality, which obscure genuine human dramas. These numbers manifest that the labor market reforms pursued during the last few years, although well-intentioned and oriented in the right direction, have been a failure.
23
Sharply contrasting reactions to the new law underscored the fragility of the consensus underlying the II AENC. UGT’s secretary general, Cándido Mendez, declared that the PP reform was not intended to solve the unemployment problem but rather to turn the clock back to an earlier, more brutal [predemocratic] era of labor market regulations. 24 CEOE’s president, Joan Rosell, expressed satisfaction: “Our opinion is positive. It falls in line with the changes that have been made in Europe. It introduces flexibility and restructures a labor market that has been tremendously rigid.” 25
Some two and a half years later, the main social partners and the Minister of Employment and Social Security, Fátima Bañez, reached an “Agreement of Proposals for Tripartite Negotiations to Strengthen Economic Growth and Employment.” 26 Announced just before the August parliamentary recess and devoid of any real content regarding the collective regulation of employment relations, the agreement was almost entirely symbolic. The Agreement coincided with government claims of incipient economic recovery and the conclusion of the IMF Mission to Spain; 27 yet, unemployment still hovered near 25 percent and the PP had performed poorly in the May 2014 European Parliament elections. 28 With municipal and thirteen regional elections in May 2015 and general elections required by the end of 2015, political expediency encouraged an agreement purportedly assisting those most hurt in the crisis.
For the unions, participation in an unsigned accord filled with mere promises to negotiate was a sign of defeat. The government’s offensive against labor—through legislation, through the courts and through executive action—was largely complete. Encouraged by the Troika and enabled through its absolute majority in Parliament, the PP had not only pursued internal devaluation through salary restraint but also transformed labor relations through legal centralization and juridification. These reforms—at times reinforced by regulatory forbearance with respect to employer behavior or hidden from view by strategic opacity in data reporting—have generated a massive reallocation of power toward managers and a profound restructuring of the labor relations system. Unlike the Socialists’ reforms, the Conservatives’ 2012 reform had imposed massive shifts in the source and locus of authority over workplace regulation. The unions’ return to the negotiating table underscored their increasing inability to defend workers’ interests outside of particular firms and workplaces—and even in this restricted sphere they wield vastly reduced bargaining power.
Evidence
Formal Legal Changes
The PP’s Royal Decree Law 3/2012 provoked a one-day general strike that the government simply ignored. The law significantly reduced the costs and legal uncertainties surrounding layoffs and expanded employer authority in three fundamental ways: by lengthening the trial period for new hires to a year, by expanding the scope of employer discretion in the workplace, and by permitting the unilateral rejection of existing collective bargaining agreements. 29 These changes have favored salary reductions and weakened unions’ representative capacity.
Employers can now introduce permanent downward changes in salaries previously agreed through collective bargaining or individual negotiations for reasons related to the firm’s economic, technical, organizational or production needs. 30 If the changes affect multiple workers and are accepted by the workers’ representatives (works council, firm-level union section, or ad hoc worker committee), the agreement can be overturned by the courts only for fraud, bribery, or a civil rights violation. If no agreement is reached after a fifteen-day consultation, the employer may impose changes unilaterally following one week’s notice, although the courts can review the employer’s justification and willingness to bargain in good faith.
A comparison with the Socialists’ 2011 reform of the same statute is instructive. The Socialists referred collective disagreements to sectoral bipartisan committees and, if necessary, to arbitration procedures defined by the social partners. Under the PP’s language, the sectoral bargaining unit can only be consulted when the changes are collective and, if no agreement is reached, employers or workers may solicit binding arbitration; only an arbitrator or judge can stop an employer from unilaterally and irrevocably revising salaries (or any other aspect of internal flexibility covered by Article 41). 31
The Article 41 revisions have transformed the relationship between sectoral bargaining agents and workplace actors by increasing employers’ capacity to deviate from sectoral agreements. The 2012 reform also revolutionized sectoral-level collective bargaining by reducing unions’ bargaining power. Before 2012, collective bargaining dynamics were shaped by two legal norms, ultraactividad and extension. Under ultraactividad, all collective bargaining clauses remained in force unless both sides agreed to their renegotiation. Where the application period concluded without a new contract, the old contract remained in force. Under extension, sectoral agreements automatically applied to all firms within the bargaining unit’s sectoral and geographical range. 32 Sectoral employer representatives pursuing wage and nonwage concessions faced a Herculean task: unions could simply refuse to make concessions. 33
The 2012 reform revised extension rules so that firms are now permitted to negotiate their own collective bargaining agreements with clauses deviating down, as well as up, from the sectoral agreement with respect to salaries, hours, job categories, contracting and work/life balance. 34 The reform also limited ultraactividad (Article 86 ET). If either party denounces an agreement, it loses validity one year after its specified termination date; the proximate higher-level agreement (provincial, autonomous community, or statewide) then applies. Should there be no superior agreement, employment relations are regulated by the Workers’ Statute. The minimum monthly salary in this latter case would now be the state-set minimum of €645.30. 35
These changes shifted the balance of power within Spanish labor relations in favor of management and business interests. Where firm-level agreements were more generous than sectoral ones, employers could pursue concessions by threatening to denounce the agreement. At the same time, sectoral bargaining agents could now threaten to eliminate collective bargaining coverage for entire sectors. Whereas the Socialists pursued more flexibility in collective bargaining over wages and working conditions, the PP sought to limit the collective regulation of employment relations in workplaces without a widely unionized workforce. Because a higher percentage of Spanish employment is concentrated in nonunionized, small and medium-sized enterprises (SMEs) than in most EU-15 countries, the vast expansion of unilateral employer discretion in the 2012 reform posed an existential threat to any form of collective regulation in most workplaces.
