Euro Bank chief calls for wage restraint to cut inflation

23 May 2007

MADRID – European Central Bank president Jean-Claude Trichet said unions must act with “responsibility” in negotiating wages in order to keep inflation under control in the euro zone.

“Wage agreements should avoid wage developments that would eventually lead to inflationary pressures and harm the purchasing power of all euro citizens,” Trichet said at the 2007 congress of the European Trade Union Confederation.

Trichet later clarified that he did not mean to suggest unions had not been responsible in the past, just that “they should continue to be responsible.”

The ECB is widely expected to raise its key interest rate next month to 4 percent, from 3.75 percent, to counter inflationary risks. The central bank has identified three main price risks: excessive wage settlements, rising oil prices and rapid growth in money supply.

Trichet sought to convince union leaders that the ECB’s mandate to ensure price stability was not at loggerheads with unions’ desire to create more jobs.

“Price stability is a precondition for job creation and growth,” Trichet said, adding that the introduction of the euro and of the ECB had led to the creation of 12 million jobs in the last eight years in the counties that use the single currency.

Trichet said that unions must keep in mind the relatively high unemployment levels in most European countries, and that excessive wage demands could provide a disincentive for companies to hire.

“Our objective should be to get our societies as close as possible to full employment,” Trichet said, noting that job creation fueled domestic demand.

Trichet also said that unions must take into account productivity and competitiveness when setting wages.

“We observe that a number of economies which lost competitiveness also lost market shares,” Trichet said.

On the subject of the minimum-wage schemes, Trichet said that systems designed to increase worker protections were “perfectly legitimate,” but that policy makers must take care not to “create unemployment in the unskilled segment.”

Trichet said that many European countries had problems with high unemployment among untrained youths, whom companies could become more reluctant to employ if forced to offer them higher wages.

[Copyright AP with Expatica]

Subject: Spanish news