###POV. THE PHILLIPS CURVE IS ALIVE AND.....>

GERMANY: ###POV. THE PHILLIPS CURVE IS ALIVE AND WELL IN THE HEART OF EUROPE

- IG Metall's warning strike in Germany must be watched closely. It started

today to back up a 6% pay rise request and the right of workers to cut their

working week from 35- to 28-hours for two years. IG Metall is pushing hard this

year. Remember that the unemployment rate is at an all-time low of 5.5%. So,

there is a case of making hay while the sun shines but it is difficult to say

that the Phillips Curve is dead. 

- IG Metall has started with some warning strikes but appears impatient and a

full 24 hour strike is likely by the end of January if employers don't move.

- The ECB is unlikely to react to any movement on the working hour plan because

of the huge uncertainty regarding the number of employees that might request a 4

day week for two years. However, wage rises are different.

- The 6% request compares to a 4.5-5.0% demand in early 2016, which ultimately

led to a 2.8% rise in Jul 2016 and another of 2% in April 2017. It has become

usual to subtract around 30-40% from pay rise request to estimate the final

deal.