Europe

Death of a myth: Wage hike does not lead to inflation

Published

06.12.2022 11:58

When Germany’s largest labour union, IG Metall, agreed to a 5.2 per cent wage rise last November, monetary policymakers breathed a great sigh of relief. As reported in Financial Times, this deal finally eased central banks’ inconvenient wage-price spiral fears.

The fear that wage increases will lead to price increases (and hence inflation) is quite widespread. We see that not only the Germans but also the British live with the same concern. Bank of England President Andrew Bailey says the wage bargain needs to be “restrained” or things will get out of hand. Jason Furman, who was the Director of the National Economic Council under Barack Obama, is also clear: Increasing wages also increases prices. According to Furman, this is “basic micro and common sense.”

European Central Bank President Christine Lagarde said they would look at the increase in wages to see if they would continue to raise interest rates in Europe. Last May, Lagarde rejected bank employees’ desire to link wage increases to consumer price increases and wrote that this was “not acceptable and desirable”.

Klaas Knot, president of the Bank of the Netherlands, who has been skeptical about wage increases at the level of inflation, said they should be on high alert for any “feedback loop” to wage and price increases, but added that current wage developments do not provide clear evidence that they are entering a wage-price spiral in the eurozone.

Federal Reserve Chair Jerome Powell has made the most explicit statement. In explaining why they’re raising interest rates; Powell makes it clear that they want to reduce demand and lower wages. Powell thinks they can do all this without slowing the economy and putting it in recession. However, clearly, interest rate hike aims to reduce the bargaining power of the working class and suppress wages by increasing unemployment.

What is the wage-price spiral?

The technical wage-price spiral recipe: at least three out of four consecutive quarters have a wage-price spiral if both consumer prices and nominal wages increase. To give a more concise definition, price increase triggers the wage increase, and wage increase causes the capital owner to increase the prices, and so on.

The debt between Thomas Weston, a leader of the carpenter’s union, and Karl Marx at the International Working Men’s Association in 1865 is the historical example of this issue. Just like the central banks argue today, Weston said that capitalists reflected the increase in wages to increase in prices to protect their profits; increasing prices would reduce the purchasing power of workers and thus keep real wages in place. That is, Watson concluded that a struggle or bargain for wage increases was useless.

Marx’s answer to this is summarized in the manuscript we know as Value, Price, Profit. Marx presents three arguments against Weston: First, wage increases come to the fore not out of the blue, but usually as a reaction to rising prices. Second, wages don’t cause inflation, but multiple factors influence it: The size of production, the productive forces of labor, the value of money, fluctuations in market prices, and the different phases of industrial cycles. So, for example, under the condition that wages remain the same, a change in the amount of money in the market (or the value of money) can trigger inflation. Or, again, a change in labor efficiency (i.e., productivity) has a direct impact on commodity prices, provided wages remain the same.

Moreover, according to Marx, it is true that a general rise in wage levels reduces overall profit rates, but this does not directly affect the prices of commodities. Capitalists and their ideologists object to the increase in wages, not because prices will increase, but because profits will decrease. The physical limit here is to provide the means of livelihood required for the employee working today to work tomorrow. However, Marx says that in some examples, the wage received by the workers can be pushed below the minimum subsistence. Such a reduce in labor costs is compensated by charity on national scope or laws on supporting the poor. Hence, the question of how to detect wages and profits is answered dynamically, not statically, and the answer is determined by the opposing classes’ struggles and balances of power.

It will happen again: The claim that workers’ “excessive” demands for wages will lead to inflation is an assumption raised by the capitalist and his ideologists, who know that their profits will decrease. Now, it is time talk about the cracks on this front.

IMF’s confession

IMF economists are finding it very difficult to find the evidence they have been looking for from history for a wage-price spiral. A recently published article examines wage-price spirals in the last 60 years of advanced economies.

