Rising ECB interest rates: CESI calls for differentiated solutions to bring down prices
2023-03-24 01:28
As the European Central Bank (ECB) continues to raise interest rates at a considerable speed, CESI calls for differentiated solutions to bring price developments back to healthy levels.
In a new resolution adopted by its Presidium, CESI makes clear:
1. Policy makers should pursue targeted steps to effectively help the unemployed as well as low- and middle-income earners to maintain their purchasing power, including:
- measures to reduce energy bills. To bring down energy prices, effective energy price caps should be pursued to bring down energy bills, where feasible at technical and regulatory level. Moreover, CESI supports the EU’s decision to reduce electricity consumption in peak hours, when prices tend to be highest. To counter-finance financial support to reduce bills for consumers, windfall taxes for electricity produced by currently relatively cheap non-gas sources but sold at gas-source level should be collected and redistributed. Given the enormous strain that financial support to reduce bills may still mean for public budgets, policy makers must focus resources deriving from windfall taxes on those citizens, workers and families that need them most.
- a prolongation of the temporary Support to mitigate Unemployment Risks in an Emergency (SURE) by the EU in case economies deteriorate. Already during the Covid lockdowns, this tool proved highly successful to keep workers in their jobs and prevent business from laying off and later having to re-hire and train new workers at considerable cost. In this way, SURE is more an investment than an expenditure.
- the swift implementation of a recently adopted Council Recommendation on adequate minimum incomes by the EU institutions and the Member States to ensure that nobody must live in poverty.
2. Social partners should agree on considerable wage increases. There is considerable scope among employers for this. The state – employer of civil servants and public sector employees – benefits from large inflation-driven increases in tax revenues, which need to feedback also as wage increases for its staff. In the private sector, many large companies, (excluding in energy-intensive industries) have increased their profitability during the inflation period. In Germany, in the second half of 2021, the DAX companies increased their profits by 152% compared to 2020. Throughout 2022, profitability has remained high. Employees should benefit from this, too.
3. Social partners and policy makers should undertake, where this has not yet been the case, to establish wage indexations. This could happen either through collective bargaining or through laws or statutes. They should also without delay transpose the new EU directive on minimum wages and set minimum wages and adequate levels that rule out threats of falling into poverty.
CESI Secretary General Klaus Heeger said: “The current hike in inflation in Europe is largely due to price increases of specific commodities, including energy and nutrition. Lately there has been a tendency towards inflation across the board and raising interest rates are a standard recipe of many economists against this. However, this tool should currently be used with caution. It could choke off the economy and bring unemployment while not helping much to bring back inflation to healthy levels. What we need above all is windfall taxes for profits in the food and nutrion sectors and a fiscal redistribution to those that currently suffer most.”
