A row has broken out in Germany after Chancellor Olaf Scholz suggested that unions and employers should agree on a one-off payment to cushion workers from rising inflation, rather than permanent salary increases. The idea has been rejected by not only the unions, but also leading economists and members of Scholz’s own government. 

German Chancellor Scholz wants to combat wage-price spiral

The idea was floated ahead of a meeting scheduled for next week between Scholz and union and employers’ representatives from Germany. With inflation currently hitting 7,9 percent, Scholz is worried that the unions will respond by negotiating significant increases to salaries, thereby creating a spiralling effect that could fuel inflation by pushing up the cost of labour and prompting companies to raise their prices once again.

To combat this and try to get the inflation rate under control, Scholz is reportedly planning to pitch the idea of a one-off payment or bonus instead of a wage increase. To make the idea seem more appealing, the payment would be exempt from taxation.

According to the RND, the government is looking to a collective bargaining agreement in the chemical industry as an example. Back in April, employers and unions agreed on a one-off payment of 1.400 euros as an interim solution and postponed further wage negotiations until October. 

The SPD party has said that the payment would help cushion workers from the rising cost of living while also helping to stop continuous price hikes. It’s not yet clear exactly how the proposal would affect workers not covered by collective bargaining agreements, or entrepreneurs and freelancers. 

Greens, unions and economists criticise one-off payment proposal

The idea has already been met with widespread criticism, including from Scholz’s own coalition partners, the Greens. “It has to be answered, why people with very high incomes, or in companies that make good profits, should receive state support,” said parliamentary group Vice- President Andreas Audretsch. 

Several unions have also rejected the proposal, arguing that collective bargaining should remain free from political intervention. Ver.di boss Frank Werneke said in an interview with Bayerische Rundfunk that he didn’t think much of the idea: “We have to make sure that these permanently rising prices are also converted into permanently effective collective wage increases.” Similar statements were made by representatives from IG Metall and the union for the German police. 

To make matters worse, some of Germany’s leading economists have suggested that the one-off payment wouldn’t necessarily have the desired effect. Clemens Fuest of the Munich ifo Institute said that intervening directly in collective bargaining was a tricky tightrope to tread: “Especially because there is a risk that this will lead to strong deadweight effects and wage increases will not be much lower… The whole thing could also fuel inflation,” he said. 

The President of the German Institute for Economic Research, Marcel Fratzscher, told the Augsburger Allgemeine that the “one-off support will only help in the short term, but will not relieve people with low incomes in the long term.” He said that higher wages and social security benefits were the only sustainable way to provide support.