The conclusion reached by IMF economists is that wage-price spirals are difficult to find in recent historical records, at least when they are defined as a continuous increase in prices and wages. Moreover, the IMF has even more difficulty in finding the wage-price spiral in other historical periods when real wages has fallen like today. What happens is the nominal wage increases that only partially replace the real wage loss.

The examples found by the economists showing fall in real wages and tight labour market as experienced today, often prioritize a period of falling inflation and rising nominal wages. Thus, as economists describe it as a “surprise,” sustained wage and price increases in only a small part of the example are being rolled over to the next period. As a result, the IMF finds that the rise in nominal wages cannot necessarily be taken as a sign that a wage-price spiral period has begun.

The International Labour Organisation (ILO) also confirms this situation. In the first half of 2022, global monthly wages declined by 0.9 per cent in real terms. When wages in developed countries are separated from wages in developing countries, the ILO report shows that real wages in developed G20 countries decreased by 2.2 per cent, while in developing countries they increased by only 0.8 per cent. Looking at the United States and Canada, it is understood that real wages decreased by 3.2 per cent in the first half of this year.

The OECD report complements this statement. The report, which includes third-quarter data, suggests real wages decline in 31 of 32 major countries in the third quarter of 2022 compared to the same period the previous year.

President and CEO of the Federal Reserve Bank of San Francisco, Mary C. Daly also has had to admit that one of the most fundamental elements of the wage-price spiral is that the rising wage phenomenon has not emerged with inflation.

The ILO says that inflation is not caused by wage increases, but by the Ukrainian war and the global energy crisis.

Sources of inflation

Paul Donovan, the chief economist of UBS, one of the world’s largest asset managers, reminds that real wages are falling globally, pointing out that the Fed’s wage-price spiral thesis is not correct.

According to Donovan, the main source of today’s inflation is the excessive increase in profits. If inflation comes from profit rather than labor, says Donovan, central banks should look for other ways alternative to shrinking demand based on increasing unemployment.

A graphic published by the Economy Policy Institute last April provides the picture. Unit labour cost constituted 61.8 per cent of the increase in unit prices in non-financial companies between 1979-2019. Between the fourth quarter of 2021 and the second quarter of 2022, this rate decreased to 7.9 per cent. The main factor driving the increase in unit prices is profit with 53.9 percent. It is composed of non-work input prices with 38.3 percent.

So, what else is among the sources of inflation? The decrease in supply chains and labor productivity during the COVID period and the inadequate supply afterwards is a reason. Zero COVID policies in China and the subsequent Russia-Ukraine war also has caused disruptions in global supply chains and cost increases. Sanctions against Russia have also led to an exorbitant rise in global energy prices.

Moreover, in Britain, for example, service providers that distribute to retail energy companies and are often owned by large hedge funds and private equity companies can make profits of up to 40 per cent. These companies, known as the “Big Six,” have almost completely monopolized energy supplies. 99 per cent of domestic and small business customers depend on the Big Six. When the huge profits of international energy monopolies such as BP, Shell, Exxon, Chevron, Total is added, the picture is completed. The UK energy distribution companies, which have been privatized since the 1980s, work for profit and households suffer for it. The figure says it all: The Big Six distributed a £23 billion dividend to shareholders. That’s almost six times the tax the Six have been paying over the last decade.

On the other hand, excessive profit rates in 2021 are expected to decrease with the rise in interest rates. It is certain that there will be a slowdown in the profits and therefore investments driven by the increases in energy and raw material prices last year. The downward trend in large tech companies that made huge profits during the pandemic period, layoffs, and the difficulty in accessing finance also indicate that recession is likely in advanced economies next year.

Moreover, since the source of inflation is not “excessive demand” but weak supply, central banks have nothing to do with it. In addition to the disruption of supply chains, the Ukrainian war, and anti-Russian sanctions, decrease in profitability, declining labour productivity and investment appetite do not seem to match supply with demand. While recruitment in the United States is still in full swing, the lack of pace in GDP growth suggests that the problem of labour productivity in developed countries remains. The emergence of a sustained and downward demand shock in the world system therefore seems preordained.

