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ECB-Draghi Calls On Bailout Countries to Further Lower Minimum Wages

Mario Draghi, head of European Central Bank found the solution to to production, especially in the bailout countries of the Euro Zone. “Urgent need to improve competitiveness and have labour forces work for dumping prices through further lowering the minimum wages” is the magic formula proposed by the ECB-chief. In the monthly report of ECB, released on August 9th, 2012, we read among others:

“At the  same time, structural reforms are as essential as fiscal consolidation efforts and the measures to repair the financial sector. Some progress has also been made in this area. For example, unit labour costs and current account developments have started to undergo a correction process in most of the countries strongly affected by the crisis.

However, further reform measures need to be implemented swiftly and decisively. Product market reforms to foster competitiveness and the creation of efficient and flexible labour markets are preconditions for the unwinding of existing imbalances and the achievement of robust, sustainable growth. It is now crucial that Member States implement their country-specific recommendations with determination.” (Full article ECB)

Mario Draghi wants to further cut the minimum wages especially in Greece and Spain but also in Portugal and Ireland, EZ-member countries under bailout mechanism. Although some progress have been made,

“Significant further efforts to improve competitiveness, reduce unemployment, particularly among young people exceeds 40% in Greece and Spain, and the sustainability of public finances are needed.

Labour costs and excessive profit margins have to be cut.

“In order to achieve this goal, states should enhance flexibility in the process of determining fees, to further reduce the minimum wage and to allow negotiations on wage setting at company level.”

The report emphasizes that “competitiveness should be improved by a permanent increase in labor productivity through privatization, innovative measures in production processes and develop new products, but also measures to improve the skills of workers.”

In February 2012, minimum wages in Greece suffered sharp decreases of -22%  and -32% (for youth below 25 years old).

  • Minimum wages dropped from 751 euro gross down to 586 euro gross (489 net) for those over 25 years old.
  • For younger employees (below 25 years old) minimum wage dropped down to 510 euro gross (440 net).
  • Respectively, the unemployment allowance dropped from 460 euro down to 359 euro.

In reality things are much worse: Especially young Greeks get a job for maximum 400 euro and thus without insurance. Part-timers get no more than 150-200 euro, no insurance.

According to latest data, unemployment hit a new record with 23.1% in May 2012. Among the youth the rate is horrifying: 54.9% of the youth is without job.

PS Can you imagine? You work full time 8-10 hours per day and get less than 400 euro per month? What are they up to? To turn the PIIGS into EU Chinas and Indias? It looks so. If only the cost of living could drop as well. But it doesn’t.

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12 comments

  1. “To turn the PIIGS into EU Chinas and Indias” : exactly. I wonder why you ask, it’s so visible ?
    So continue applying their method, i’m sure it’s great for Greece !

    -fx

  2. I think the last paragraph hit’s the nail squarely on the head. The Chinas and Indias of this world pay subsistance wages which makes their exports to the west as cheap as possible, while keeping eastern workers in abject poverty. So Draghi says we have to cut our labour costs (wages) to compete, thus making millions of western workers suffer. Well, i’d like to propose an alternative solution Mr Malaka Draghi. Tell the Chinas and Indias of this world to raise the wages of their workers and give them a decent standard of living, and making their products a similar cost to ours!. Otherwise, start putting import tariffs on their cheap goods, and then the EU citizens would start buying EU made products, thus giving EU workers jobs and an income. Tell the East to go Fuck themselves… Simples…

  3. Product market reforms to foster competitiveness and the creation of efficient and flexible labour markets are preconditions for the unwinding of existing imbalances and the achievement of robust, sustainable growth.

