ECB Union Calls For Wages To Be Indexed To Inflation

EDITOR'S NOTE:

The union is calling for wages to be indexed to inflation.

FRANKFURT – As the European Central Bank is getting more heat for refusing to hike interest rates despite rising inflation, its staff is seeking another solution: It wants higher pay.

The ECB’s staff trade union IPSO has called on the central bank’s leadership to raise pay more substantially to protect employees’ purchasing power against skyrocketing prices. While the ECB has proposed a general salary increase of 1.3 percent starting in January, that is well below the inflation rate of 4.6 percent that Germany hit in October.

"The gap between these two figures means that each of us will suffer a permanent loss in purchasing power," the IPSO board wrote in an email to all staff on November 17, seen by POLITICO. "The ECB is not able (or willing?) to protect its own staff against the impact of inflation!"

The ECB’s job is to ensure price stability, which it defines as 2 percent inflation. Eurozone inflation hit a 13-year of 4.1 percent in October. In Germany, the Bundesbank sees it climbing to 6 percent this month and staying above 3 percent for some time.

To protect ECB staff against the impact from surging prices, IPSO proposed that the ECB introduce "an indexation scheme through which our salaries would increase in parallel with inflation development."

The catch with that fix: ECB policymakers have long argued that indexing is part of the problem rather than the solution. The central bank warns that linking wage increases to actual inflation developments would significantly raise the risk of "wage-price spirals," in which temporary inflation becomes sustained.

Speaking to the European Parliament on inflation last week, ECB President Christine Lagarde stressed that moving away from automatic indexation clauses "is an improvement" since the 1970s. At the time, an oil price shock started feeding into wages, resulting in double-digit inflation rates followed by an aggressive rate hike cycle.

By contrast, wage rounds today appear to be modest, suggesting that the current inflation spike is only temporary, the ECB argues. It expects inflation to fall below target by 2023 even if it doesn't tighten policy.

Chances are IPSO’s demands will fall on deaf ears. An ECB spokesperson said that the central bank uses the weighted average of the salary adjustments of the 22 contributing institutions "because it allows [the ECB] to maintain a close link with the salary developments of the National Central Banks of the member states, particularly those within the euro area."

Originally posted on Politico.