Bargaining power in Germany

Germany’s reemerging economy is giving labour unions bargaining power and some are looking for annual wage increases up to 6%. If successful, Germany and the euro zone could see inflation rates move higher and eventually above the European Central Bank’s 2% target. This presents a dilemma for ECB policy makers who must balance a strict anti-inflation mandate with a still-fragile recovery in Europe’s periphery (look for the excellent graphic from the WSJ).

To give you an idea of the robustness of the German economy unemployment has fallen for 14 consecutive months, bringing the unemployment rate back to its prerecession level of 7.6%, the lowest since 1992. Unemployment in other big economies, particularly the U.S., is still stubbornly high, keeping a lid on wage growth. ECB President Jean-Claude Trichet wants others in the region to take note of Germany’s success at restraining labour costs – see graph below. Since 2000, German labour costs have increased just 19%, significantly below the average for Europe. In Spain they rose nearly three times as fast.
Click here to view article from the Wall Street Journal.