    Efficient and flexible labour markets, as in Greeks, Spanish, Italian Portuguese, Irish workers get work in Germany/France/Holland/Finland if and when it suits them, obviously only contract work so no minimum wage, social protection etc, and if not needed, they can return/stay to their reformed product markets where there is no work and spend the handout they got from the benefactor on products made by those benefactors? And while at it, pay extortionate taxes to maintain an overpopulated, totally ineffective civil service?
    The plan is becoming clearer by the day, so is the solution…

  4. Well, yes and no…

    Otherwise, start putting import tariffs on their cheap goods, and then the EU citizens would start buying EU made products…

    Let me tell you a little story how that works. Not so long ago, a “businessman” in Ireland was given 6 years jail for fraud. He was an importer of Garlic. Fraud with Garlic????
    The garlic in question came from China. To protect the EU (mainly French, Italian and Spanish) garlic growers, the import duty on Garlic is something ridiculous like 232% or so. What did our friend do? In cohoos with his Chinese supplier, the paperwork accompanying the garlic declared them to be “Apples”, with an import duty of 9%…
    The businessman was at this game for years, and avoided taxes to the tune of 1.6€ million. Then some customs officer, a little brighter than his colleagues, thought these apples had a bit of a funny smell, and went looking.

    According to the judge the businessman was however a decent man who had in fact started paying off his debt. How noble of him. If he hadn’t been caught, he wouldn’t be paying a red cent.
    The judge made an example of him, not because of the tax fraud, but the pre-meditated deceipt by changing the paperwork and misleading the officals (who couldn’t smell the diference between garlic and apples…)
    Moral of the story, it’s fine to avoid taxes, just don’t confuse the officials by fiddling the paperwork.

    The rules are there, they are just being trampled all over by those in power. And Joe Soap pays…

  5. In order to reduce the debt of Greece, stop importing. FULL STOP.

    No more spare parts to be imported. Start making the parts in Greece.

    And BUY Greek Products only. It worked in Australia with the buy Australian campaign. Now Greece should do the same. And if the other big EU partners say “No Greece you are not allowed to do this”. Then stuff them, drop the Euro as currency as of next week. Go to Drachma. And kick start the industry again.

  6. It worked in Australia with the buy Australian campaign. Now Greece should do the same.

    This is indeed against EU rules. It was done years ago in Ireland with the “Buy Irish” campaign, they tried to revive it again last year, and got slapped down immediately.
    “Thou shall not threaten German Exports!”

    Apart from that, the Irish experience turned out to be nothing but a gravy train for those running it, while the price of the Irish products just went up on the anticipation of more sales because of the campaign.

    Because of the EU, Greece (just like Spain, Portugal, Ireland, etc) has been pushed into an becoming an “import” economy. Infrastructure, manufacturing proceses, administration systems, government controls are archaic, and have deliberately been kept as such, to facilitate the much easier option of importing, which is a surprisingly smooth process to do. You simply cannot just reverse that overnight. One of the EU sticks behind the door here is the famous “Schengen” agreement.
    Although everybody in Greece is pointed, once again, at illegal immigrant in relation to Schengen, and these people are once again used as scapegoats to threaten Greece with expulsion from Schengen, the reality is that such an expulsion would do abolutely nothing for the immigrant problems, it would however make an already virtually non-existing Greek export economy totally and utterly impossible. Greece could retaliate by making imports very difficult through lots of paperwork etc (more civil service workers!), but that would only achieve even more discomfort for the Greek people.
    Greece needs to become a self sustaining economy, at least in the areas supplying the 4 basic needs of people, energy, food, infrastructure (including housing) and clothing. Organize those sectors properly, without unnecessary red tape, and there is plenty of work for plenty of people…

  7. Draghi’s comment overemphasizing the importance of reducing labor costs is simply erroneous. Of course, a company adapting the model of having cheaper, better, faster and on time delivered to its customers products, is likely safeguarding its profitability and viability.

