Economist contradicts Lindner: Fratzscher: warning of wage-price spiral is "a fairy tale"

Federal Finance Minister Lindner has repeatedly warned of a wage-price spiral, which assumes that higher wages will further fuel inflation.

Economist contradicts Lindner: Fratzscher: warning of wage-price spiral is "a fairy tale"

Federal Finance Minister Lindner has repeatedly warned of a wage-price spiral, which assumes that higher wages will further fuel inflation. Economist Marcel Fratzscher does not see such a development. The danger is neither acute nor panic appropriate.

Top economist Marcel Fratzscher does not believe in the danger of too high wage settlements, which in turn will further fuel the already strong inflation. "It's a fairy tale," said the President of the German Institute for Economic Research (DIW). The danger is not acute.

"In any case, there is no need to panic, also because the unions no longer have as strong a bargaining power as they did in the 1970s." There are rather significant losses in real wages. Wages are likely to increase by an average of 4.5 percent this year - with inflation in Germany of around eight percent. "I don't see any signs that we could slip into a wage-price spiral for the coming years either."

Federal Finance Minister Christian Lindner had repeatedly warned of such a spiral and spoke of a real danger. Fratzscher, on the other hand, said that many companies were not overwhelmed with the wage demands. There is definitely room for maneuver in many sectors. "In the energy industry, for example, there is no reason why wage increases are not well above inflation. In other industries that are facing major economic problems, the situation is different and wage moderation is right and necessary."

According to Fratzscher, politicians are now in demand and can reduce the pressure on many consumers who are struggling with dwindling purchasing power. "The federal government should immediately launch a third relief package." Medium and low incomes would have to be relieved in a targeted manner in the long term, about one and a half years. That would take the pressure off the upcoming pay rounds. "Thus, with a generous, balanced third relief package, the federal government could make an important contribution to ensuring that inflation does not rise as sharply in the coming years as we are currently expecting."

The DIW boss campaigned for direct aid transfers to people with low and middle incomes - via an energy allowance of 100 euros per capita and month for one and a half years. These groups spend relatively large amounts on energy and food. It's about families of four with less than 6,000 euros gross income per month. "People don't need one-time relief, they need lasting relief." That would cost around 30 to 35 billion euros per year - about as much as the two relief packages put together so far in the wake of the Ukraine war.

For financing, Fratzscher proposes accepting higher debts and siphoning off the inflation-related additional revenue from the state's income tax and value-added tax. The economist criticized the gas levy planned from October, with which gas importers should be stabilized, in which consumers have to pay more. "The gas allocation is a mistake." Consumers would be held accountable for entrepreneurial risks. Profits stay with the companies, high losses are passed on to the taxpayer.

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