Brdo, 04/04/2008 (Agence Europe) - The economic situation in the euro zone is not in the best of health, but the Eurogroup has not given in to pessimism. No recession ahead, stressed Jean-Claude Juncker on Friday 4 April, in a message mixed with a firm plea in favour of fighting inflation and in favour of wage restraint. “The winds adverse for growth we saw coming have since materialised”, explained the Eurogroup president, after the informal meeting of the Finance Ministers of the Fifteen in Brdo, Slovenia. “Oil prices, the economic slowdown in the United States and other phenomena are of concern to us today in terms of growth”, he stressed before the press.
However, the resistance of the European economy is “quite remarkable” and there will be “no economic downturn in Europe”, where there is “no danger of recession”, Mr Juncker added, even though the International Monetary Fund (IMF) is getting ready to reduce its growth forecasts for the euro zone. The IMF, which will publish its latest figures on 9 April, predicts an increase in the growth of the world economy by 3.7% in 2008 (compared to 4.1% in January and 4.8% last October). According to the press, it is also set to reduce its expectations from 1.5% to 0.5% for the United States and from 1.8% to 1.3% for the euro zone. This analysis is “not entirely correct”, said Mr Juncker. This view is shared by Joaquin Almunia, the European Commissioner for Economic and Monetary Affairs. “The risks for growth have increased”, but the scenario “is likely to be better” than the picture drawn by the IMF, stressed Mr Almunia, who will present his forthcoming spring economic forecast at the end of April. “The more tensions persist, the greater the risk that the financial turbulence will spread to the real economy”, he added. Describing himself as “concerned but not pessimistic”, he went on to acknowledge that the inflation forecast of the Commissioned for the euro zone would “most likely be increased” (it currently stands at 2.6% for 2008).
Also “greatly concerned by the level of inflation”, which reached 3.5% in March, the President of the Eurogroup firmly supported the usual message of the European Central Bank (ECB), reminding the Member States of their responsibility to ensure price stability. Amongst other things, the governments must be more punctilious when increasing administered prices (prices controlled by businesses) and recommended that they show restraint in the event of modification to indirect taxation. He also called for wage restraint.
Germany, which has just concluded an agreement providing for major increases in public-sector salaries, is not the specific target of this warning. All of the other countries are, however. “We must not confuse the situation in the German public sector with that of the other countries of the euro zone”, explained Mr Juncker, who can see “a certain requirement” for this kind of increase in Germany, after years of actual salary regression. He added: “we do not take the view that other countries should take their lead from this, as their situation is incomparable”. The advice of wage restraint goes for all without exception, said Jean-Claude Trichet. The countries and negotiators wanting to imitate what has been done in Germany “would be completely wrong, because no country is in Germany's situation, where the increase in public function was 0% last year and 0% the year before”, added the President of the ECB.
And what about the salary increases called for by the European Trade Unions Confederation (ETUC), which is holding a demonstration over this in the streets of Ljubljana on Saturday 5 April? “Once growth returns, its benefits should not be reserved (…) for the favoured few, but should be divided equally”, observed Mr Juncker, who believes that “inflation is a problem which should also be of concern to the unions, including the European ones, in both their thoughts and their deeds”. He continued: “inflation is the enemy of those without purchasing power”. Showing their commitment to the fight against inflation, the ECB and the Eurogroup are contributing to “a social fight in the same degree as the social fight to be fought by others”. We are not saying that salary negotiations should conclude with agreement is close to zero, but salary developments should be in line with productivity increases, Mr Juncker concluded. (A.B.)