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ECB is driving down wages

The European Central Bank is strongly hinting that it will raise interest rates at its next meeting, in response to rising headline inflation -- even though this rise is the result of rising food and oil prices, which are not the results of ECB policy. Suppose that we focus on wage rates, which are often seen as the stickiest, most inertia-driven prices. The eurozone, like the US, has seen wage growth slump in the face of high unemployment.

So what the ECB is saying, in effect, is that Europe should drive down nominal wages -- which can only be done by raising the unemployment rate -- in order to offset the effect of oil and food on headline inflation. (Real wages will fall in any case.) Is this really a policy that the ECB would defend in so many words? I doubt it. But however sober and dignified talk of price stability may sound, that is what the proposed policy amounts to.


http://krugman.blogs.nytimes.com/2011/03/04/the-madness-of-jean-claude-trichet/
Filed under: Class War ECB EU Economy Krugman Wages
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