In one of our recent blogs (‘Francly Speaking’ 3rd Feb 2015), we may have been a little hard on the Germans in suggesting they need to better embrace the European ideal when dealing with the Greeks post their election and Alex Tsipras’s victory. However we have also kept an eye on German wage settlements as an indicator of German willingness to move toward a better balance for European labour costs. This is key as the pre-Euro solution of currency devaluation doesn’t exist nor does too lax credit to fund inefficient projects.
So while Southern Europe struggles to make the necessary adjustments through deflation, cost of living cuts and zero wage growth, Germany continues to do its bit on the wage front by making pay awards through its largest union representing 9% of the labour force, IG Metall, in excess of inflation. Last week IG Metall in Southern Germany was awarded a 3.4% rise which is likely to be replicated across the rest of Germany in the next couple of months. While their initial demands are always higher, there is normally a game of bluff where they start with an unrealistic expectation. Importantly this represents a decent margin over inflation which for the Eurozone was reported at an annual rate of 0.6 % to January 2015 this week for core inflation (the headline rate, heavily influenced by the oil price fall was -0.6%) For Germany, inflation for February was reported at – 0.1% year on year.
With money supply expanding, load demand picking up and consumer confidence rising, Europe’s economy is getting better and QE will only help. In the meantime some structural imbalances are eroding albeit slowly but as German is clearly in charge of the agenda, it is encouraging to see them contributing.
IG Metall Demands & Settlements