In May 2013, with hundreds of collective bargaining agreements nearing the end of their automatic one-year extension, the social partners reached a national agreement to promote the negotiation of extension periods for these agreements. 36 However, such extended ultraactivity agreements only apply to some 45 percent of all collective agreements; in these other cases, employers’ negotiating power (at the firm or the sectoral level) is greatly enhanced by the possibility of dropping the agreement. 37 More recent data suggest that collective bargaining coverage rates have crept back up into the 70 percent range, but this scarcely indicates a resumption of joint regulation in the workplace.
The Erosion of Collective Bargaining and Working Conditions
Spanish data on collective bargaining have never been terribly transparent, but the Ministry of Labor took a number of steps shortly after the PP came to power that made the situation considerably worse. It reduced reporting of collective bargaining agreements to those registered electronically (claiming that it would be saving some €400,000) and eliminated the Labor Market Survey (Encuesta de Coyuntura Laboral), which provided the most extensive data available on the evolution of internal flexibility. 38 For this reason, the data we rely on are largely anecdotal or individual-level.
A November 2013 survey of more than 200 larger firms (81.3 percent > 50 employees) offers details regarding the impact of the 2012 reform on firms’ employment and labor relations practices. 39 Employers reported that they were able to pay lower severance, reduce wages and hours, and withdraw from sectoral collective bargaining agreements. Approximately 43 percent of firms had laid workers off over the last year; more than 20 percent had taken advantage of new procedures to promote internal flexibility and escape clauses from in-force agreements to reduce wages. The average salary reduction was approximately 10 percent.
Approximately 11 percent of firms had opted out of collective bargaining clauses regulating salaries (86 percent) and working hours (43 percent). Of firms whose collective relations were regulated by a sectoral-level agreement, 27 percent of large firms and all firms with fewer than fifty employees had begun or were planning to open negotiations for a firm-level contract. 40 These data are supported by unions’ polls of their members and visits to firms without union representatives. 41 The Confederación Sindical de Comisiones Obreras (CCOO) notes that in the first twenty-nine months after the reform, almost 1200 new company-level collective bargaining agreements were created, whereas previously there were some 200 to 250 per year. The union’s survey suggests that much of the increase came in small, service-sector firms: contracts initiated by employers and signed by worker representatives unconnected to unions with salaries and conditions far below those in the once binding relevant sectoral agreements.
Recent studies of salary data by some of Spain’s leading orthodox labor economists paint a dire picture of the impact of the crisis on wages and the real inability of union negotiators to protect workers’ living standards. In 2013, the median monthly salary for a newly contracted worker had fallen to €978; in real terms, just four Euros greater than in 1993. For those 29 and younger, the median was only €801. 42 The real earnings of workers who had held a permanent job in the same firm since 2007 (just before the crisis) or earlier were on average 2.6 percent less in 2013. Critically, such workers made up only 46.8 percent of all permanent contract holders in 2007. For the 18 percent with a permanent job in another firm, the real salary was now on average 24.6 percent lower (and the median 33.6 percent). For the 11 percent who held temporary positions in 2013, the average real salary decline was over 47 percent. Some 18.9 percent of those who had held permanent positions in 2007 were unemployed. 43
In a context of severe economic crisis, few workers with permanent contracts will have willingly chosen to leave their 2007 positions. That less than half of those with permanent contracts in 2007 were with the same firm and contract type in 2013 suggests that firms are now making substantial use of the discretionary power to dismiss workers granted them under the 2012 reforms. Critically, the 18 percent of workers with permanent contracts in other firms clearly split into two groups; for one small group—the voluntary leavers—wages have actually increased modestly; for the remainder, they have fallen sharply. 44 Individual market power rather than collective bargaining is increasingly the central determinant of wages and working conditions in Spain.
