Labour
Euro Area on Alert Against Wage Increases
By Lucia Kubosova, EUOBSERVER 14/5/08
May 14, 2008 - 12:28:45 PM

"We remain on our guard as regards inflationary developments. It's too high and we don't think it is a good thing," said Jean-Claude Juncker, the head of the 15-strong eurogroup, meeting on Tuesday (13 May), on the eve of today's session of all EU finance ministers.

The annual level of consumer price gains across the single currency area slowed to 3.3 percent in April from 3.6 percent in March, according to Eurostat, the EU's statistical office. The European Commission has recently raised its forecast for eurozone inflation this year to 3.2 percent, 0.6 percentage points more than it predicted in February.

Energy and food prices remain the key external factors influencing the price hikes but experts suggest that potential salary raises in reaction to these developments would make things worse for the European economy.

"Once again we invite social partners to pursue the policy of wage restraint that they have been applying over the recent years. We don't want to see a second round effect kicking in," Mr Juncker added.

Regarding concerns about the impact of the worsening purchasing power of citizens, the eurogroup chief noted that it should be up to national governments and public budgets to take "the necessary measures for the most vulnerable in our society."

EU economy commissioner Joaquin Almunia added that along with pursuing "adequate fiscal policies", member states should avoid "indirect taxes to increase prices" and boost competition, primarily in the services sector, which could counter the inflationary pressures.

Golden handshakes

But the finance ministers from the euro area also debated ways to change the bloc's tax rules to prevent "golden-handshakes" (financial rewards to senior company executives when they are leaving the job) from being tax deductible.

"The excesses of captains of industry that we see in several countries and several sectors of the euro area are really quite scandalous. We continue to examine what can be done in terms of professional ethics and in terms of taxation to combat these excesses," Mr Juncker told journalists.

He pointed out that without some action against the practice involving company bosses, it would be hard for European and national policy makers to justify their calls on workers not to demand wage increases amid inflationary pressure.

But he added that such measures would have to go beyond the 27-strong EU in order to be effective and to not harm the bloc's competitiveness.