The ECB staff union call for inflation adjustments

While the European Central Bank (ECB) is aiming for a medium-term inflation rate of two percent, prices in Germany - where the ECB is based and many employees live - could rise by almost six percent this month, according to the Bundesbank. In order to protect their salaries from inflation, the ECB staff union is calling for this year's salary adjustments to be increased. The 1.3 percent increase proposed by the ECB "no longer protects our salaries from inflation," quoted the finance portal Bloomberg from an email to employees. According to the union, the discrepancy between the proposed raise and the cost of living is causing a "permanent loss of purchasing power" for employees. "Even if the rise in inflation is temporary - which we all hope - we have no guarantee that we will recoup our losses," the email said. "The ECB is unable (or unwilling?) To protect its own employees against the effects of inflation!" The method for adjusting salaries for employees of the ECB is currently based on the wage developments at the national central banks and other European institutions and is not tied to the location where they work. The trade unionists advocate an indexation mechanism that links wage increases to inflation in Germany or the euro zone. With such a model, however, policy makers fear that wages in the region's economies will rise too quickly and that higher prices will become a permanent problem. At a hearing in the European Parliament last week, ECB President Christine Lagarde described the move away from indexing systems since the 1970s as "an improvement". According to Bloomberg, however, it is precisely this change, combined with the unions' low bargaining power, that may have contributed to the subdued wage and price developments over the past ten years - during which the ECB took economic stimulus measures to ward off deflationary risks. "We will not create inflation or a wage-price spiral if we adjust the salaries of ECB staff to inflation," said Carlos Bowles, vice president of the union and economist at the ECB. "If the ECB has a role to play in inflation, it is through its monetary policy and not through the mechanism by which it adjusts the salaries of its employees."