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Bank of Spain calls for salary restraint

Source: El Pais - Mon 7th Feb 2011

The Bank of Spain have revealed how the country's economy returned to growth at the end of 2010, however called for a continuation of wage-hike moderation to ensure the recovery continues.

The El Pais newspaper reported how the bank's usual call for wage restraint has added significance at the moment because of contuing talks between the country's labor unions and the government to find an out an agreement on making the country's collective bargaining system more flexible.

It also coincides with a German-French joint propsal for a 'euro-zone competitiveness' pact which would tackle indexing wages to inflation, a continued request of the Bank of Spain, but one the government and labor unions, and many employers to would be against putting into practice.

In last week's commentary on the economy of the country, the Bank of Spain observed how average salaries increased by just 1% last year, the smallest increase in a decade and 0.8% below average inflation for 2010, resulting in a loss of purchasing power. The bank attributed much of the contention of wage hikes to an average salary cut of 5% for the public sector introduced by the government as part of its austerity drive. Wages under collective bargaining agreements rose 1.3% in 2010.

"It is vital that such wage restraint should continue in the coming quarters," the bank said in a statement. It also stated how it was important to keep in mind during negotiations on amending the collective bargaining system that the recent growth inflation to more than 3% is a one-off phenomenon deriving from tax hikes introduced by the government, hikes in regulated electricity and gas prices, and higher oil prices.

"Indirect effects on companies' costs must be limited and changes in prices must not give rise to a widespread revision of inflation expectations that feed through to final prices through the prices set by producers or through wage bargaining," the bank said.

In current collective agreements in Spain, 45.6 % of workers have contracts with clauses indexing their wages to inflation.

The central bank said Spain's GDP rose 0.2% in the period October-December from the previous three months when it was unchanged. It was up 0.6% from the previous year and contracted 0.1 % over the course of the year.

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