ECONOMY

Calls to stem inflation

BRUSSELS (Reuters) – European trade unions called on eurozone finance ministers on Saturday to stop raising indirect taxes and administrative prices to help stem inflation and avoid further European Central Bank interest rate rises. Eurozone finance ministers and ECB President Jean-Claude Trichet will meet this evening to discuss the economic situation in the 12 countries using the euro. «By systematically hiking indirect taxes and administrative prices, (the finance ministers) are artificially keeping inflation above the 2 percent price stability benchmark,» said the European Trade Union Confederation (ETUC), which groups some 60 million workers. «This gives the ECB an alibi to engage in a series of interest rate increases, thereby endangering the long-awaited recovery,» the ETUC said in a statement. «The ETUC is calling for finance ministers to consider a moratorium on indirect taxes and administrative prices, which would show underlying inflation to be only around 1.2 percent and falling,» the statement said. The trade unions said that since 2001 tax and administrative price hikes have been pushing up headline inflation, which contributed to keeping price growth above 2 percent, the ECB’s annual inflation ceiling. The ECB raised interest rates by a quarter percentage point on December 1 and again on March 2 to stem inflationary pressures from fast credit growth and high, volatile oil prices amid signs that the eurozone economic recovery was gathering steam. But a planned value-added tax increase to 19 percent from 16 percent in Germany and administrative price increases were also mentioned by ECB policymakers as possible contributors to inflationary pressure. The ECB has signaled it is ready to raise rates further and markets expect the bank to increase borrowing costs to 3 percent at the end of this year from 2.5 percent now. The unions argue, however, that the rate rises will slow the eurozone’s economic recovery, diminishing budget revenues and forcing governments to raise indirect taxes again to fill the gap. This would possibly trigger further price growth and rate hikes. «This is a recipe for economic disaster. It implies continuing high inflation, continuing sluggish growth and continuing high public deficits,» the statement said. «The European Trade Union Confederation urges finance ministers in the Eurogroup to improve the coordination of fiscal policies and monetary policy.»