Friday, 7 March 2008

ECB Fear Materializing : "second round effects"

"Wage talks between the German government and the public sector union Verdi have broken down, raising the threat of further industrial action."
"Verdi wants 8% pay rises for two million federal and local government staff, including public transport workers and kindergarten staff."

"Talks that began Jan. 10 also stalled over a demand by Ver.di and the DBB civil servants' union for an 8 percent pay increase this year. The government offered 5 percent over 24 months for a longer working week and an incentive bonus, a proposal dismissed by unions as being worth no more than a quarter of their demands. "

At least the german union knows how to count...not like the Finnish Nurse Union (Tehy). 5 % over 24 month means 2.5 % per year lower than the 3.2% inflation rate which would be in effect a salary reduction... on the opposite the Tehy union got a bad deal even if in paper the number looked attractive, the reality was different...indeed they were fooled... but don't tell them...

SO what it means for the 350 millions citizens in Europe? well interest rates will not go down in april as speculated by the market instead there is a chance that they will go up unless the global economy collapse under the credit burden weight...and the cheerleader to watch is the U.S.

If the U.S. fall into a recession and a bad one, it will bring down the whole global financial system thus like a domino spreading the recession to one country after another...

Then of course the ECB won't have any choice then cutting rate aggressively. The moment of truth will be sometime around the summer, to check whether or not the U.S. rate cuts and fiscal stimulus are working and stabilizing the economy

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