    In order for a company to remain competitive and efficient it has to have: 1) An innovative R&D, 2) Flawless product designs, 3) Low cost and high quality raw materials, 4) An inventory monitoring & controlling system, 5) Low direct and indirect labor costs, 6) Automated, JIT ( Just In Time), continuous product flow, relying on Kaizen (Continuous Improvement), rigorous quality control and reducing Muda (Waste), manufacturing processes, 7) Automated packaging systems 8) An efficient shipping system, 9) Good labor-management relations, 10) Tax incentives, 11) Sensible corporate tax rates and 12) Effective marketing strategies.

  8. that’s the theory. In reality, they just reduce wages or go to cheaper labour countries and forget the theory.
    They have now realised that it is even cheaper to bring cheap labour to a factory than move the factory to where the cheap labour is. Hence the creation of an economic waste land in the periphery of Europe, with the promise of jobs in the centre. But only for he/she who works cheapest of course. The race to the bottom has already begun, and all Draghi wants to do is take the breaks off completely by lowering the minimum wage. If he thought he could get away with it, he would call for the abolishion of the minimum wage. That will come in a year or so…

  9. Is Draghi also a member or the illuminati and attends the Bohemian Grove meetings.

  10. Ephilant

    Decisions to reduce wages and to relocate manufacturing plants are sometimes made because few other good options are left. If the best customers of a company ask for product price reductions, the company’s management has to respond. If the company’s employees reject wage cuts while the raw materials costs are going up, the health care costs are increasing, having higher utility bills, escalating maintenance costs, etc., the company might be left out of options. Losing a number of contracts will likely force the company to lay off some of its employees.

    Relocating a manufacturing plant either in another city, or state or another country isn’t solely made on reduced labor costs. It also made because of lower tax rates, reduced material costs, lower utility and fuel costs, lower land lease agreements, on advantageous labor and environmental laws, lower health care costs, better infrastructure, on the availability of skilled employees and on many other factors.

    It’s a cliché, but you get what you paid for. A company might be selling a product cheaper than its competitors, but if it isn’t build to last, has manufacturing defects opening Pandora’s box to costly lawsuits, isn’t shipped on time, and the customers aren’t satisfied with it, the product’s orders will likely drop. Toyota developed and implemented many of the twelve principles mentioned above, making it one of the largest car companies in the world. But, due to its rapid expansion failed to recognize the presence of a number of designs flaws in some of its vehicles. The problem of unintended vehicle acceleration forced Toyota to recall millions of its cars costing the company billions of dollars. Companies having successfully implemented fundamental business principles became more efficient, competitive and profitable.

  11. Nicolas, the beautiful theories with their fancy names (Lean, Six Sigma, Twelve Sigma) all stem from the Toyota Production System you mention. Great as they are, and they surely make a lot of money for a few people, the bottomline is cost, and the list of manufacturers who move their factories around the place in order to avail of cheap labour is endless.
    The game is now changing. The factories stay where they are, the workers are moved around. Why go through the expense of moving a factory if you can simply destroy a country or 2 economically and get their redundant workforce to do the moving at their expense?
    Of course, the folly of minimum wages introduced so many years ago is now proving to be a bit of a millstone around the neck. Enter Draghi, good little puppy he is. Start shouting for the reduction, and soon abolishment of minimum wage, so we can compete with China, Indonesia and other welfare heavens. That is the name of the game. Nobody gives a hoot about the workers or how much they earn or not. As long as they work, all is fine.
    Not so long ago the BBC ran a story on hospitality workers in one of Germany’s most prestigious holiday resorts in the former Eastern Germany. If I find the link, I will post it, KTG willing 🙂
    People are working there for .5€ per hour! Why? Because Germany has no minimum wage policy, the ONLY EU country to never implement it. And it results in government sanctioned abuse of the work force. Nothing more, nothing less.
    That is what this is all about. It has nothing to do with fancy management theories, it is a blatant call for the introduction of blatant, naked exploitation of already seriously impoverished people. Impoverished with intent!

  12. I understand and agree with you especially on your last sentence. It is up to the government to show the way.