analysis
Status: 04.07.2022 20:27
The options for mitigating inflation are limited. In any case, it will not work without decisive action by the ECB. In the 1970s, only a rigorous interest rate policy helped.
The Chancellor has two messages that day. With clear words, he prepares for a longer-lasting crisis. The current situation with the consequences of the Ukraine war, the supply chain problems and the general uncertainty will not change in the foreseeable future. At the same time, Scholz invokes a “spirit of unity” with which the current challenges must be responded to: “As a country, we will only get through this crisis well if we join hands, if we agree on solutions together.”
Together – Scholz has his eye on employers and unions, which of course has to do with their role as collective bargaining parties. But at the same time, the big taboo topic of the talks in the Chancellery is indicated, after all, all sides have emphasized the importance of collective bargaining autonomy in advance. In other words: Employers and trade unions do not want politicians to interfere in wage negotiations.
Incidentally, that was already the case at the end of the 1960s, when the format of a “concerted action” was first launched by the then SPD Economics Minister Karl Schiller.
Fahimi sees no wage-price spiral
Instead, the representatives of employers and trade unions initially focus on the similarities with the chancellor: Yasmin Fahimi, head of the German Trade Union Confederation (DGB), until recently a member of the SPD parliamentary group, warns of a recession, i.e. an economic downturn.
Employer President Rainer Dulger speaks of the hardest economic and socio-political crisis since reunification. Both also emphasize that inflation – it is currently 7.6 percent in Germany – is not related to current wages. Rather, inflation drivers are to be found “on the supply side,” as Dulger says. So with the high energy costs, a lack of preliminary products due to interrupted supply chains and the scarcity of raw materials.
Tagesschau live: Scholz on “Concerted Action”
7/4/2022 4:52 p.m
But while Fahimi considers the discussion about a possible wage-price spiral, i.e. a mutual spike in prices and wages, to be “factually wrong”, Dulger suggests that the upcoming collective bargaining negotiations could definitely have an impact on the further development of inflation. Like the union side, Dulger attaches importance to the statement that collective bargaining is not conducted in the chancellery.
However, politicians can support the collective bargaining parties by ensuring that more wage increases stay in the wallet of each individual: “More net from gross is the motto here,” said the Employers’ President. As possible measures he names the elimination of the so-called “cold progression” in tax law and a possible tax and contribution exemption for one-off payments.
Chancellor Scholz in the summer interview: No new relief packages and no new lockdowns
Nicole Kohnert, ARD Berlin, daily news at 8:00 p.m., July 3, 2022
In the run-up to the meeting, there had already been speculation that the federal government could create an incentive for one-off payments. This was recently denied by Scholz, so in ARD-Summer interview. At the beginning of June, when the “Concerted Action” was presented in the Bundestag, Scholz explicitly acknowledged the collective bargaining partners in the chemical industry, since they had first agreed on one-off payments – that was an “interesting way,” Scholz said at the time.
Debate about one-off payments
The background is precisely that concern about a wage-price spiral: trade unions are demanding higher wages to compensate for the increased prices, which increases the costs for companies. Which in turn could try to pass the higher costs on to prices. One-off payments instead of permanent, strong tariff increases could dampen this effect.
When the “concerted action” was supposed to lead out of the crisis
When Germany’s economic miracle slid into crisis, the “Concerted Action” was launched as a countermeasure – an informal round of talks between politicians, employers and trade unions. It first met on February 14, 1967 to fight inflation and rising unemployment. The inventor was the then SPD Economics Minister Karl Schiller. He hoped to be able to swear the collective bargaining partners to the key points of a common economic policy – and to avoid overheating of the economy through high wage demands from the unions. Then as now, there was a real danger that wages and prices would mutually inflate. Schiller expressly emphasized that no interventions in collective bargaining autonomy were planned.
The unions entered the negotiations with reluctance. They insisted on collective bargaining autonomy and were strictly against the setting of wage guidelines, as the then government made up of Union and SPD had in mind. There were a total of ten rounds of talks, but over time it became increasingly difficult to find acceptable compromises and to chart a common course for stabilization.
In 1977, the unions withdrew from the discussion forum for the time being to protest against a constitutional complaint by several employers’ associations against the 1976 Codetermination Act. In 1978, the DGB Congress made a final rejection out of the preliminary one.
But to advise on this is a difficult undertaking – keyword collective bargaining autonomy. The possibilities of “concerted action” are therefore limited, even if joint discussions are certainly always helpful.
Rigorous interest rate policies helped in the 1970s
But even the first “concerted action” launched in 1967 could not prevent the oil price shock in the 1970s from leading to sharp wage increases, which fueled inflation in addition to energy price increases. At that time, inflation could only be stopped by a rigorous interest rate policy by the central banks.
This time, by the way, Bundesbank President Joachim Nagel, a representative of monetary policy, is also taking part in the “Concerted Action”. But even his options are limited. For years, the Bundesbank has been in the minority with its monetary policy position within the European Central Bank – Nagel’s predecessor Jens Weidmann gave up his job prematurely at the end of last year.
Inflation cannot be fought without decisive action by the ECB. So far, however, she has found it difficult to recognize her own responsibility for the current development. With its ultra-loose monetary policy, the ECB has laid an important foundation for the current inflation. If nothing changes, all national efforts to fight inflation and deal with its consequences will only be a cure for the symptoms.