Union challenges bank’s inflation analysis


(28 February 2023) EPSU affiliate, IPSO, the main trade union at the European Central Bank (ECB), has challenged the institution’s approach to inflation both in relation to its own employees and the wider economy.

Striving for a policy of wage moderation, the ECB has raised its employees’ wages by 4% which is about half the level of inflation in Germany, where the ECB is based. The reaction of staff is shown by a recent poll conducted by IPSO that found that more than two-thirds of employees had lost trust in ECB president Christine Lagarde and the Executive Board. Over 60% were reported to be concerned about the ECB’s ability to protect their purchasing power, although an ECB spokesperson questioned whether the survey was representative.

The matter of the origins of the current high levels of inflation, how to deal with it and who should bear the burden of the high levels of inflation continues to be heavily disputed, even within the ECB itself. Under guidance by her close advisors, lawyer-turned-head-central-banker Lagarde, has decided to adopt a policy of increasing interest rates in an attempt to ‘cool down’ the economy. Meanwhile, due to a fear of a wage-price spiral, ECB has rejected the calls of their workers to increase wages to keep up with inflation. In contrast, Olivier Blanchard, former chief economist at the International Monetary Fund noted: “arguing against second-round effect […] implicitly asks workers to accept the real wage cut implied by the increase in the energy price.”

The ECB fears that an increase in wages would put further pressure on an economy that cannot handle the additional demand that increased wages would induce. Additionally, the fear persists that companies will merely put the burden of the increased wage costs onto consumers by raising prices. There is, however, economic evidence to suggest that the occurrence of a wage-price spiral in the current scenario is unlikely, partly due to the fact that increased income would mainly be spent to make ends meet rather than on additional consumption.

The European Trade Union Confederation (ETUC) also challenges the ECB position, raising the prospect that a profit-price spiral could be a risk. General secretary Esther Lynch criticised the ECB’s decision to raise interest rates, saying: “These increases will not address the underlying causes of inflation, which are firmly embedded on the supply side of the economy. Furthermore, many price-setters in the housing market may now pass the higher costs of doing business on to renters.”

Back in the ECB itself, IPSO has suggested that staff ‘adjust’ their productivity in line with the effective loss of purchasing power. In essence, this would mean working less hard for on average 2.5 hours every week, accounting for the accumulated 6% loss in purchasing power over the last two years. It has also indicated a willingness to consider non-monetary compensation such as time off, yet none of their proposals have been accepted.

More generally IPSO is concerned about the problem of declining trust in management and the potential that the flow of information between workers and the board might suffer, with a further distancing of the ECB leadership from the reality they shape with their approach to pay and inflation.

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