Fratzscher fears that the estimated additional costs of 17 billion euros as a result of the deal will be “a massive financial burden that will lead to further restrictions on services of general interest”.
(Photo: IMAGO/Metodi Popov)
Berlin Economists see light and shadow in the collective bargaining agreement for the approximately 2.5 million employees of the federal and local governments. “All in all, the increase in wages for the public sector compared to the private sector is not completely out of the ordinary,” Commerzbank chief economist Jörg Krämer told the Reuters news agency on Sunday.
After the massive loss of purchasing power due to high inflation, it was clear that wages in the public sector would also rise significantly. “But it is also true that the municipalities will pass on part of the increased labor costs to the citizens through higher fees – the companies are acting in a similar way,” added Krämer. “The inflation problem is far from solved.”
According to BayernLB chief economist Jürgen Michels, the wage compromise should set the alarm bells ringing at the European Central Bank (ECB). “The deal certainly increases the risk of a price-wage spiral and should cause headaches for the ECB,” said Michels.
Even if a large part of the deal are staggered one-off payments and are therefore not a permanent driver of wage costs for the public sector, taxes and fees are likely to rise more sharply as a result.
“This should also be reflected in sustained high pressures on core inflation,” said Michels. Since the consequences of this agreement can only be foreseen with a time lag, the ECB may only lower interest rates again at the end of 2024.
Collective bargaining agreement: Will real wages increase in the coming year?
According to the words of ING chief economist Carsten Brzeski, the result fits in with the picture of other financial statements: “The loss of purchasing power will be absorbed for this year, but not completely compensated”.
Next year, real wages could rise again for the first time in years.
(Photo: dpa)
Next year, real wages could rise again for the first time in years. “As good as this constellation is for consumers, of course, it is all the more difficult for the ECB,” said Brzeski. “Inflation is thus increasingly becoming a demand-driven problem and will remain stubbornly high.”
This is one more reason for the European Central Bank (ECB) to continue raising interest rates. In March, the ECB raised its key interest rate from 3.0 to 3.5 percent in the fight against high inflation. This makes loans more expensive, which is why many projects in the construction industry are currently being put on hold.
>> Read here: What does the collective agreement include and who is affected by it
For the municipalities, according to DIW President Marcel Fratzscher, the estimated additional costs of 17 billion euros due to the agreement mean “a massive financial burden that will lead to further restrictions on services of general interest”.
“Crisis of the municipalities will intensify”
For more than 20 years, almost every third municipality in Germany has not been able to adequately guarantee public services. “The crisis in the municipalities will continue to worsen until politicians implement an urgently needed reform of the federal-state financial equalization and better financial resources and debt relief for the municipalities,” said the President of the German Institute for Economic Research (DIW).
After numerous days of strikes, an agreement was reached.
(Photo: dpa)
“The state funds are available, because the state is the big winner of this inflation, because the federal and state governments are spurting tax revenues.” However, the federal government in particular preferred to return a large part of this money to higher earners through the tax relief of cold progression.
In the fourth round of negotiations, the bargaining parties had reached a result in Potsdam that night. The agreement provides for an inflation adjustment of 3000 euros in installments. As of March 1, 2024, the fees are to be increased by an amount of 200 euros in a first step.
>> Read here: In the Tariff policy there is a turning point
In a second step, the amount then increased should increase again linearly by 5.5 percent. However, the increase should be 340 euros in any case, the contract period was set at 24 months.
More: Agreement in the collective bargaining dispute in the public sector
First publication: 04/23/2023, 3:17 p.m.