Monetary policy Archive - Friederike Spiecker

Searching for the scapegoat – wages in the ECB’s focus

If the German Federal Statistical Office hadn’t officially announced it last Friday, you wouldn’t have believed it. In Germany, the part of collective wage agreements that leads to a permanent collective wage increase actually amounted to only 2.4 per cent last year. This affects around 43 per cent of all employees whose employment contracts are subject to collective bargaining.

The ECB’s dogmatism reaches new dimensions

The data on price trends in Europe are more than encouraging. The inflation rate at consumer level in the European Monetary Union (EMU) was only 2.9 percent in October. According to Eurostat, producer prices were down 12.4 percent in September compared to September of last year. This confirms the view expressed in many articles here that the price surge in the eurozone and in many other countries was a temporary event that will recede again with the expected fall in commodity prices at all levels, including consumer prices.

„Prediction is very difficult, especially if it’s about the future.“

Whoever this bon mot is attributed to, it makes one smile and takes the heat out of a debate that should be about the matter at hand and not about dogmatism. Predicting economic development in times as turbulent as the present is indeed a delicate business for anyone who dares to do it. But since assessments of the future development of a country’s or continent’s economy are important for forward-looking economic policy, it is precisely then that the quality of forecasts on which decision-makers rely must be closely scrutinised.

The ECB gambles away its credibility

In contrast to the nine previous hikes, the European Central Bank’s (ECB) decision to raise key interest rates by 0.25 percentage points on 14 September 2023 was no longer unanimous in the ECB’s Governing Council but, according to ECB President Christine Lagarde, only approved by a „solid“ majority. The public response is also no longer as unanimous as before. Some experts, such as the President of the German Institute for Economic Research (DIW) Marcel Fratzscher, emphasise the risk that the ECB is taking with this step regarding the economic development in the Eurozone. Markus Demary, an expert at the Institute of the German Economy (IW), which is close to employers, criticises the decision more or less directly: „The ECB has chosen to take inflationary pressure out of the economy and is accepting a recession for the sake of price level stability“.

Still on a knife’s edge? The federal government fails to recognise the economic situation

Anyone in the civilised world who wants to drive a car must prove that he can correctly assess the direction of movement and speed of his vehicle, master the aids of stabilisation and gain a certain overview of the traffic situation. The obligation to pass a driving test meets with general approval among the population, because the person willing to drive a car can put not only himself but also others in danger if he does not have the required skills and knowledge. Those who steer a national economy do not have to prove anything of the sort, although the general danger to the life and welfare of the population posed by their errors of judgement and misconduct is enormous.