Bonn to push euro-zone wage-pegging

Date: 18/03/1999

By Tim Jones

THE German government will press ahead with proposals to set a voluntary 'bench-mark' for euro-zone wage increases despite the resignation of the plan's architect, former Finance Minister Oskar Lafontaine, and opposition from some member states.

Officials say Chancellor Gerhard Schröder and his Labour Minister Walter Riester are keen to salvage wage-pegging as part of the European employment pact which EU leaders are meant to approve in Cologne in early June.

In a draft pact, the German labour and finance ministries have called for incomes policies in EU member states to be coordinated to avoid stoking up inflation, adding to public sector costs and ultimately choking off job creation.

" To incorporate wage policy effectively into the macroeconomic perspective, it would seem expedient and important to develop a procedure to monitor and analyse wage trends," says the draft.

" A wage policy serving to promote employment should take a course that is dependable over the medium term."

When this plan was presented to Union ministers responsible for social affairs last week, Luxembourg Prime Minister Jean-Claude Juncker criticised it as too timid, while Dutch Labour Minister Klaas de Vries argued that its aims had already been met by procedures established at the November 1997 jobs summit in Luxembourg.

British Employment Minister Andrew Smith and Spain's Manuel Pimentel also expressed concern that Riester's aim of "improving the interaction" between fiscal, wage and monetary policy should not attempt to coordinate the setting of pay levels across the Union.

Some diplomats believed Lafontaine wanted eventually to emulate the Belgian wage-setting system, which limits maximum private sector pay rises to the expected weighted average increase in Germany, France and the Netherlands.

The draft's commitment to "aggregate wage increases in the order of the productivity trend" set alarm bells ringing in states where wage bargaining is done by industry or even by factory.

Ministers also questioned the need for concentrating on pay levels at a time when slow inflation, high unemployment and rising productivity have kept the lid on the growth of unit labour costs.

But German officials say Schröder and Riester believe the commitments already made by member states in the agreed 1998 guidelines for employment should be "neutrally monitored and analysed in accordance with suitable procedures".

These include a determination that wages should only outstrip inflation if linked to productivity gains and an avoidance of 'wage imitation' across the labour market, as trade unions await pace-setting settlements in key industries before negotiating on their members' increases.