MNI INTERVIEW: German Postal Workers Key For Wage-Price Spiral

A demand by the Verdi union representing German postal workers for a 15% pay increase will be pivotal in determining whether the country faces a wage-price spiral keeping inflation above 2% in the coming years, though lower settlements by other big unions mean this is still not inevitable, a member of the German Council of Economic Experts told MNI.

“If we see increasing wage demands, so in excess of 15% over the year, we might be on our way towards [a wage-price spiral]. [Equally] when we see the first final settlements in the public sector, maybe then also the tendency will shift in the other direction for other sectors,” Martin Werding said in an interview.

It is too early to judge when inflation in Germany will sustainably retreat to the European Central Bank’s 2% target for the eurozone as a whole, and wage negotiations could be crucial to determining the answer to that question over the next year and perhaps over the next two to three years, he said. Unions may also boost pay demands if they see increasing profits by employers, he added. (See MNI INTERVIEW: German Wages, Gov't Spending, To Fuel Inflation)

A 10.5% pay rise demanded by public sector workers “sounds excessive” Werding said, though he noted that the government is only offering 5%, and that a result between the two “may still not be very worrying.” The demand should also be seen in the context of below-inflation increases of only 3.2% over the past two years, with public sector awards typically lagging those in the private sector, he noted.

METAL WORKERS

Some high-profile settlements have been more moderate, such as the 5.2% secured by metalworkers union IG Metall last year, he said.

“What the metal workers union did last year was very transparent in all respects, and was tailored in such a way that it was meant not to increase inflation further. I can't say that the same applies to what public sector employees are now asking for.”

The German Council of Economic Experts has accused the government of feeding inflation with excessive spending, and attracted controversy last year when it used its annual report to call for a temporary increase in the top rate of income tax and better-targeting of measures to help those worst affected by the energy crisis. Werding said the group’s call for fiscal restraint is now being listened to by senior officials from the Finance Ministry, led by the liberal FDP party leader Christian Lindner.

But he expressed concern that despite the Ministry’s pledge not to divert any savings from its EUR200 billion energy support package to other areas, there is pressure from Social Democrat and Green party members in the coalition government to do exactly that, with a ruling on the legality of such a move currently in limbo.

“The Federal Constitutional Court has made an intermediate decision not to take any immediate measures against a similar change in the use of credit authorisations. But we simply don’t know what their final decision on the subject will be,” Werding said.