MEPs agreed in plenary on Wednesday 10 May that high inflation rates in the EU are having a deleterious effect, but were divided on whether the European Central Bank (ECB) should tighten its monetary policy.
For Nicolas Schmit, European Commissioner for Employment and Social Rights, it is important to assess and address the effect of rising interest rates on households and workers in order to avoid an increase in poverty and inequality, while ensuring that European social security systems are sufficiently equipped to protect the most vulnerable households.
Above all, the Commissioner called, “in sectors that can afford it”, for “appropriate” wage adjustments and responsible collective agreements to maintain the purchasing power of households.
Nicolas Schmit quoted the IMF’s chief economist, who in April warned of a potential cost of living crisis and called for wage adjustments to cushion the effects of inflation and rising costs associated with rate hikes.
Mr Schmit added that “wage-price spiral risks appear extremely contained. This has ben confirmed by the IMF and the ECB which concludes in its March paper that wages have had only a limited influence on inflation over the past two years (...). This analyse concludes that the increase in profits has been significantly more dynamic than that in wages”.
Swedish Minister for EU Affairs Jessika Roswall called for national governments to “take responsibility” with tighter budgetary policies, accompanied by targeted and temporary measures to support the most vulnerable.
She also considered that the ECB’s action was not sufficient and that political, monetary and fiscal action should also focus on bringing down inflation. She called on States to explore complementary solutions by diversifying energy sources, acting on the level of household consumption to improve the functioning of markets and addressing, notably, the lack of competition between certain industries, which has led to excessive prices.
For left-wing and Greens/EFA MEPs, such as Aurore Lalucq (S&D, French), Paul Tang (S&D, Dutch) and Claude Gruffat (Greens/EFA, French), it is corporate margins and energy prices that have fuelled recent inflation. For these MEPs, rate hikes are not the right tool to deal with this inflation and they affect households and businesses in Europe.
Irene Tinagli (S&D, Italian) said that the EU and the Member States could do more and that “we should all work together and not expect monetary policy to do things it cannot do”.
On the other hand, Jiří Pospisil (EPP, Czech) called for respect for the ECB’s decisions as an independent body.
Johan Van Overtveldt (ECR, Belgian) said that the ECB should have tightened its policy more quickly, “because inflation is the most discriminatory”. He called for budgetary discipline and closing of public deficits.
ECB President Christine Lagarde, in unveiling the monetary policy decisions on 4 May (see EUROPE 13175/9), said she was aware of the repayment difficulties of some households as a result of the rate hikes: “This is unfortunately not something that we can alleviate or attenuate because our task is price stability, our task is to reduce inflation and the tools of choice that work in that respect are interest rates and we have to use these interest rates. Some countries are taking particular steps and measures and some financial institutions are also looking at offering moratoria or delays”. Christine Lagarde had felt that the best the ECB could do was to bring inflation down quickly. (Original version in French by Émilie Vanderhulst)