Given the woeful tale told by the data reported here, it is hardly surprising that the government prefers to obscure from view the extent to which the 2012 reform has disorganized employment relations. The remainder of this article will clarify how the labor market reforms put in place by the PP—along with additional measures taken to limit effective resistance to these reforms in the courts, the labor market, the parliament or the street—have institutionalized winner-take-all dynamics.
Beyond Regulatory Reform: Recasting the Political Economy of Labor in Spain
With an absolute majority ensuring passage of any legislation, the PP’s efforts to recast employment relations faced three major obstacles: constitutional and procedural objections from recalcitrant judges and labor inspectors, collective action in the firm, and broader unrest in the streets. In the two years following the passage of Royal Decree Law 3/2012, the government took significant actions to safeguard its reforms on all three fronts.
Taking on the Judiciary
Following the new law, judges regularly rejected collective layoffs, workplace reorganizations, and salary reductions for lack of cause or for failure to follow precedent, 45 garnering frequent criticisms from employers and their representatives. 46 The reform was also challenged in the Constitutional Court on the grounds that it contradicted a constitutionally protected balancing of the rights of employers to manage with those of workers to effective representation and a decent living.
On July 16, 2014, the Constitutional Court upheld three critical aspects of the reform, rejecting claims of unconstitutionality put forward by the parliament of the Navarre region. The decision was met with an energetic dissent, joined by two other judges, from Fernando Valdés Del-Ré, one of Spain’s foremost progressive labor law scholars. The court’s majority decision was hardly a surprise. In June 2013, the government took advantage of a partial renovation of the court to create a conservative majority (seven to five) for the first time in a decade. The new president of the court, Francisco Pérez-Cobos, had been a PP member since 2007. He was also the author, along with his then clerk, Javier Thibault, of a 2010 law journal article proposing major changes in collective bargaining regulation. 47 When the PP took power, Thibault was named Director General of Employment in the Ministry of Employment and Social Security, which adopted virtually whole cloth the changes proposed in their article. 48
The ruling confirmed the reform’s inversion of the prevalence of sectoral over firm-level agreements and the right of either party to request arbitration in collective disputes regarding opt-outs from in-force contracts. It also declared constitutional the one-year trial period permitted under the highly subsidized “support for entrepreneurs” contract, which allows firms with fewer than fifty employees to dismiss new workers without severance (or cause) during their first year. Together with its important reductions in severance pay and the elimination of ultraactividad—an issue recently settled by the Supreme Court—these opinions ratify the most significant changes introduced by the 2012 reform.
As in the case of the Constitutional Court, the government had good reason to expect that the Supreme Court would consolidate doctrine regarding the reform in ways consistent with the legislator’s intentions. The Justice Ministry’s 2013 reform of the General Council for Judicial Power (Consejo General del Poder Judicial), the formally self-governing body overseeing the courts, imposed simple majority voting for council decisions instead of the previously required qualified majorities. As a consequence, the conservative majority of the council was able to impose a conservative majority on the Supreme Court. 49
For critics within the judiciary, these changes undermine fundamental constitutional guarantees and shift the balance of power toward employers. In a country where the vast majority of firms have fewer than twenty-five workers, firm-level agreements effectively marginalize large numbers of workers from union protections as employers pressure local, nonunion representatives to sign agreements that offer conditions inferior to those at the sectoral level. As the dissenting opinion argues, “the objective is not an articulated decentralization of collective bargaining but rather, more crudely, a disaggregated and atomized decentralization.” 50
Progressive jurists criticize the right to request binding arbitration to enforce opt-outs from collective agreements as a similarly unconstitutional intervention in the rights of unions and employer associations to regulate their affairs. The central point of contention is the state’s participation in the national and regional collective bargaining commissions that choose arbitrators. For the majority, the government’s constitutional obligation to “defend productivity” (Article 38, Spanish Constitution) justifies both the decentralization of bargaining and the State’s involvement in obligatory arbitration. 51 For the dissenters, economic exigencies cannot justify the effective annulment of workers’ constitutional rights to bargaining collectively (CE 37) or the right of unions and employer associations to manage their own affairs (CE 8). 52
In sum, the Constitutional Court’s decision reduced lingering uncertainties about the new model of labor relations, legitimizing the government’s efforts to minimize the impact of collective regulation on employer decisions.
