Deflation risks undermining recovery, ETUC warns

European economic recovery remains fragile and could be derailed by rising debt burdens, the ETUC warned the European Commission, ECB, Finance Ministers and European employer organisations.

The ETUC described the much-heralded  ‘recovery’ of the European economy as weak, and clearly insufficient with unemployment in 2015 still remaining at 11.5% (according to the ILO), at a  meeting of the European Macro Economic Dialogue .

The ETUC also cautioned the ECB about complacency on the danger of rising debt burdens as a result of very low inflation in the Euro Area. Inflation rates are already so low that they are pushing up the real burden of debt in several member states. This, in turn, squeezes demand and undermines the economic growth and job creation.

The ETUC calls for a change of course. Austerity and deregulation of wages and collective bargaining systems need to stop. What Europe needs instead is a European investment initiative, and a restoration of the wage fixing machinery so that wages can act as a force against deflation.  

Says Veronica Nilson, Confederal secretary of the ETUC: “Households, companies and Governments are having to finance high debt repayments from falling revenue.This squeezes consumption and there is a real risk that recovery will be undermined by this. Debt deflation is already here and policy makers should urgently address this”.   

 

Note: In the Macro Economic Dialogue, high level representatives from the Commission, the ECB, the Council and European social partners meet twice a year to exchange views on the economic situation and the macroeconomic policy mix.