Euro zone governments must be secretly wishing IG Metall well. Germany’s metalworkers union plans a series of industrial actions this week to back its demand for a 6.5 per cent wage increase. What’s good for German workers can’t be bad for Europe, at least if they don’t save all of the extra money and do spend part of it. And higher German wages would help reduce the competitiveness differences across the euro zone.
The move towards a loosening of past years’ tough wage discipline already has visible effects. German demand is expected to rise 0.7 per cent this year, according to the International Monetary Fund, while declining in the whole euro zone 1.1 per cent. To keep up the momentum as recession hits in Germany’s main export market, some form of domestic stimulus would make sense.
Even if IG Metall eventually gets what it wants, an across-the-board stimulus, as recommended by many Europeans for the last two years, isn’t on the German agenda. Austerity partisans still rule in Berlin. And the Bundesbank is ever-ready to issue dire warnings about prices, even in the absence of evidence for now. German inflation - at 2.3 per cent over the last 12 months, remains below that of the euro zone as a whole, at 2.7 per cent.
Euro zone governments would of course be wrong to put all their hopes in Germany, and think that it alone has the power to pull the monetary union out of its current funk. But they should recognise that things are moving in Berlin.
Chancellor Angela Merkel is slowly opening to the idea of growth-boosting reforms. Her labour minister has created a commission to study the possible creation of a national minimum wage. Her deputy finance minister said last week that Germany was not “the consolidation Taliban”. If the fundamentalists are indeed losing ground, Germany’s euro trading partners can only welcome the news.
