Inflation an increasing concern
He said he was not obsessed with inflation, but argued that it was an increasing concern. "Inflationary expectations remain well anchored, thanks to the ECB's monetary policy, but the ECB will need to remain vigilant." Asked by Cristobal Montoro Romero (EPP-ED, ES) about ways to tackle inflation other than monetary policy, Mr Juncker stressed the role of indirect taxes: "It can cause amusement or even anger when Member States are criticised for inflation rates that are the result of increases in indirect taxes needed to comply with directives put forward by the Commission and adopted in Council."
Limited impact - so far - of strong euro
On exchange rates, Mr Juncker said the rise of the euro against the US dollar had had a "relatively limited" impact. "Exports to other economic zones have gone up," he said. However, "it would be naïve to say you can simply extrapolate this into the future. We cannot have a policy of benign neglect. We need to pay attention to currency markets." He added that "we deplore the sudden changes in exchange rates," and welcomed the stronger rhetorical commitment by the US Treasury Secretary to a strong dollar. Responding to Elisa Ferreira (PES, PT), he acknowledged that the high euro was impacting some segments and regions more than others: "It causes most problems for those who have not done the work they should have done on competitiveness in recent years."
Moderation in salaries – including for top executives
The Eurogroup Chair called for moderation in wage settlements, which should be within the range allowed for by productivity gains, he said. Moderation was especially important in the public sector, where wage increases often set the norm for the private sector to follow. He warned again that such calls for moderation were undermined by excessive pay, especially severance packages, for top managers.
A number of MEPs raised worries about protectionism. Mr Juncker called it "a major risk for the economic growth of the planet." But, he added, "I don't think having an open Europe means giving Europe away as a gift. There needs to be reciprocity with the same rules applying to everyone."
Almunia: risks to growth and inflation
Later in the day, Economic and Monetary Affairs Commissioner Joaquin Almunia also warned the committee of risks regarding growth and inflation for the year ahead. The Commission's autumn forecast of 2.4 per cent growth in the EU in 2008 (and 2.2 per cent for the euro zone) was less than in its spring forecast. Eurozone inflation was forecast at 2.1 per cent. "Risks are not such as to encourage optimism. There is a danger in these risks being borne out – that would be a difficult situation with less growth and more inflation, which means difficult decisions for monetary policy."
The risks to growth were principally from financial market turmoil, ongoing currency volatility and a more marked slowdown in the US economy. At the same time inflation might be stoked up if oil and food prices continue to increase while – with some Member States effectively reaching full employment – there might be upward pressure on wages.
Member States, he said, needed to continue their efforts at budgetary consolidation, and aim for greater productivity, particularly in the services sector.
