The trendsetting German labor union IG Metall is seeking 7-8% raises, the wires report. This is the sort of behaviour that the ECB sought to avoid by sending a warning shot across the unions’ bow in July by hiking rates despite signs that the economy was slowing. If the automakers and other buckle to the wage demands, another hike is not out of the question as the one-trick ECB seeks to restrain second round inflation effects.
With German labor productivity falling, this is a toxic mix sure to spur inflation, the ECB is sure to conclude. Dow Jones reported a short while ago:
Germany’s productivity growth is diminishing, leaving it trailing behind progress made in the U.S. and the U.K., said a study published by a German economic research institute Wednesday.
“In an international comparison, Germany has fallen further behind [other nations] over the past years,” said Ulrich Fritsche, economist with Berlin-based DIW institute.
