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Scholz tells Germans 'stick together' amid price spike

July 2, 2022

In a video podcast, Chancellor Olaf Scholz admitted that rising prices were a major cause of concern. Ministers, trade unions, the Bundesbank and academics will convene next week as calls mount for generous pay hikes.

A person holds several euro notes
German inflation remains stubbornly elevated, having hit an post-reunification high of 7.9% in MayImage: Matthias Stolt/CHROMORANGE/picture alliance

German Chancellor Olaf Scholz on Saturday urged the public to face the country's economic problems together, as inflation in Europe's leading economy remained stubbornly high.

Scholz published a new video in his weekly podcast, admitting that rising prices were troubling many citizens. He called for the population to "link arms and stick together."

Just days after data showed prices rose 7.6% in Junecompared to a year earlier, Scholz said he would convene a meeting of experts to tackle the cost of living crisis.

The chancellor said he has invited trade unions, employers, the central bank (Bundesbank) and academics for a summit that kicks off Monday at the chancellery in Berlin.

The campaign, dubbed "Concerted Action," echoes similar efforts by former West German chancellors in the 1960s and 1970s.

One-off payments proposed instead of wage hikes

Economists and politicians have mooted several ideas in recent days to ease the burden on personal budgets.

Labor Minister Hubertus Heil has called for an annual payment for single people earning less than €4,000 ($4,170) gross per month and for married people earning less than €8,000 together.

The chancellery says it is keen to find alternatives to much higher wage increases during collective bargaining rounds with unions in order not to fuel further inflation.

However, the German Institute for Economic Research (DIW) said one-off payments would only provide temporary relief.

"Only higher wages and social benefits can sustainably compensate for the damage to people with medium and low incomes," DIW's president Marcel Fratzscher told dpa news agency.

Economist Veronika Grimm told dpa that "one-off payments can also backfire."

She said if workers were to forego wage increases for one-time payments, they would have to be very high, which may "immediately boost demand and thus again fuel inflation."

A photo of a radiator temperature control in a flat in Dusseldorf
Germany is also facing the potential of gas shortages this winter if Russia cuts off suppliesImage: Michael Gstettenbauer/IMAGO

SPD co-leader calls for welfare hike

The co-leader of Scholz' center-left Social Democrats (SPD), Saskia Esken, told the Funke Media Group newspapers that payments of social benefits must be increased.

"As a welfare state, we must therefore adjust benefits to rising inflation," Esken said.

In addition, wages, especially in the low-wage sector, would have to increase "significantly and permanently."

The opposition center-right Christian Democrats' (CDU) economic expert, Julia Klöckner, called for taxes and levies on energy, among other things, to be permanently cut.

Klöckner criticized Scholz for creating "Concerted Action" talks, saying it falls into the category of: "If I don't know what to do, I'll set up a working group."

Since the tail end of the COVID-19 pandemic, skyrocketing food, fuel and energy prices have hit German pockets hard.

Already high inflation was exacerbated by Russia's invasion of Ukraine in February.

DekaBank chief economist Ulrich Kater told the Reuters news agency this week that he doesn't see prices easing in the near future. Kater said that "we have to reckon with inflation rates around 7% through the end of the year."

Written in part with material from dpa news agency.

Edited by Rebecca Staudenmaier.