EU ministers appeal for wage restraint

BRUSSELS - European wage earners received a blunt message from finance ministers on Tuesday -- it is fair to seek a share of soaring company profits, but don’t overdo it or inflation will rise and everyone may lose out.

By (Reuters)

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Published: Tue 27 Feb 2007, 5:31 PM

Last updated: Sat 4 Apr 2015, 8:31 PM

‘We need to stay vigilant,’ Jean-Claude Juncker, chairman of the euro area’s club of finance ministers, said as he entered a second day of meetings in Brussels, joined by ministers from all 27 European Union countries including the euro currency zone.

The call for wage restraint looked like an attempt to reassure the inflation-fighting European Central Bank, which has warned against excessive pay demands and is considering more interest rate increases to keep inflation down.

The powerful German metalworkers’ union demanded this week a 6.5 percent raise -- more than three times the rate of inflation -- for 3.4 million workers in the metals and engineering sector.

The ministers in Brussels stressed that things had gone well up to now on the inflation front.

‘We don’t have any concerns about the evolution of wages. It’s not a real concern,’ said Belgium’s Didier Reynders.

Juncker said it was normal workers wanted a bigger slice of the cake now that the economy was growing solidly, but wage awards should remain in line with productivity gains and the aim should be to boost employment, not just fatten wallets.

‘There is more to this than just salaries,’ the Luxembourg prime minister said, adding that corporate profit-sharing schemes should be pursued more aggressively Europe-wide.

The European Commission predicts inflation of 1.8 percent this year after 2.2 percent last year, pushing price growth below the ECB’s tolerance level of 2 percent.

Southern discomfort

Officials said ministers were most worried about wage rises relative to productivity in southern countries such as Portugal, Greece and, above all, Spain, the fourth biggest economy in the currency bloc after Germany, France and Italy.

Juncker hinted at that too when he said:

‘We say in those countries where wage developments have ignored those principles of common sense, wisdom and sound management, structural reforms will have to go further than would otherwise have been the case.’

Germany’s IG Metall union is seeking a big hike after years of restraint as pay negotiations for nearly a quarter of the nation’s 39 million workers get going in earnest next month.

Analysts expect IG Metall to ultimately settle for around 4 percent, not judged excessive in a country with inflation well below the two percent mark. But they are watching to see if others push for more than usual in other sectors.

Several ministers echoed the message Juncker was mandated to convey after talks attended also by ECB chief Jean-Claude Trichet on Monday.

Trichet has flagged what markets expect will be a rate rise of a quarter of a percentage point on March 8, taking the rate to 3.75 percent, versus 2.0 when the ECB started tightening in December 2005.

Falling euro zone inflation is making it harder for the ECB to agree on whether to flag another interest rate increase after the likely March rise, euro zone monetary sources told Reuters.

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