Wage hikes key to recovery?

Germany's Macroeconomic Policy Institute (IMK) said on Monday the current debt crisis in the 17-member eurozone could only be overcome by governments saying good-bye to their current budget consolidation courses.

It said the countries' "excessive savings programs" had only led to debt volumes becoming higher in the nations hit hardest by the crisis. The IMK think tank argued recent studies had shown just that and added that austerity measures had slowed down economic growth far more than originally expected by analysts and policy makers.

The institute confirmed its growth forecast for the German economy, saying it would rise by 0.8 percent in 2013. It said growth would primarily be driven by exports to eastern Europe, Asia and Africa which in the long-run would not be able to compensate for weak demand from fellow eurozone nations.

Controversial theory

IMK Director Gustav Horn told journalists in Berlin that Germany could help ease the eurozone crisis by agreeing to wage hikes higher than those brokered in the rest of the single currency bloc.

"For reasons of European and German stability, the next couple of years should really see wage hikes in Germany of 4 percent or even slightly more," Horn commented. He maintained that higher incomes would not only fuel domestic consumption, but would also increase German imports and thus enable other eurozone nations to export more to Germany.

But the Federation of German Industry (BDI) warned against higher wages. Its president, Ulrich Grillo, insisted the country's moderate wage policies had given Germany a competitive edge which should not be gambled away just like that. "We have to make sure we don't lose our position on world markets," Grillo stated.

hg/msh (Reuters, dapd)