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Europe

EU and allies pull conference backing after US pressure over panel

Published

11 hours ago

08/10/2026

Harici.com.tr

The Trump administration pressured several countries to withdraw their support for a leading European conference on disinformation.

Canada, Lithuania, and the European External Action Service (EEAS) subsequently complied.

Held on Wednesday and Thursday, the #Disinfo2026 conference serves as the annual gathering of Europe’s anti-disinformation community, bringing together hundreds of researchers, journalists, technology specialists, and policymakers at a hotel in Vilnius, Lithuania.

The conference is organised by EU DisinfoLab, an independent non-profit organisation based in Brussels.

A few days before the conference, the logos of its main sponsors: the Lithuanian Ministry of Foreign Affairs, the European External Action Service (EEAS), and Global Affairs Canada, were removed from the website.

Photographs of the event shared with The Guardian also show white stickers affixed over these organisations’ logos printed on official conference materials.

This appears to indicate that the logos were removed from the programme in haste.

Three people familiar with the matter, including European officials, confirmed that the US Department of State contacted several governments regarding their support for the conference.

Internal US Department of State documents obtained by The Guardian also reveal that US officials thanked Lithuania for “taking US concerns seriously”.

The document notes that Washington was “grateful” that Lithuania found the organisation of a panel describing the US as a foreign information threat “reprehensible and baffling”, and welcomed its decision to limit participation in the conference.

According to information obtained by The Guardian, France was also contacted.

The panel, titled “The US as a FIMI threat: adapt, accept, counter” (where the acronym FIMI stands for “foreign information manipulation and interference”), was held on Wednesday.

The panel addressed how Europe’s disinformation community could regain resilience without Washington, and appears to mark the first time the conference raised the idea that the US could be a disinformation actor in Europe.

According to sources and internal documents, the Department of State focused specifically on this panel, which featured three American speakers, including a former CIA officer.

According to a person briefed on the discussions, the source of other correspondence appeared to be the office of Sarah B. Rogers, Under Secretary of State for Public Diplomacy and Public Affairs.

In their statements, Lithuania, Canada, and the EU noted that the conference programme did not align with their official views regarding the US role in disinformation.

Yet this programme had been drawn up months before they withdrew their support, dating back to June.

In a statement, the Lithuanian Ministry of Foreign Affairs said: “Lithuania cancelled its participation in the ‘Disinfo 2026’ conference because parts of the conference programme diverged from the government’s official position.”

Samantha Lafleur, a spokesperson for Global Affairs Canada (GAC), said: “GAC carefully reviews participation in and sponsorship of external events on a case-by-case basis. Following changes to the framing of several panel discussions, GAC decided to review its participation in those sessions at the EU DisinfoLab 2026 conference,” adding that Canadian officials still attended the conference.

An EU spokesperson confirmed that the European External Action Service decided to withdraw its support for the conference because “the organisers chose to frame some discussions in a way that did not align with official EU positions.”

According to information obtained by The Guardian, EU officials disagreed with describing the US as a disinformation actor.

Despite withdrawing its name as an official backer, the EU continues to provide funding for the conference.

Europe

MI6 investigates potential leaks after former BND chief is detained

Published

11 hours ago

08/10/2026

Harici.com.tr

British intelligence agencies, led by MI6, are investigating whether their confidential data or spies were compromised in the biggest espionage scandal in modern German history.

August Hanning, the former head of Germany’s foreign intelligence service, the BND, along with a current senior official at the agency identified only as Manfred D, was detained on Tuesday on suspicion of espionage and treason.

Hanning faces allegations that he unlawfully amassed thousands of classified documents over a 16-year period through Manfred D and sold a portion of those secrets to a foreign power.

German security sources noted that some of the high-level information handled by the pair originated from partner intelligence agencies abroad, raising the prospect that British and American intelligence may have been leaked.

