Wednesday, May 14, 2008

Trade Unions Are Right .... At Least British Ones

Andrew Watt, a senior researcher at the European Trade Union Institute, has written a very good analysis of the “consensus view” on what to do about the European economy (The Financial Times, May 12, 2008). Faced with the unpleasant combination of above-target inflation and growth decelerating markedly below the potential rate, the European Central Bank has clearly insisted on its priority: fight inflation. Unlike other central banks it has refused to cut rates while monetary and lending conditions by banks have significantly tightened.

The European Commission is starting to worry about budget deficits – again. Business leaders complain about “high wage demands” and ask for more fast-track labour market reform – again.
Policymakers in general worry about the threat to competitiveness from wage increases – consistently running at between 2.5 to 3.5 a year, when the euro has appreciated by about 20 per cent in just four months due to different monetary policies on the two sides of the Atlantic.

The conclusion seems clear: Shouldn’t the ECB worry more about the true danger, its own policy?

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