Euro Plus Pact

The Euro Plus Pact is part of the European Union’s set of four main rules on enhanced EU economic governance, which came into force on 13 December 2011. They are:

• stronger preventive action through a reinforced Stability and Growth Pact (SGP) and deeper fiscal coordination (the Euro Plus Pact);
• stronger corrective action through the reinforced SGP;
• minimum requirements for national budgetary frameworks;
• preventing and correcting macroeconomic and competitiveness imbalances.

The Euro Plus Pact is seen as a complementary agenda to the SGP. It aims to guarantee the stability of the eurozone and also allows for non-euro area countries to participate on a voluntary basis. It was agreed in March 2011 by the eurozone Member States as a reflection of their interdependence, and was named the Euro Plus pact because it was also agreed by six non-euro area countries: Bulgaria, Denmark, Latvia (which joined the euro zone in January 2014), Lithuania, Poland and Romania. The Pact focuses on four key areas:

• competitiveness;
• employment;
• sustainability of public finances;
• reinforcing financial stability.

The Pact commits the signatories to even stronger economic coordination in competitiveness and convergence, including areas of national competence, with the countries’ leaders annually agreeing and reviewing concrete goals. These commitments are included in the Member States’ National Reform Programmes. The pact is also integrated into the European Semester and the Commission monitors the implementation of the commitments.

The pact has a number of implications for social and employment policy. For example, under the title of fostering competitiveness, it states that progress will be assessed on the basis of growth in pay and productivity and competitiveness adjustment needs. In order to assess whether wages are evolving in line with productivity, unit labour costs will be monitored and compared with developments in other euro area countries and major trading partners.

The pact agrees that, while respecting countries’ individual traditions of social dialogue and industrial relations, two main measures are needed to ensure that costs are kept in line with productivity. The first is a review of wage-setting arrangements and ‘where necessary, the degree of centralisation in the bargaining process’, and indexation mechanisms, although the pact emphasises that the autonomy of the social partners in collective bargaining should be maintained. The second is ensuring that wage settlements in the public sector support the private sector’s efforts to remain competitive.

The pact also contains a number of measures aimed at fostering employment. It states that progress towards a well-functioning labour market will be assessed on the basis of long-term and youth unemployment rates and labour participation rates. Although it notes that Member States should be responsible for the policy actions they choose, the following areas should be given particular attention:

• labour market reforms to promote flexicurity, reduce undeclared work and increase labour participation;
• lifelong learning;
• tax reforms, such as lowering taxes on wages to make work pay, and taking measures to encourage second earners to join the workforce.

The pact also contains a number of provisions aimed at ensuring that pension systems are sustainable. These include tailoring the pension system to national demographics, such as aligning the effective retirement age with life expectancy or by increasing participation rates, limiting early retirement schemes and using targeted incentives to employ older workers, particularly those over the age of 55.

See also: Broad Economic Policy Guidelines; Collective bargaining; Collective industrial relations; Economic And Monetary Union; Employment guidelines; European economic governance; European Employment Strategy; Lisbon Strategy; National Action Plans; Treaty on Stability, Coordination and Governance.