Bank policymaker predicts rising wages in Germany

WAGES in Germany could rise quickly over the next couple of years, according to a Bank of England policymaker.

Adam Posen predicted that decisive monetary policy action by the European Central Bank will not prevent unemployment in the euro zone from remaining high over the next two years, with the exception of Germany.

“Into mid 2014, at best, you’re seeing employment plateau” in most of the euro zone, Mr Posen said during a panel event on the European financial crisis which was held at Williams College in Williamstown, Massachusetts in the United States.

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In Germany, by contrast, the jobless rate is likely to fall below five per cent.

The country’s jobless rate in March was 6.7 per cent, seasonally adjusted, which marked a two-decade low.

“The German natural rate of unemployment is around five per cent and is forecast to be below that by mid-2014, so you should start to get some inflation,” Mr Posen said. “That will make things a bit difficult for the European Central Bank.”

Mr Posen steered clear of talking about the British labour market and economy in his prepared remarks, which focused on what reforms Europe could undertake to strengthen its fiscal union.

Mr Posen said he did not foresee a breakup of the euro zone.

“I’m not even imagining it,” he said.

Mr Posen joined the Bank of England’s Monetary Policy Committee in September 2009.

He is a senior fellow at the Peterson Institute for International Economics.

Mr Posen’s policy and research work has focused on macroeconomic policy and performance, the European and Japanese political economy, and the resolution of financial crises.

He has been a consultant on economic and foreign policy issues to several US government agencies, the European Commission, the Cabinet Office, and the IMF.

He is the author or co-author of six books and numerous articles, including studies of inflation targeting, Japan’s great recession and recovery, the economic impact of asset price bubbles, and central bank independence.

Minutes from the BoE’s March Monetary Policy Committee meeting, which were published recently, showed members voted seven to two to keep quantitative easing (QE) steady at £325bn.

Mr Posen and David Miles unsuccessfully voted for a £25bn increase to £350bn to reduce the risk that “persistently weak growth” would damage future supply capacity.

The BoE is trying to boost the economy through its programme of buying Government debt.