Brussels, 12/04/2005
The ECB's concern about inflation is not justified by the facts. Instead it should be acting to stem the renewed decline in economic growth, says ETUC General-Secretary John Monks, in response to last Thursday's ECB decision to keep rates unchanged, and President Jean-Claude Trichet's press comments.
Announcing the decision to keep interest rates unchanged, Mr Trichet pointed to “upside risks to price stability” and the need for the “social partners (to) assume their responsibilities”. At the same time he described economic activity data as mixed.
In response, the ETUC points out:
In fact, there has been a string of reports suggesting that the economic recovery in the euro area is stalling, as the oil-price rise and the appreciation of the euro make their effects felt. The main leading indicators point to a growth slowdown. The European Commission has just revised its economic forecast for 2005 down from an inadequate 2% to a desultory 1.6% and the negative output gap will widen further. Moreover, it has forecast an inflation rate of 1.5% for 2006, in spite of the rise in oil prices. This is significantly below the ECB target.
For these reasons the ETUC cannot accept Mr Trichet's categorical refusal to consider further cuts in interest rates and his emphasis on upside risks to price stability. A forward-looking central bank with a symmetrical price target should be considering further lowering rates in the current environment. This would be in accordance with the Bank's Treaty mandate to support economic activity, provided price stability is assured.
The ETUC is well aware of the responsibilities of the social partners. Wage trends in recent years have been a decisive support to the ECB in controlling inflation. The Commission predicts only a marginal increase in nominal wage growth in the euro area (2.2% in 2004 to 2.4% in 2006). This is compatible with price stability, even if productivity growth remains depressed. Meanwhile real unit labour costs are forecast to be negative in all three years, meaning that the shift in income from labour to capital continues. Given these figures, it is evident that the trade unions have met and will continue to meet their responsibilities, and that calls from other actors for them to do so are unnecessary.