German ‘wise man’ warns unions about wage hikes

BERLIN - One of the German government’s top economic advisers warned unions on Tuesday that unduly high wage increases would undermine economic recovery, comments clearly aimed at Germany’s biggest industrial union IG Metall.

By (Reuters)

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Published: Tue 6 Feb 2007, 5:07 PM

Last updated: Sat 4 Apr 2015, 9:51 PM

Later on Tuesday IG Metall’s board is expected to announce its recommendation for a pay rise in talks with employers due to begin soon. According to a German media report, the union will call for a 6.5 percent wage hike.

The president of the ZEW Institute, Wolfgang Franz, made it clear that in his opionion such wage demands would be excessive.

‘If there is a ‘4’ before the decimal point, there is the possibility of job losses and rising prices,’ said Franz, who is a member of the government’s panel of economic advisers, known as the five wise men.

‘Then the European Central Bank would have to impose a more restrictive monetary policy,’ he was quoted as saying by Wirtschaftswoche magazine.

He added: ‘The moderate wage policies of the previous years were an important cornerstone of the current recovery. The unions shouldn’t start playing with that.’

The ECB has urged unions to show restraint, warning that big pay hikes could spur inflation.

In January, German annual inflation was 1.6 percent, up from 1.4 percent in December. The rise was partly due to an increase in value-added tax to 19 percent from 16 percent, one of the reasons unions want higher pay hikes.

Another of the five wise men, economist Peter Bofinger, declined to comment specifically on IG Metall’s expected demands, saying to German NDR radio that wage growth should correspond to productivity growth.

Weekly Der Spiegel reported in its latest issue that IG Metall chief Juergen Peters and the rest of the board had agreed 6.5 percent was the increase the union’s wage committee should seek for the 3.2 million workers in Germany’s engineering and metalworking sector.

Both Peters and regional union branches had previously said they would push for a pay increase of this order, which compares with a demand last year for a 5 percent rise.

IG Metall’s current wage accord expires at the end of March and the union aims to publish its latest wage demands on Feb. 26. Talks with employers must begin by March 17.

Last year, IG Metall secured a 3 percent pay rise plus a one-off payment of 310 euros ($400.7).

Franz also attacked members of the parties which form Germany’s grand coalition government for publicly supporting higher pay increases than in previous years.

‘This is sheer populism,’ he said.

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