ECB chief attacks German, Finnish wage rises

The introduction of a mimimum wage for the postal sector in Germany and higher incomes for nurses in Finland have sparked harsh criticism from ECB President Jean-Claude Trichet. His speech at a conference in Berlin may hint at the ECB’s refusal to lower interest rates well into 2009, economists say. 

“Let me stress that governments and social partners share responsibility for ensuring that wage determination appropriately takes into account labour market conditions at the industrial, sectoral and regional level and does not jeopardise competitiveness and employment,” the ECB chief told journalists in Berlin on 5 December 2007. 

In a move seen by economists as protection for Deutsche Post after the German letter market is opened to competition on 1 January, the country’s government decided at the beginning of the week to introduce an €8-€9.80 minimum wage for the postal sector. The Social Democrats, junior partners in Angela Merkel’s government, are pushing for more sectoral minimum wages for 10 sectors, including temporary agency work. Germany is one of only four EU countries which have not had a minimum wage until now. In Finland, nurses negotiated a 28% wage increase over the next four years. 

Trichet commented on the agreement by saying: “Governments should be aware that wage setting in the public sector very often serves as a role model for the private sector.” He added: “Moreover, sufficient wage differentiation is needed to improve employment opportunities for less skilled workers and in regions or sectors with high unemployment. In this respect, excessive wage regulations are undermining job creation, in particular for young and less qualified workers as well as for all those who face problems entering the labour market. In particular, setting minimum wages at levels which are not in line with productivity reduces the employment chances of less skilled workers and the unemployed.”

Specifically on Germany, Trichet said: “I remember some observers arguing several years ago that much stronger wage increases were needed in Germany for higher growth. The recent evidence does not confirm this view. On the contrary, the increased competitiveness seen in the German economy – thanks to moderate unit labour cost developments – has been an important prerequisite for the very strong job creation observed in recent years.”

62 economists polled by Bloomberg  all believe that the ECB is preparing to keep its interest rates stable at 4% when the Central Bank’s Executive board meets today in Frankfurt. Bloomberg quotes Julian Callow, chief European economist at Barclays Capital in London, as saying: “The ECB is highly sensitive to the wage situation right now. It could limit its scope to cut rates.”

Amid concerns over the dampening effects of the euro’s present high exchange rates, Italian Vice Minister for the Economy Vincenzo Visco told a parliamentary panel on Wednesday: “The economic situation and world markets are very uncertain and present risks. It is expected that the Federal Reserve will cut interest rates and it would be suicide if the ECB didn’t do the same thing for the euro zone.”

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Ministers to adopt slimmed-down labour market proposals

Employment ministers gathering in Brussels on 5 and 6 December are set to adopt dossiers on flexicurity, company pensions and temporary agency work.  Some projects, however, will only be presented as watered-down versions.