Did you know that in Germany, Labour unions are getting above average pay increases?
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Labour unions in Germany this year are getting above-average pay increases after a decade of wage deals that even failed to keep pace with the country's inflation rate. The moderate deals had improved the country's competitiveness and helped the unemployment rate fall to a two-decade low.
"We have hit the upper limit of what the companies can deal with," said Rainer Dulger, who led employers through five rounds of talks totalling 37 hours at a news conference in the southwest town of Sindelfingen near Stuttgart.
The deal will cost employers an estimated seven billion euros a year.
"This was a fair compromise," said Berthold Huber, head of the IG Metall union. "You don't always get what you want in wage talks. Both sides had to give ground and this agreement wasn't easy for either side to accept."
Martin Kannegiesser, head of the employers association, said: "A strike in the sector has now been avoided with this agreement that will give workers a real increase in pay."
The 4.3 percent wage increase will be for the 12 months from May 1 to April 30, 2013, officials said. But the agreement formally takes effect from April 1, 2012 and covers a 13-month period. Workers will get no raise for the month of April 2012.
The officials said even though their deal only nominally covers the important southwest district of Baden-Wuerttemberg it will be used as a basis for identical increases for IG Metall workers nationwide.
Baden-Wuerttemberg is home to German manufacturers including Daimler and Heidelberger Druck, and engineering wage deals there traditionally set the tone for agreements across the rest of the country.
It is difficult to compare IG Metall deals because they sometimes cover periods longer than or less than a year and often include one-off payments. For 2011 IG Metall workers got a 2.7 percent wage increase. The 4.3 percent deal for 2012 surpassed the most recent high of 4.1 percent in 2007 when workers also got a one-off payment of 400 euros.
While wages in the crisis-hit euro zone periphery are falling, German workers are enjoying the benefits of a robust economy and a healthy labour market after a decade of wage restraint, in turn fuelling the economic divergence that has underpinned the currency area's debt crisis.
In Germany this year, the wages of around 9 million workers are up for negotiation and deals agreed so far have outstripped inflation. In March, the 2 million workers in Germany's public sector won a 6.3 percent pay rise over a 24-month period and Schaeuble has said wages in Germany can afford to grow faster than in other parts of the European Union.
But austerity is not working; indeed, it is counterproductive. In the short to medium term, fiscal consolidation – whether in the form of cutting government spending or increasing revenues – results in lower output and employment, which means lower tax collection, higher deficits, and escalating debt relative to GDP. Savvy investors, like frustrated voters, recognize that low growth and high unemployment actually enlarge deficits and add to debt in the short run. That is why, after more than two years, interest rates are rising, not falling, in countries crushed by onerous austerity measures.
In fact, there is no simple relationship between the size of a government's deficit or debt and the interest rate that it must pay. British government bonds now offer significantly lower interest rates than those of France, Italy, or Spain, even though the United Kingdom's fi...
But austerity is not working; indeed, it is counterproductive. In the short to medium term, fiscal consolidation – whether in the form of cutting government spending or increasing revenues – results in lower output and employment, which means lower tax collection, higher deficits, and escalating debt relative to GDP. Savvy investors, like frustrated voters, recognize that low growth and high unemployment actually enlarge deficits and add to debt in the short run. That is why, after more than two years, interest rates are rising, not falling, in countries crushed by onerous austerity measures.
In fact, there is no simple relationship between the size of a government's deficit or debt and the interest rate that it must pay. British government bonds now offer significantly lower interest rates than those of France, Italy, or Spain, even though the United Kingdom's fiscal position is considerably worse.
Greece is caught in a classic debt trap, as the interest rate on its public debt has soared beyond its growth rate by a considerable margin; Spain is teetering on the brink. Austerity in Europe has confirmed the International Monetary Fund's warning that overdoing fiscal consolidation weakens economic activity, undermines market confidence, and diminishes popular support for adjustment.
In the long run, many eurozone countries, including Germany, require fiscal consolidation in order to stabilise and reduce their debt-to-GDP ratios. But the process should be gradual and backloaded – with much of the consolidation coming after Europe's economies have returned to a sustainable growth path.
Structural reforms are also necessary in most European economies to bolster competitiveness and boost potential growth. But such reforms take time: German chancellor Angela Merkel appears to have forgotten that it took more than a decade and roughly €2tn (£1.61tn) in subsidies for structural reforms to make the former East Germany competitive with the rest of the country.