EU finance chiefs urge pay restraint

As trade union members gathered in their thousands to demand wage rises in the face of rising prices, EU finance ministers warned that excessive pay hikes risked fuelling spiralling inflation.

Although ministers and central bankers from the euro nations expressed their understanding of the actions of protesters in the Slovenian capital of Ljubljana, they insisted that keeping labour costs low would be “absolutely decisive” in keeping inflation under control and defending workers’ purchasing power. 

“I can understand very well the demands of the unions,” said EU Economics and Monetary Affairs Commissioner Joaquín Almunia, speaking after the Eurogroup ministers meeting on 4 April. But he insisted that wage increases “should be based on productivity increases” so as not to drive up inflation. 

In March, inflation in the 15 eurozone countries jumped up to 3.5% – the highest level since the introduction of the common currency and well over the bloc’s 2% target. Slovenian Finance Minister Andrej Bajuk warned that the problem could be long-lasting. “The changes that we are now seeing seem every day more of a structural nature than just a question of short-term development,” he said. 

Central bankers believe that raising wages at this point in time could further fuel these inflationary pressures. Recent pay increases for German public sector workers as well as the Belgian system of automatic wage indexation came under fire at the meeting, during which other member states were urged not to implement similar policies. 

Referring to the German wage settlement, European Central Bank Governing Council member Axel Weber said: “This deal will lead to significantly higher upwards wage pressure than we have in our forecasts, and we view that with a certain concern.” 

“It would be an enormous mistake to imitate Germany,” added European Central Bank President Jean-Claude Trichet. 

But trade unions slammed the calls for moderation. “Top managers earn up to 300 times more than their workers, leaving more than 30 million people on poverty wages,” the European Trade Union Confederation (ETUC) said. “We condemn the threats of the politicians, ministers and employers that the wage rise would cause further inflation, while they keep the real reasons to themselves,” said Dusan Semolic, head of the Slovenian Trade Union Confederation. 

Inflation fears mean the European Central Bank is unlikely to lower its interest rates in the near future, despite the slowdown in economic growth caused by the recent turmoil in global financial markets. 

The gloomy economic outlook for 2008 hung over the meeting, where finance ministers agreed to increase cooperation in managing future market crises and to strengthen supervision of the bloc’s banking system. 

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