Two points here are central for our argument. First, the reform has so reduced the costs of redeploying or dismissing labor market insiders that the prime beneficiaries at this point of the longstanding dualism plaguing the Spanish labor market are not a particular class of workers but rather employers and their political allies. As the salary data presented earlier suggest, workers who retain permanent jobs today do so because of their value to their employer, not because of restrictions on dismissals. Nevertheless, precarious contracting, whether recognized as temporary or disguised through subsidized, permanent contracts of various kinds, will continue to plague the Spanish labor market going forward. Second, the preservation of the insider/outsider divide directly contravenes one of the most central demands of the Troika.
The PP labor market reform was only one plank in a broader offensive to reduce the power of any and all labor market intermediaries (unions, employer associations, labor inspectors, judges and, as we shall see, ordinary citizens). These transformations represent the flip side of changes in financial regulation across the European Union, characterized by more centralized policymaking and regulatory oversight and a simultaneous expansion of de jure or de facto discretionary and, increasingly, technocratic authority. In contrast, labor market reforms, at least in Spain, have increased the marketization of policymaking (more discretion for employers) while at the same time reducing the de jure or de facto discretionary authority and political power of labor market intermediaries.
The Constitutional Court’s decision accepts the central tenets of a reform that decisively reduces the capacity of courts to second-guess employers. Confident that the court would accept a more limited role in labor market governance, the government simultaneously pursued other actions intended to neutralize resistance to a winner-take-all labor market. In the following sections, we detail two of the most important: severe restrictions on the capacity of the labor inspection service and legal and administrative changes that represent a direct threat to the right to strike and, indeed, the capacity to mobilize political protest in general.
Taming the Labor Inspection Service
Before the 2012 reform, the Labor Inspection Service played a central role in collective dismissals. The inspectors’ mandate included reviewing the negotiating parties’ documentation, requiring additional supporting evidence from employers, and emitting opinions regarding the adequacy of documentation and the parties’ fulfillment of their good faith bargaining obligations. In many cases, inspectors served as mediators to facilitate agreements and identify alternatives to dismissals. 53 Given worker representatives’ limited resources in most firms, inspector oversight provided an often critical guarantee of worker rights at these critical moments.
Following the 2012 reform, the the Inspection Service’s Director General (a civil servant appointed by the Minister of Employment and Social Security) sent out new instructions to inspectors. 54 Operational Criteria (OC) 92 (November 28, 2012) restricted inspectors’ role in collective dismissals to procedural oversight and clarified that their recommendations were no longer obligatory. Inspectors were to refrain from requesting complementary documentation beyond the fifteen-day consultation period, and in no case were they to evaluate the sufficiency of the causes motivating dismissal or work reorganization (a core aspect of the inspectors’ work previously). Going forward, only the judiciary would be authorized to evaluate the substance of employers’ claims.
Labor market observers differ over the wisdom of Royal Decree Law 3/2012’s rebalancing of the interests of employers and workers for firms in difficulty and, particularly, the amplification and clarification of justifications for changes in conditions or dismissals. But the law clearly upholds the formal (and for most employment law scholars, constitutionally mandated) requirement that changes be justified. It is here that we can appreciate the real significance of OC 92: it makes it far less likely that workers will dispute employers’ causal claims, even when they would be unlikely to stand up to judicial scrutiny. 55 In yet another example of strategic opacity, this transformative OC was not published in the public forum where less polemical criteria are typically made available. 56
Undermining Collective Resistance
Since the PP came to power, an unprecedented number of strikers have been pursued for both administrative and criminal violations. In 2014, CCOO and UGT issued a joint report documenting some eighty-one cases against strikers charging at least 261 workers. About forty workers faced the very real prospect of imprisonment, although none of the cases involved serious acts of violence. 57 Unions and jurists have pointed out that the criminal penalties sought for unionists contrast sharply with the prosecutorial forbearance reflected in the total absence of criminal penalties for even the most brazen anti-union practices pursued by employers, even though both kinds of violations are classified under the same statute. 58 Similarly, Spanish prosecutors’ recent criminal cases against bankers have, unlike those against strikers, included requests for less than two years’ jail time, which means probation for those with no criminal record. 59 Unions have denounced the sudden and selective aggressiveness of national and regional prosecutors before the International Labor Association, the European Committee for Social Rights and the Parliament. 60 They have also received letters of support for their campaign from the progressive associations of judges and labor inspectors. 61
The government has also taken steps to restrict public protests that might raise broader awareness of perceived political and economic injustices. In November 2013, the Interior Ministry distributed a draft proposal of its new Law for Citizen Security. As part of the legislative review process, the document was evaluated by the General Council of the Judiciary and the analogous body overseeing the prosecutor’s office, the Prosecutorial Council (Consejo Fiscal); both criticized the draft for granting excessively broad discretional authority to the police in dealing with public protests and for threatening constitutional protections for citizens charged with violating the law. 62
