European finance ministers sent wage earners a blunt message on Tuesday - it is fair to seek a share of soaring company profits, but don't overdo it or inflation will rise and everyone could lose out.
Job creation and profit-sharing were important too, not just pay, the ministers said in an appeal that looked like an effort to reassure the European Central Bank inflation would stay under control, limiting the need for interest rate increases.
"We need to stay vigilant," Jean-Claude Juncker, chairman of the euro area's club of finance ministers, said of wage trends. The ECB is widely expected to raise rates for a seventh time next week to 3.75 percent and many economists believe it will further tighten the screws on credit to keep inflation at bay. "Inflation risks are extremely limited in the eurozone," French Finance Minister Thierry Breton told a news conference.
The appeal followed a big pay claim on Monday from Germany's metal workers but coincided with data suggesting tamer than expected inflation in Europe's biggest economy in February.
Treading a delicate line as a Social Democrat in Germany's coalition, Finance Minister Peer Steinbruck said Europe's social model could nevertheless not permit the wages of low earners to fall as company profits kept rising, but that somewhat skirted the issue of how far wages could tolerably rise.
"If (lower-income workers) have falling real incomes and profits shoot up, there is a legitimacy crisis of the social market model and that can't be a good thing for those in the upper groups," he told a news conference.
Germany's powerful IG Metall union on Monday demanded a 6.5 percent raise - more than three times the rate of inflation - for 3.4 million workers in the metals and engineering sector. Juncker said it was normal for workers to want a bigger slice of the cake now the economy was growing solidly, but wage awards should remain in line with productivity gains and the aim should be to boost employment, not just salaries.
European plane manufacturing consortium Airbus was set to announce details of a restructuring plan on Tuesday that could include 10,000 job cuts, many of them in France and Germany. The European Commission predicts inflation of 1.8 percent this year after 2.2 percent last year, pushing price growth below the ECB's tolerance ceiling of 2 percent.
Recent figures showed it at 1.9 percent in January and data from several German states suggested it might be lower in February, according to analysts. "By this time next year, eurozone inflation could be running below 1.5 percent," David Brown, an economist at Bear Stearns International, said.
Officials said ministers were most worried about wage rises relative to productivity in southern countries such as Portugal, Greece and, above all, Spain, the fourth-biggest economy in the currency bloc after Germany, France and Italy.
Germany has been reducing labour costs for years and the others may now feel the need to follow suit, to compete better rather than for the sake of keeping inflation low. Germany's IG Metall union is seeking a big hike after years of restraint as pay negotiations for nearly a quarter of the nation's 39 million workers get going in earnest next month.
Analysts expect IG Metall ultimately to settle for around 4 percent. They are watching to see whether there are pushes for more than usual in other sectors. Several ministers echoed the message of wage restraint after talks attended also by ECB chief Jean-Claude Trichet on Monday.
Trichet has flagged what markets expect will be a quarter percentage point rise on March 8 from the current benchmark interest rate of 3.5 percent, versus 2.0 when the ECB started tightening in December 2005. Falling eurozone inflation is nevertheless making it harder for the ECB to agree whether to flag another rate increase after the likely March rise, eurozone monetary sources told Reuters.
Rate rises are also strengthening the euro, which has gained roughly 50 percent versus the dollar and the yen in five years, making it harder for carmakers to compete on price in world markets and for Airbus to take on arch-rival Boeing.
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