MercoPress. South Atlantic News Agency

ILO blames Germany’s low-wages policy as contributing to the Euro debt crisis

Former Social Democrat Chancellor Gerhard Schröder implemented the policy

Germany's persistent policies to push down wages have harmed fellow Euro zone member countries and contributed to the bloc's current debt crisis, the International Labor Organization (ILO) said in Geneva.

In its report entitled Global Employment Trends 2012, the organization said German economic policies over the past two decades and particularly under the government of former Social Democrat Chancellor Gerhard Schröder had benefited exporters at the expense of other nations.

“The rising competitiveness of German exporters has increasingly been identified as the structural cause underlying the recent difficulties in the Euro area,” the report said. Crisis countries had not been able to export enough of their goods to Germany as domestic demand there was not strong enough because of low wages.

The ILO said German policies to keep down wages had created conditions for a prolonged slump in Europe as other nations on the continent increasingly saw only even harsher wage deflation as a solution to their lack of competitiveness.

The body called on Germany to enact swift changes. “An end to a low-wage policy would create positive spillover effects to the rest of Europe and restore a more equitable income distribution,” it said in the study.

The report also looked at the global employment situation, stating that 1.1 billion people were currently unemployed or living in extreme poverty worldwide. In Europe alone, 45 million people are out of a job. Young people were found to be hit hardest. Those aged between 15 and 24 were three times as likely to be without job as their older counterparts, the report said.

The head of the German Trade Unions Confederation (DGB), Michael Sommer, described the ILO report as a wake-up call for heads of state and government around the globe.

“Finally, they must make greater efforts to foster growth and employment,” Sommer said in a statement.