On July 11, 2014, the Council of Ministers approved a revised version of the Law for Citizen Security. 63 It doubled minimum fines and raised substantially the maximum financial penalties for violating norms governing public protest; fines for minor violations now range from €100 to €600 and for serious and very serious violations from €600 to €600,000. The law nearly doubled the number of sanctionable behaviors, largely by reclassifying actions previously codified as criminal violations. This was not done to make the law less punitive, but rather to increase both sanctions and the executive’s discretion over the law’s application. The new sanctions proposed are in most cases significantly higher than those in the criminal code. Moreover, fighting administrative sanctions is far more expensive and difficult than criminal ones: the Ministry of Justice introduced fees for accessing the Administrative Courts, whereas access to the Criminal Courts is free; 64 in administrative matters, unlike criminal ones, police reports alone are sufficient evidence for a judge to confirm the sanction.
These new restrictions follow on the heels of a considerably more belligerent attitude toward public protest. The number of public meetings that failed to comply with the law increased slightly from 3,173 in 2011 to 3,461 in 2012, the first year the PP was in office. However, the number of sanctions levied increased from 366 to 1,722. In 2012, the government was notified of 44,233 public protests and prohibited 294. In 2013, with virtually the same number of protest notifications (43,170), the number of protests prohibited increased to 1,682. Regarding protests specifically related to labor concerns, in 2012, there were 15,182, of which only ninety-five were prohibited; in 2013, with a similar number of protests (16,587), 815 were prohibited—almost ten times as many. If we consider protests organized by unions, there were eighty-eight prohibited in 2011, 77 in 2012 and 644 in 2013, although in 2013 there were ninety-five fewer protests (18,600) than in 2012. 65
The PP’s 2012 reform shifted the source of authority in Spanish employment relations away from collective bargaining and administrative oversight and toward a new statutory framework; these statutes, in turn, shifted the locus of discretion regarding employment matters away from collective regulation and toward the employer. The Rajoy government simultaneously introduced legal and administrative reforms that, as we have just documented, served to restrict the ability of the judiciary, the Labor Inspectorate or collective action to obstruct the political economic transformation at the heart of the 2012 labor market reform. The asymmetries in the legal changes implemented by the PP—in both formal law and enforcement—are unmistakable. The law has been liberalized (i.e., restrictions weakened, limited, or repealed) and its enforcement enfeebled where it empowered or benefitted labor; at the same time, the legal powers of the State and employers were strengthened and resistance made more difficult where this served the interests of business and conservative partisan interests. Law and legal processes not only reflect and reward the political economic winners, but also function to constitute and entrench them going forward.
The Economic and Political Logics of Spanish Reforms
The PP’s 2012 reform and its less visible—but no less critical—efforts to challenge judges, labor inspectors and worker protest have reshaped Spanish labor relations. Neverthess, given the Troika’s aggressive push for more decentralized and less organized employment relations across Southern Europe, one might argue that the PP was largely following orders. There is considerable evidence to suggest otherwise; the crisis and the pressures imposed by the Troika provided Spanish conservatives with the cover they needed to pursue a project whose economic and political logics differ significantly from the espoused objectives of the EC, the ECB, and the IMF.
The Troika, the OECD and the Bank of Spain unsuccessfully pressed the Rajoy government throughout its mandate for further labor market reforms. Their recommendations centered on a small number of proposals to address the persistent problems of labor market duality and serious obstacles to intermediation and labor mobility. Specifically, they suggested (1) further reductions of severance pay for permanent contracts to reduce the gap that remains with respect to temporary contracts (at least for firms with more than fifty employees); (2) lengthening the trial period (with no severance pay during the trial period) for new employees in larger firms to match the full year accorded to firms with fewer than fifty employees; (3) eliminating temporary contracts all together by creating a single contract category with gradually ascending severance; (4) increasing investments in active labor market policies managed by the regional governments and ensuring that best practices are shared and problems identified and addressed. 66 These recommendations dovetailed with those long advocated by orthodox labor economists in Spain. 67
The government was distinctly disinclined to follow this advice. Both Rajoy and Fátima Bañez, the Minister of Employment and Social Security, repeatedly stressed that the government was satisfied with the 2012 reform. 68 Why did they refuse to pursue these or other reforms like those suggested by experts both inside and outside Spain: an increased VAT with a significant part of the revenues obtained making up for a significant reduction in social security contributions, thereby reducing total labor costs (effectively an alternative path to internal devaluation); more aggressive liberalization of product and service markets to reduce the costs for the average business (again, an effective internal devaluation); or more serious attention to active labor market policies to increase labor productivity (again, an internal devaluation)?
