Industrial Relations in Europe 2012 - European Commission - Europa

had a lengthy engagement with NPM reforms, but its high levels of debt makes it more exposed to
financial markets and more susceptible to austerity measures than the other countries in this cluster.
This chapter develops this analysis building on the definition, structure and dynamics of the public
sector outlined in chapter 3, concentrating on developments since the onset of the crisis in 2008 but
noting prior reforms as relevant. The definition of the public sector used in this chapter focuses on
core public services as covered by the NACE classification system i.e. category O (Public
administration and defence; compulsory social security); category P (Education) and category Q
(see box 1.1 in chapter 1). This chapter outlines trends in public expenditure and recent public
sector reforms, before considering austerity measures. These include pay freezes, pay cuts and
reductions in employment. The process of change, in terms of the extent of social dialogue, and the
responses of the social partners, especially in terms of the extent of mobilisation, are also analysed.
Box 4.1 Information sources
The data in this chapter, unless otherwise indicated, is drawn from: Eurostat, Eurofound’s European
Industrial Relations Observatory; EPSU Reports; ETUI collective bargaining newsletter; Financial
Times; Labour Research; OECD country studies and the private subscription service Planet Labor.
4.2 Public expenditure trends and public sector reform
The economic crisis emerged in earnest during 2008 with governments extending financial support
to ensure the solvency of the banking sector. The shock to the financial system, however, caused a
sharp slowdown in economic activity and many governments responded by adopting large stimulus
packages to boost aggregate demand, output and employment.
As Table 4.1 indicates, general government expenditure, which includes central, state and local
governments and social security funds, amounted to 49.1% of EU-27 GDP in 2011, around EUR 6
200 billion (European Commission 2012d). There has been considerable variation over the last
decade. Between 2002-2007 government spending relative to GDP was on a downward trajectory,
but there were exceptions, with a rise of more than 2 percentage points of GDP in Greece, the UK,
Romania and Ireland and a rise of over 1 percentage point in Portugal and Cyprus. By contrast,
countries such as Germany, Sweden and the Czech Republic reduced government expenditure as a
proportion of GDP by more than 4 percentage points in this period and as discussed below, the first
group of countries have confronted the strongest pressure to reduce public expenditure.
Following the onset of the crisis the picture altered markedly as countries sought to sustain
economic growth and prevent a sharp rise in unemployment, alongside the need to inject resources
into the ailing financial sector. In addition to short-term pressure to deal with deficits, over the
medium term, demographic change, especially the ageing population, is placing pressure on
governments to address debt problems as the workforce supports a higher proportion of retired
workers (European Commission 2012a). From 2008 there was an increase in government
expenditure as a proportion of GDP and this trend became much more pronounced during 2009.
This trend was mainly accounted for by the decline in the denominator – GDP – after 2008.
Subsequently, from 2010 government expenditure as a percentage of GDP started to decrease but
with some notable variations around the mean.
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