Bundesbank shifts stance on salary increases

Unions are urged to be more ambitious in looming pay talks

Germany’s hawkish Bundesbank has changed its tune on salary increases, urging unions to be more – not less – ambitious in looming pay talks, to help combat the risk of deflation in the euro zone. Photograph: AP

Germany’s hawkish Bundesbank has changed its tune on salary increases, urging unions to be more – not less – ambitious in looming pay talks, to help combat the risk of deflation in the euro zone. Photograph: AP

Tue, Jul 22, 2014, 01:00

Germany’s hawkish Bundesbank has changed its tune on salary increases, urging unions to be more – not less – ambitious in looming pay talks, to help combat the risk of deflation in the euro zone.

The Bundesbank’s change of heart came three weeks ago with a low-key visit to the DGB trade union federation in Berlin. According to Der Spiegel, a delegation from Frankfurt told their hosts during an eight-hour meeting “they shouldn’t be as modest in upcoming pay talks as in the past”.

“It is time for a considerable increase in salaries,” said the Bundesbank delegation, according to the magazine, “and the upcoming pay talks should be fully maximised for the maximum (economic) distribution effect.”

 

Warning

For decades the Bundesbank has lead Germany’s wage restraint chorus, with president Jens Weidmann warning as late as April 2013 that wide-scale wage rises demanded by German unions would leave “the euro zone as a whole worse off”.

Throughout the euro crisis, it remained true to its inflation-fighting mandate, warning consistently that higher wage deals would drive up prices. This fear of inflation, shared by prominent German economists, saw the Bundesbank dismiss demands from Germany’s neighbours that the euro’s largest member could do more to boost growth and consumption across the bloc by backing higher wage deals.

Now the spectre of deflation has prompted a change of heart – even if the Frankfurt bank doesn’t see it that way. Bundesbank chief economist Jens Ulbrich insisted yesterday the institution’s strategy was “symmetric and consistent”.