We contend that the key to this puzzle is that the Spanish government and the experts counseling further reforms did not share the same objectives. In introducing its recommendations for further reforms, the OECD stated that “Whether or not the 2012 labour reform is sufficient to transform the Spanish labour market into one that combines flexibility with fairness and worker security remains to be seen.” 69 Christine Largarde, managing director of the IMF, also insisted that further labor market reforms were needed: “Both firms and their workers need to be assured that they can reach appropriate agreements on working conditions and wages.” 70
Once the Spanish government was forced to seek assistance from the Troika to manage the sovereign debt crisis generated by the socialization of domestic banking losses, it had no choice but to slash spending and pursue internal devaluation. No mainstream labor economist would likely dispute this claim; neither would most differ with the exhortations of the OECD or IMF to deepen reforms in markets for labor, goods, and services in order to restore both growth and economic opportunity for all citizens. Whether or not the reader—or the Troika—believes that these steps will lead to economic recovery or restore social solidarity, these are nevertheless the values and scripts of economic theory orienting the policy prescriptions of “serious” people in positions of authority. These were not, however, the values orienting the Spanish government’s reform agenda.
Luis de Guindos, Minister for Economy and Competitiveness, made clear that wage reductions were the cornerstone of his government’s strategy for economic recovery. After ridiculing the Socialists’ efforts to pursue countercyclical, “Keynesian” fiscal solutions, he laid out his government’s approach: In the case of Spain we gained competitiveness in the past through the devaluation of the peseta. We gained rapidly competitiveness but we had second round effects . . . inflationary pressures that immediately started to contaminate wages. Now it’s totally different. Now we have gained competitiveness through internal devaluation, through outperforming our peers in terms of the evolution of labor unit costs. And without any sort of second round or side effects. . . . This is going to be different because it is more sustainable, . . . To flexibilize labor markets is something we have to do. . . . It’s how we’re going to grow in the medium term. [Emphasis added]
71
While outside observers stress—at least rhetorically—the importance of balancing labor market competitiveness with equity concerns, the main architect of Spain’s economic strategy openly declared that for his government, cheaper is better.
Not surprisingly, more politic members of the government were less forthright regarding the wage consequences of their policies, particularly when speaking in Spanish. The Minister of the Treasury, Cristóbal Montoro, declared before parliament in October 2013 that salaries were not declining, but rather “moderating their rate of increase.” 72 Such statements contrast sharply with the conventional wisdom in the street and with the analyses of labor economists. Indeed, the OECD reports that from 2007 to 2011, market income inequality in Spain rose more than in any other EU country. 73
In sum, internal devaluation was not merely a requirement imposed by the Troika; it was also an opportunity seized by the PP to transform the organizational and distributional dynamics of the labor market and to pursue a longer term ambition of reshaping the structure of political contestation. For the PP, the primary flaw with the prior framework of labor market regulations appears to have been the possibilities it provided for collective action, not the inequalities occasioned by its contracting rules. The path the government has chosen to drive down wages directly undermines the governance role—and the mobilizing capacities—of Spanish unions. That sectoral collective bargaining continues to exist in Spain at all reflects the fact that it is useful to employers as a vehicle for extracting concessions from workers.
A similar argument can be made regarding the government’s apparent reluctance to eliminate the Spanish labor market’s dual structure, widely considered one of its most serious dysfunctions. Spanish unions have often been accused of defending insiders—workers with permanent contracts and considerable tenure—at the expense of new hires and those with temporary contracts. 74 Spanish governments’ historic reluctance to address this duality has long been attributed to union resistance; however, given the ferocity of their offensive against collective rights, it would strain credibility to argue that the PP feared antagonizing the unions. Rather, we conclude that the PP chose to preserve dualism because it was convenient for capital (providing a docile and low cost army in a context of labor abundance) and politically expedient to encourage working class divisions that would disadvantage parties on the left.
