Bundesbank shifts stance and backs unions’ push for big pay rises
The Bundesbank has backed the push by Germany’s trade unions for inflation-busting wage settlements, in a remarkable shift in stance from a central bank famed for its tough approach to keeping prices in check.
Jens Ulbrich, the Bundesbank’s chief economist, told Spiegel, a German weekly, that recently agreed pay rises of more than 3 per cent were welcome, despite being above the European Central Bank’s inflation target of below but close to 2 per cent.
In an article published on Sunday, Mr Ulbrich said that recent wage trends were “moderate” given Germany’s relative economic strength and low levels of unemployment. His comments echo the views of Jens Weidmann, Bundesbank president, according to a senior central bank official.
The push for higher pay underlines the heightened concern among even the most hawkish members of the ECB’s governing council over the eurozone’s low inflation and signs that the region’s fledgling recovery is stalling. On Monday, the Bundesbank acknowledged the German economy was unlikely to have grown at all over the three months to June.
The calls for higher wages by Germany’s central bank highlight one of the most puzzling conundrums to befall the eurozone’s economic powerhouse: why, despite record low unemployment, the average German worker’s wage has hardly risen over the past decade. The problem is important for the region as a whole, as economists view a pick-up in spending by Germans as a prerequisite of the eurozone’s economy returning to full strength.
Ursula Engelen-Kefer, a lecturer at Hochschule der Bundesagentur für Arbeit university and former deputy chair of DGB, Germany’s confederation of trade unions, said she was “flabbergasted” by Mr Ulbrich’s remarks.
“It goes to prove that even the central bank recognises that we can’t improve internal economic growth without wages,” she added.
Stefan Körzell, a member of the DGB’s board said, while the confederation was “pleased” by the Bundesbank’s move, trade unions had done well without the central bank’s advice in the past and would continue to do so in the future.
While German wage settlements this year were encouragingly strong, the central bank signalled the trend must continue if consumers in the eurozone’s largest economy are to provide the lift to demand that is so desperately needed.
Until now, the German central bank has backed only the most modest rises in pay, and has often objected to measures to improve workers’ rights, including the planned introduction of a minimum wage and proposals to lower the retirement age for employees with more than 45 years in the labour market.
The Bundesbank’s support for faster wage growth in Germany is also the latest in a series of moves towards the mainstream of ECB thinking. Mr Weidmann has in the past found himself in a minority of one on the governing council, including when the ECB pledged to buy government bonds of troubled countries. In June, however, the Bundesbank president backed the package of exceptional measures which the ECB unveiled to stave off the threat of deflation.
At 0.5 per cent, inflation remains little more than a quarter of the ECB’s target.
The weakness in price pressures in the eurozone is partly a positive development: it reflects an improvement in the competitiveness of workers in the bloc’s periphery, where productivity has traditionally lagged behind levels seen in economies such as Germany’s. However, even in the region’s strongest economies inflation is below target, with German prices rising by just 1 per cent in the year to June.
Guntram Wolff, director of Bruegel, a Brussels-based think-tank and a former Bundesbank economist, said: “It’s a very good, very important sign from the Bundesbank. Not just of pragmatism, but of understanding that they are setting monetary policy for the entire eurozone. With that, comes the recognition that German wages have to rise at a faster pace.”--
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