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Business Leaders Offer Advice to Germany's Bundesbank: Mind Your Own Business

Busfahrerstreik
Bus drivers participating in a warning strike in western Germany.
  • Why it matters

    Why it matters

    Worker pay has a big impact on the German economy and to date German employers have been autonomous in negotiating with the unions.

  • Facts

    Facts

    • In June, the Bundesbank, concerned about low inflation rates, advised unions to be less restrained in future wage negotiations.
    • Higher wages and salaries would increase the inflation rate and lessen chances of deflation.
    • Pay talks should remain the business of tariff partners only, critics say.
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    Audio

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Germany’s central bank has annoyed employers by getting involved in wage negotiations. The challenge for wage tariff partners in finding an appropriate formula for a particular industry is a sophisticated, complex process, according to the federal employers association of the chemical industry.

“General pronouncements of third parties are usually not helpful,” said Oliver Zander, managing director of the metalworking industry employers’ association. The Bundesbank’s initiative is inappropriate, he added.

The criticisms came after a meeting between the Bundesbank and the German trade unions association in late June. At the meeting, the Bundesbank delegation advised the unions to be less restrained in future wage tariff negotiations and to use the room to maneuver created for them by inflation and productivity developments. A hidden agenda: Higher wages and salaries would affect the inflation rate and remove the danger of deflation.

The Bundesbank's initiative is inappropriate.

“The bottom line is that wage developments in Germany have been moderate against the background of a good economic situation, low unemployment and a favorable outlook,” Jens Ulbrich, the Bundesbank’s chief economist, was quoted in Der Spiegel. Future wage demands should not be influenced by the currently low rate of inflation of 1 percent, but rather more by the Bundesbank’s target level of 2 percent.

Mr. Zander said this is dangerous: “I strongly advise against further wage experiments to ignite the rate of inflation, ultimately to the disadvantage of workers.” Companies are worried about labor costs, which in 2013 increased by 2.4 percent in Germany compared with the previous year – 1 percentage point more than in the European Union.

The German Machinery and Plant Manufacturing Association also warns about risking competitiveness. Its industry in particular had to hold its own in international markets and produce locally, said Ralph Wiechers, the association’s chief economist: “High labor costs in Germany accelerate this process. Anyone pushing for high wage agreements has to be quite clear about this.”

 

A sign is seen outside the headquarters Germany’s federal bank Deutsche Bundesbank in Frankfurt. Source: Reuters

 

Criticism also comes from the trade unions association. Wage increases are certainly justified, according to Stefan Körzell, board member of the trade unions association. But wage bargaining policy remains the business of the tariff partners: “We have managed well up to now without tips from the Bundesbank – and the same would apply in the future. If the Bundesbank were now encouraging higher wages, it would have to answer the question why it came out so vehemently against a minimum wage.”

Sources close to the Bundesbank said it wasn’t its intention to make wage recommendations. It was all about the increased “room for maneuver” due to changed parameters. Now it is about normal employment levels. And the Bundesbank must surely be permitted to comment on prices.

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