Given that the PP’s labor market reforms departed so significantly from the Troika’s recommendations, one might question the causal link we have proposed between the Eurozone crisis and the political economic transformation pursued by the Rajoy government. Perhaps we have merely described a conventional partisan political story: the PP enjoyed an absolute majority and took advantage of it to remake the terms of political economic engagement in ways beneficial to its core constituents and its future electoral prospects. A comparison with the previous PP absolute majority under the leadership of José María Aznar in the early 2000s is instructive.
In early 2002, the then minister of labor, Juan Carlos Aparicio, opened negotiations with CEOE, CCOO, and UGT to discuss reforms. He proposed important reductions in severance pay and limitations on access to unemployment benefits and subsidies for agricultural laborers. Unable to reach an agreement, the government made use of its absolute majority in Parliament to pass the reform through an emergency decree law supported only by PP deputies. 75 The unions responded with a general strike on June 20. By July, the minister of labor had been sacked and a new round of negotiations opened with the social partners. In October, the Parliament approved a new reform law withdrawing 80 percent of the measures decreed in May. 76 Ten years later, another PP government with an absolute majority presented a labor market reform to Parliament that was again passed with the sole support of its own deputies to fulfill the party’s long-held political objective of weakening organized labor.
In contrast with the failed 2002 reform effort, the Rajoy government refused even to meet, much less to negotiate, with the social partners while it prepared the 2012 reform. When this reform was likewise met with a general strike—by most accounts a far larger mobilization than 2002—the government took a radically different tack. With the strike still under way, the minister of labor announced that “The reform path is unstoppable. . . . [The changes we’re making] are necessary to return to economic growth and employment creation.” 77 Throughout the day and into the evening, hundreds of strikers were arrested across the country for public disturbances and vandalism, a repressive response unprecedented in general strikes since the return to democracy in the late 1970s.
Why was the Rajoy government so intransigent, unlike in 2002, in the face of seemingly greater opposition in both the Parliament and the street? The answer lies in the structural and political factors that conspired to weaken greatly the forces opposed to the reforms. Structurally, the Spanish economy was in far worse shape than in 2002. In the first quarter of 2012, the Spanish unemployment rate reached 24.2 percent, three points higher than a year earlier; in the first quarter of 2002, it was 11.2 percent, just one point higher than the year before. 78 With almost a quarter of the active population unemployed and many more terrified of losing their jobs, labor opposition could not be sustained much beyond a one-day general strike. The domestic political context also strengthened the PP’s hand. In 2002, general elections were less than two years away, and the Socialists, while still relatively unpopular, could hardly be counted out. In 2012, the electoral story was radically different.
The Socialists had not only presided over a spectacular collapse of the economy since early 2008 (with unemployment rising from 10 percent to 22 percent), but also passed a series of reforms alienating their base even further. Although we have emphasized the important differences between the Socialists’ and conservatives’ labor reforms, even the former—passed under intense pressure from the Troika—had greatly angered the Socialists’ base in organized labor. Frustration turned to outrage when, in their final major legislative measure, the Zapatero government passed, with support from the PP, the first amendment to the 1978 Constitution. The September 2011 reform of Article 135, modeled on the German constitutional reform of 2009, anticipated the structural balanced budget rules for the Eurozone enshrined in EU law in the March 2012 Fiscal Pact (Treaty on Stability, Coordination and Governance). 79 The amendment was bitterly opposed by the remaining forces in Parliament for the rapidity with which it was approved, its enforceable restrictions on regional government debt and deficit, and the constitutionalization of a commitment (absent from the German reform) to giving debt service near absolute priority over other fiscal goals. 80
The PP secured an absolute majority in the November 2011 election with 44.6 percent of the vote, increasing its 2008 total by just 5.4 percent. The Socialists, meanwhile, suffered an unprecedented loss. In 2008, they won 43.9 percent of the popular vote; in 2011, they secured only 28.7 percent, a decline in support of more than 38 percent. The collapse of the Socialists and the labor market crisis decimating organized labor provided the PP with the opportunity they had long sought to reshape the Spanish political economy.
