Brussels, 12/03/2006
Over the past five years, workers and trade unions have already made their contribution to maintaining price stability and promoting low inflation. They have been exercising extreme wage moderation, accepting zero real wage growth or even wage cuts, in some cases.
Other policy actors now have to play their part. Eurogroup finance ministers and the ECB have to get together to stop the ‘cycle of madness' driving monetary and fiscal policy:
- Since 2001, fiscal policies have been distorting and pushing up headline inflation by hiking indirect taxes and administrative prices. Even more indirect tax hikes are in the pipeline for the year(s) ahead.
- This is keeping inflation and inflation forecasts ‘stubbornly' above 2%, triggering the ECB to engage in a series of interest rates increases.
- However, these interest rate hikes will work to slow the recovery, thereby pushing deficits back up.
- The ‘cycle of madness' is complete when governments react by hiking indirect taxes further.
This is a recipe for economic disaster. It implies continuing high inflation, continuing sluggish growth and continuing high public deficits. It means finance ministers and the ECB are themselves inflicting a ‘home made' stagflation on the euro area economy.
This has to end. The ECB and EU finance ministers now have to shoulder their responsibilities and start implementing policies that strengthen the budding recovery.
The ETUC is calling for:
- finance ministers to consider a moratorium on indirect taxes and administrative prices, which would show underlying inflation to be only around 1.2% and falling.
- better EU-wide coordination between fiscal and monetary policies, to boost domestic demand and support robust economic growth.