MNI: Tough Spanish Pay Talks Key For Inflation Struggle

Spain’s two main union confederations will call for a pay rise of 4% plus further adjustments for inflation this week to kick off what are set to be tough negotiations with employers, with both sides telling MNI they expect prices to continue to rise at rates in excess of European Central Bank targets.

The Spanish Confederation of Business Organisations (CEOE), the largest employers’ lobby, will reject any sort of indexation, said Vice President Inigo Fernandez de Mesa, whose organisation also accuses the country’s left-wing government of bias towards unions in the talks to settle pay awards for the next two or more years, and of failing to share the burden of the battle against inflation.

But around 50% of new negotiated contracts have indexation clauses, according to the CC.OO and UGT labour confederations, whose joint proposal will include the 4% base rise plus “objective variables”, which they are still deciding but would include food prices and corporate profits.

“We want to be creative,” the UGT’s deputy general secretary Fernando Lujan told MNI. Talks should become easier after March, when eurozone inflation begins to fall quickly before reaching levels of 3% to 4% by the end of the year, said CC.OO’s Secretary for Union Action and Employment Mari Cruz Vicente. Regional and general elections later in 2023 should not affect talks, Vicente said.

BANK OF SPAIN VIEW

Wage rises should be very “prudent” this year to secure a soft-landing for the Spanish economy, Fernandez de Mesa said. With second-round inflation crucial to determing the peak of the ECB's tightening cycle, the Bank of Spain considers that Spanish workers’ demands so far have been moderate, with more inflationary risk from businesses expanding margins. But Fernandez de Mesa said profits had yet to return to pre-pandemic levels and that a jump in margins in recent months has come as companies have sought to recover lost ground.

“Indexation was bad for Spain’s economy in the past and it is a red line for us now,” he said, adding that while employers are open to dialogue, financial circumstances vary widely across different companies and sectors.

Employer groups have cast doubt on the neutrality of the Spanish government in the talks, and also note that it has allowed fiscal revenues to surge with the inflation-driven rise in nominal GDP. Government revenues jumped by around EUR50 billion in 2022, according to CEOE.

“They raised the minimum wage again and put new taxes on banks and energy companies,” said de Mesa, who also accuses the government of changing rules agreed in last year’s labour reform reached on the basis of broad consensus between unions and employers.

De Mesa shared the unions’ view that inflation will close 2023 at levels around 3.5% or 4%, and also that the European Central Bank will face a struggle to return the rate of price increases to its 2%. (See MNI SOURCES: 100bp Gap Between Hawk-Dove ECB Peak Rates)