The Eurozone Crisis and the specific demands made by the Troika are generally understood to have significantly reduced national sovereignty in the debtor countries. While this is certainly true in many domains (particularly with respect to fiscal policy), these same factors greatly enhanced the PP’s room for maneuver in the realm of domestic labor market reform. As Figure 1 shows, the risk premium on Spanish government debt increased steadily beginning in late 2009, accelerating sharply from April 2011. These market pressures reflected the parlous state of Spanish public and private finances; they also reflected market uncertainty regarding Madrid’s willingness and ability to cut public spending and liberalize markets as demanded by the Troika. In early 2010, the Socialists abandoned countercyclical fiscal policy, introducing sharp cuts in public spending and passing two labor market reforms. Having failed to mollify the Troika or the markets with these measures, they took the “responsible” steps of incorporating a balanced budget requirement into the Constitution and calling early elections five months before they were required to do so. With their opposition in tatters, rising mass unemployment hobbling labor, and the Troika demanding further reforms, the PP had unprecedented latitude and cover to pursue its long-desired domestic agenda.
Spanish Ten-Year Government Bond Yields versus German Bonds (Monthly Average).
The PP’s 2012 labor market reform—justified by the government as the only possible response to structural pressures for internal devaluation—was only one element in a broader offensive against workers, organized labor, and their allies made possible by the Troika’s insistence on internal devaluation to ensure the continued recycling of capital back to the core of the Eurozone. The PP’s aggressive disorganization and repression of organized interests in the workplace through legislative reform, through new limitations on the ability of an independent judiciary and inspection service to restrict employer discretion, and through prosecutorial aggressiveness toward dissenters (and forbearance for employers) went far beyond the Troika’s demands. At the same time, the PP has resisted demands for reforms not supportive of its broader project, a project that has been furthered through the deployment of strategic opacity. 82 Rajoy and his party understood that demands for internal devaluation—and the structural and political ravages occasioned by the policies addressing these demands—were the ideal pretext for crafting a winner-take-all, neoliberal economy within the periphery at the service of elites both at the core and at home.
Conclusion
The Eurozone crisis has shaken the politics, law, and economics of the EU and its member states to their foundations. The policy dynamics and juridical changes unleashed are charged and powerfully constrained both by economic exigencies and by the politics—or more precisely, the shifting allocations of political economic power—within the European Union, the member states, and among interest groups at both levels. The German-led politics of Eurozone crisis management precluded a coordinated Keynesian stimulus program and forced Europe into what can only be described as an economic depression of choice. Sovereign debtors on the Eurozone’s periphery were left with internal devaluation as the residual adjustment mechanism, creating unprecedented opportunities for anti-labor politics and radical labor relations reform at the national level. 83
The Troika’s demands for structural reforms in labor markets thus created the opportunity space exploited by the PP to weaken its most institutionally and economically potent political opponents. It did so by revising labor relations and employment law to reallocate power and discretionary authority within the national political economy. The Spanish labor reforms simultaneously centralized control over labor relations via national-level statutory law and devolved discretionary authority away from the Labor Authority and the courts, perceived as pro-labor, to the level of the firm and its managers. Labor law reform forcibly displaced a collective, social, and solidaristic conception (if not always the practice) of employment relations with a neoliberal, individualistic, and atomistic one through the imposition of a contractual and market-conforming legal framework.
The Troika’s overwhelming concern with achieving internal devaluation and the protection of core financial institutions left the countries of Southern Europe and Ireland with little choice but to reform their labor markets. However, the Troika’s relative indifference to the details of those reforms created an enormous opportunity for Spanish conservatives to transform a long-standing labor regime in ways that veered sharply away from the Troika’s prescriptions in important respects. The implications of the conservatives’ labor regime transformation for the distribution of political and market power, the rule of law, and democratic legitimacy are today increasingly clear and deeply disturbing. Whether these reforms have achieved the Troika’s hopes for a more competitive economy and a more integrated Europe is an altogether different, and far more doubtful, matter.
The Troika’s grim austerity project broke the Socialist party and provided the PP with an unprecedented opportunity to remake the country’s political economy. Four years later, Spaniards returned to the polls. Although some 1.2 million more votes were cast in December 2015 than in November 2011, the PP still received 33 percent fewer votes; the Socialist vote total declined a further 21 percent. Austerity almost broke the Socialist party; it now appears to have broken the Spanish party system: two major new national parties, Podemos and Ciudadanos, have unsettled the electoral system so much that new elections have been scheduled for June 2016 after no government could be formed. With Spain unlikely to be governed by strong parliamentary majorities anytime soon, the political economic transformation unleashed by the PP is likely to endure for years to come. Where the creation of a winner-take-all political economy in the United States took at least a generation, in Spain the institutional and partisan political prerequisites for a winner-take-all system appear to have been put in place in less than a single election cycle.
Footnotes
Acknowledgements
The authors would like to thank the editors of Politics & Society for helpful comments on two earlier versions of the article.
Declaration of Conflicting Interests
The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The authors received no financial support for the research, authorship, and/or publication of this article.