European Central Bank staff angered by 'morale-damaging' pay dispute

European Central Bank staff angered by 'morale-damaging' pay dispute
The European Central Bank. Credit: Wikimedia Commons

The European Central Bank (ECB) has angered its own employees after refusing to heed calls from staff union representatives to index wages to inflation.

The Frankfurt-based ECB's staff union, otherwise known as the International and European Public Services Organisation (IPSO), is deeply unhappy with the 4.07% pay increase offered to staff by the bank's management for 2023. Germany's forecast inflation rate for next year is almost double the proposed wage rise (7.5%).

IPSO's fury is compounded by the fact that ECB staff wages have only risen 1.48% so far this year, well below Germany's current annual inflation rate of 10.4%.

"With inflation in Germany and the euro area likely around 8.5% this year, [a lack of a pay rise] means a substantial reduction in purchasing power," IPSO Vice President Carlos Bowles told Bloomberg. "This [dispute] is damaging staff morale and also their trust towards the institution."

Similar disputes have arisen at several other central banks in recent months, including the Bank of Japan and, perhaps most notably, the Central Bank of Brazil. In July, employees of the Bank of Brazil ended a three-month strike which virtually crippled the country's ability to gather and analyse its own economic data.

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There is also some precedent for taking industrial action within the ECB itself: in 2009, staff members went on strike for the first time in the bank's history over planned benefit cuts.

In a speech delivered at the European Parliament in November, ECB President Christine Lagarde explicitly warned about the "self-defeating" nature of a so-called "wage-price spiral", where wage rises lead to a surge in prices which then leads to more demand for further wage increases.

"Persistently high inflation could lead to de-anchored inflation expectations, which then become ingrained in wage negotiations and price setting," she cautioned. She explained that this would hamper the productive capacity of the economy as a whole.

Lagarde's remarks echoed comments made by the Governor of the Bank of England, Andrew Bailey, who earlier this year urged British workers to remain "restrain[ed] in pay bargaining, otherwise [inflation] will get out of control".

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