Amid Pay Protest, EU Finance Chiefs Warn Against Wage Hikes | Business| Economy and finance news from a German perspective | DW | 05.04.2008
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Amid Pay Protest, EU Finance Chiefs Warn Against Wage Hikes

As thousands protested in Ljubljana to denounce low wages, EU finance chiefs meeting in Slovenia warned against excessive pay hikes like those in Germany's public sector, saying they would drive up inflation.

Trade union protests in Slovenia

Trade union members from across Europe protested in Slovenia for higher wages

Thousands of members of European trade unions took to the streets of Slovenia's capital, Ljubljana on Saturday, April 5, as part of a drive for higher wages and to denounce corporate greed.

The event organized by the European Trade Union Confederation (EGB) drew between 10,000 and 30,000 protesters.

"This is a protest against the situation in the whole of Europe," Reinhard Dombre, head of Germany's trade union federation told Reuters.

EGB General Secretary John Monks said EU finance ministers and bankers had to understand the concerns of employees.

"We cannot accept the sermons and lectures of European central bankers and finance ministers," Monks said. "Europe's workers want their fair share."

Euro-zone finance ministers and central bankers, meeting for two days in Slovenian town of Brdo, warned on Saturday that demands for big wage hikes could fuel a dangerous wage-inflation spiral.

The Bundesbank, or German Central Bank, cautioned that recent hefty wage hikes in Germany's public sector would drive up the inflation rate, possibly forcing the bank to raise interest rates.

Earlier this week German services union Verdi -- the biggest in the country -- and public sector employers struck a deal on wage rises of around eight percent over two years for 1.3 million staff.

"Enormous mistake to imitate Germany"

"The wage agreements are sharply higher than we expected," Bundesbank President Axel Weber told journalists. "We are going to have a close look at the [inflation] forecasts to see if public sector wage deals don't make a revision necessary."

Weber added that those accords often set the tone for other pay negotiations.

Members of German trade union Verdi

Verdi's coup of an eight-percent pay hike has some finance experts alarmed

"We are concerned about that," he said, insisting that the German public sector was in a unique situation because it had gone without pay increases for several years.

European Central Bank President Jean-Claude Trichet said the German public sector could not afford to serve as a model for other countries. He stressed that wage development had to be in tandem with competitiveness and productivity of a country.

"A sensible wage policy is decisive for further growth in employment," Trichet said. "It would be an enormous mistake to imitate Germany."

In the face of such inflation, euro-zone officials say that wage demands should not exceed productivity growth.

Inflation at "incredible level"

German Finance Minister Peer Steinbrueck however defended the strong pay rises in the public sector, saying the agreements followed job cuts and two years without net wage increases.

"Employees have behaved very responsibly, they must have a share in the good economic development," Steinbrueck said.

Jean-Claude Juncker, head of the euro zone countries finance ministers' meetings, admitted that trade unions were right take into account inflation in their demands for higher wages, adding the weakest in society were hit the worst by price rises.

"Those living on 300, 400, 500, 600, 700 euros can't live with runaway inflation," Juncker said, adding that inflation was at an "incredible level."

Inflation in the 15 euro-zone countries jumped in March to 3.5 percent -- the highest level since the bloc was formed in 1999, according to official EU data earlier this week.

Worst yet to come for beleaguered banks

Steinbrueck and Weber, however, said the worst was yet to come for European banks reeling under the global financial crisis. Banks can expect worse because "unlike last year they can't write down their losses against a very good first half year," Weber told news agency AP.

Deutsche Bank headquarters in Frankfurt

Germany's Deutsche Bank announced huge losses

Two of Europe's largest banks -- Swiss bank UBS and Germany's Deutsche Bank -- recently announced massive first quarter losses.

Steinbrueck warned that banks were still not honest enough about the effects of the global crisis.

"This is still not satisfactory," Steinbrueck said, adding that if banks intended to blame each other for financial woes they would end up in a tough situation.

Germany can weather turmoil

Despite the banking turmoil, the German Finance Minister said he is sticking to his growth forecasts for the German economy in 2008, even as the credit crisis dents global expansion.

"I think we can weather the financial turmoil to a wide extent,'' Steinbrueck said in an interview with Bloomberg Television. "Germany is going to face a growth rate of about 1.7, 1.6 percent,'' he said.

The German economy is so far coping with the global slowdown caused by a US housing recession, a stronger euro and record oil prices. Investor, business and consumer confidence all unexpectedly increased last month and unemployment fell to the lowest in more than 15 years.

On economic growth, Weber too sounded a positive note, saying he saw "no reason'' to revise the Bundesbank's prediction for growth of 1.9 percent.

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