Europe’s trade unions and the payless recovery

Jean-Claude Trichet, European Central Bank chief, won some grudging admiration from trade union bosses in Seville after giving a typically urbane explanation of why workers had to keep their pay claims down for the sake of the economy.

Mr Trichet argued at the European Trade Union Confederation’s four-yearly congress that low pay rises equalled low inflation, equalled stability, equalled more opportunities for the comrades’ unemployed brethren. "He was pretty good," admitted one veteran union baron.

If he had not been plausible he might have been given a much tougher time during a panel debate with senior union leaders I happened to be chairing. Because workers feel it is time they got their share of what has so far been almost a "payless recovery".

Over the last decade real wage increases in the eurozone have been virtually zero, with annual pay rises hovering between 2-3 per cent – about the rate of inflation. Even during the upturn in the last two years, wage inflation has been remarkably subdued.

Mr Trichet may be right to argue that past performance is no guide to the future. Perhaps recent pay rises of above 3 per cent for German industrial and construction workers may be a sign of a worrying new trend.

However German workers, perhaps more than anyone else in Europe, surely deserve a bit of payback after an extraordinary period in which their wage restraint and improved productivity has maintained German export competitiveness in a fierce global climate.

The unions point out that a boost to domestic demand in Germany – flatlining for years – would help to put the country’s recovery on a firmer footing and less dependent on export markets.

Surely now is the time for workers and employers to take a cool look at the state of the eurozone’s economic situation and act accordingly. That justifies higher pay rises for German workers, lower ones in countries like Italy and Spain where competitiveness has been eroded.

If that happens aggregate wage rises across the eurozone would be balanced out – to Mr Trichet’s satisfaction – and Italy, Spain, France and the others would have a chance to close their yawning competitiveness gap with Germany.