Blowing the whistle against ECB´s wage moderation stance

Blowing the whistle against ECB´s wage moderation stance

12. March 2023 Press Info 0

We reproduce below a message that was circulated by IPSO to all ECB staff on 7 of March 2023

ECB´s wage moderation stance is causing serious prejudice to European workers without being economically founded. The latest analysis provided by Reuters is one among many other pieces of evidence indicating a change of approach is needed. The ECB should reconsider its biased approach against workers, trade unions and collective bargaining.

Dear Colleagues,

Since quite some time, we are trying to alert you on the unsubstantiated nature of ECB´s wage moderation stance.

This stance essentially consists in trying to pressurize European wages down, as a way to prevent the emergence of a so called wage-price spiral. The stance is part of ECB´s DNA and led to severe monetary policy mistakes in the past, such as the rate increase of June 2008 two months before Lehman brothers´ collapse.

The unfounded analysis behind ECB´s call for wage moderation

Any economist looking at the substance of the wage moderation stance will find out that it is economically unfounded. For instance, this occasional paper produced for ECB´s strategic review shows that the link between wage and inflation is very hard to capture in empirical studies – and certainly when facing a supply shock as we currently do. Wages are at best a lagging indicator of inflation. Furthermore, as shown in this IMF Paper, historical evidence gives us all reasons to expect that letting wages catching up will not trigger a wage-price spiral.

We are not the only ones arguing along this direction. In our last IPSOnomics, Prof. Joseph Stiglitz passed a similar message. Similarly, Reuters published last week a piece questioning why the ECB would solely focus on reducing wages rather than profits, when the evidence in their hands suggested many companies were cashing in on inflation .

ECB´s independence means expertise should prevail over personal biases

The problem we face, as ECB staff, is that ECB´s leadership keep instructing European workers to pay for the cost of high inflation. Our struggle goes much beyond the impact of the wage moderation stance on our GSA (the concept is indeed enshrined in an ill-designed way in our own methodology). It is about the work that we, as an institution, should be doing for European citizens!

The reason d´être of ECB´s independence is to enable decisions based on facts and figures, grounded in sound economic analysis, away from political interferences captured by personal biases, private or even national interests. We all know, however, that this is not what is happening in this institution! As research shows, nationality plays a role in ECB´s hiring and consequently monetary policy decisions – and we would argue in supervisory activities as well. Salary developments are a core element of industrial relations. The ECB should refrain from using the independence granted to it to run its monetary policy to influence social relations at the expense of workers and in favour of companies. It has no mandate to do so.

The EU Commission follows a more balanced approach than the ECB

In that regard, we stress the difference of approach between the ECB and the European Commission. In this report, for instance, the European Commission is trying to assess to what extent it is possible to allow for wages to catch-up without triggering a wage-price spiral. This is a completely different attitude than the one shown by the ECB, which warns against excessive wage growth without even indicating which growth would be excessive and which wouldn´t. The ECB is asking workers to pay as high a price as possible way to facilitate its life on the monetary policy front! The EU Commission is at least trying to maximize workers´ income.

Similarly, the European Commission is not rejecting collective bargaining and trade unions like the ECB do. The above report contains a full chapter advocating for the fostering of collective bargaining, explaining how this can be helpful to protect workers and also serve as useful wage coordination device. 

The ECB calls for wage moderation but reject wage coordination mechanism: an inconsistent approach!

In fact, even assuming that wage moderation would be a necessity, as Ms Schnabel or Mr de Guindos recently argued, this should be calling for some form of wage coordination mechanism. Why is it then, that Ms Schnabel and other Executive Board members are so opposed to collective bargaining – which is, incidentally, a European fundamental right? The inconsistency of the two approaches is merely another angle showing the existing anti-worker bias enshrined in ECB´ stance.

We stress that this anti-worker bias was also the responsible for monetary policy mistakes. Indeed, the deconstruction of collective bargaining encouraged by the ECB is an important contributor of the so-called missing inflation puzzle and the high deflation risks we had to fight in the previous decade. Trillions of Euro where thrown in the economy to compensate. As we know, this helicopter money hardly made it to the European citizens´ pockets.

Beyond this, ECB´s rejection of a European fundamental right is profoundly anti-European! It is also a very good recipe for fuelling social conflicts and social inequalities!

We as ECB staff work first and foremost for European citizens!

Ultimately, we are all working for European Citizens. The obligation of loyalty towards the institution does not mean that we should be forced to back up policy stances reflecting personal and unsubstantiated biases causing prejudice to European workers. It is our duty, as ECB staff, to exert critical thinking. We should speak up whenever we feel a mistake is being made!

We all know however that speaking up against higher ups is hardly compatible with making a career at the ECB. This is where we see our role as trade-unionists. IPSO, as part of the European trade union movement is not there to only defend ECB staff interests, but also to serve as a useful counter-power inside our powerhouse, for the good of European citizens.

With kind regards,

Your IPSO Board