It was a warning signal. The European Commission released a report in March warning Germany about its macroeconomic imbalances, which the institution said required monitoring and policy action.
“In particular, the current account has persistently recorded a very high surplus, which reflects strong competitiveness while a large amount of savings were invested abroad”, the EU’s executive branch pointed out.
Given the size of German economy, the fourth world’s largest, and the economic situation of Southern Europe, the EC advices Berlin to end these imbalances by strengthening its domestic demand and increasing its growth potential. That is, rising wages and boosting consumption.
Germany has a meagre 5.1% unemployment rate compared to its neighbours, a current account surplus equivalent to 7.3% of GDP, companies have presented record revenues and index DAX 30 has experienced a revaluation of 28.48% in the last three years. An X-Ray that has prompted the government and labour unions to dare to afford better salaries.
In April a 3% wage increase was approved for 2.1 million public sector employees in 2014 and a 2.4% pay rise in 2015. Indeed, the remuneration of low income workers is already increasing by at least 90€ a month, representing 7.%.
“The result is among the best we’ve seen so far in 2014,” says Frank Bsirske, president of the United Services Union (Ver.di).
Nevertheless, “recent agreements on wages in Germany are not extremely high”, notes Werner Eichhorst, director of Labor Policy Europe from the Institute for the Study of Labor in Bonn.
“This is a quite normal development which leads to a moderate increase in labour costs in Germany that may (moderately) weaken German competitiveness, maybe leading to fewer exports and more imports as domestic demand increases. This could be good from a European perspective”, explains Mr. Eichhorst.
However, he warns, very high wage increases could undermine the stability of jobs and therefore be detrimental to private demand.
“But we are still far from such a scenario,” he added.
Despite all the criticism that Germany has been receiving in the past years, these above-average pay hikes and the introduction of a minimum wage in 2015 show the country’s willingness to start listening the suggestions coming from Brussels and to become the Europe’s equitable engine of growth.
Higher salaries also respond to the demands from the German working and middle classes, who have been putting up with wages stagnation for 15 years.