This development has brought accompanying concerns that US and British human sources operating in the field, such as active agents or informants, could have their identities exposed through the shared information.

Matthew Dunn, a former MI6 intelligence officer, said British intelligence services would meticulously review everything shared with the BND and assess the risks.

Dunn said:

“There is no doubt that there is a major internal security review going on inside MI6 right now, looking meticulously at the intelligence shared with a very trusted liaison partner and assessing whether any of that compromises MI6-related operations and people.”

Nevertheless, the former spy stated he would be “very surprised” if this situation affected the agency’s relationship with the BND, adding that he expected the two services would act cooperatively.

He explained that during intelligence sharing, the introduction of “automatic checks and balances” mechanisms, including the redaction of information relating to sources, is standard practice.

News of the scandal has shocked the Western intelligence community. Sources described the alleged breach as a major success for a foreign power, noting that it could cause serious damage to the Western intelligence-sharing alliance.

Alongside MI6 and GCHQ, multiple US agencies are also believed to be conducting a systematic internal review of all sensitive information shared with European allies during the period in question.

According to information obtained by The Telegraph, the primary focus of these agencies is understood to be protecting sources who may have been compromised due to the alleged leak.

Similar audits are likely to be conducted by all of Germany’s intelligence-sharing partners and allies.

While it remains unclear when German authorities notified their counterparts of the security breach, it is understood to have occurred prior to Tuesday’s arrests.

German media reported that the leaked information included details regarding Iran’s nuclear programme, the Russian military, and classified documents belonging to foreign partner agencies.

The statement noted that most of the documents in question contained “confidential information prepared by the federal intelligence service exclusively for internal purposes, particularly for intelligence briefings aimed at the executive branch.”

According to the prosecution, Hanning used this information in his private consulting activities.

“In one incident, Hanning used classified intelligence provided by Manfred D to prepare an analysis for an official of a foreign intelligence service,” the statement said.

Authorities have not yet determined whether this information reached its intended recipient. On Tuesday night, Der Spiegel reported that the analysis in question was prepared for the Azerbaijani intelligence service.

Azerbaijan maintains security and intelligence partnerships with Russia, Israel, Türkiye, and the US, as well as other countries.

Hanning had previously adopted a hawkish posture towards Moscow in German national security debates.

In a 2024 interview with The Telegraph, he stated that his country had been “naive” and needed to be “awakened” to the reality of a potential war:

“People don’t realise that there is a serious danger: there is sympathy for Russia, especially in East Germany and on the far left and within the far-right Alternative for Germany (AfD) party, parts of which are demanding an end to sanctions against Russia.”

According to The Insider, Hanning travelled to Russia at least seven times after leaving the BND.

The former intelligence chief made all of these trips between 2015 and 2019, frequently spending only a single day in Moscow.

Europe

Bill to drop NATO membership goal submitted to Ukrainian parliament

Published

2 days ago

07/10/2026

Harici.com.tr

A bill proposing to enshrine neutral status in the constitution and abandon the goal of joining the North Atlantic Treaty Organisation (NATO) has been submitted to the Ukrainian parliament.

According to a report by the Strana portal, the proposal was introduced to the parliamentary agenda by lawmaker Anna Skorokhod.

The drafted constitutional amendment stipulates that Ukraine must not participate in military alliances and must confirm that it harbours no aggressive intentions against any state.

The text notes that neutrality status should be registered through “guaranteeing non-participation in any military alliance and confirming the absence of intent to attack any country.”

While the bill submitted by Skorokhod aims to remove the NATO goal from the constitution, it envisages maintaining constitutional guarantees for the country’s course towards full European Union (EU) membership.

NATO goal in constitution took effect in 2019

The strategic goal of EU and NATO membership enshrined in Ukraine’s constitution was adopted in February 2019, during the tenure of then-president Petro Poroshenko.

The constitutional amendments in question obliged the government to implement this course and designated the president as the guarantor of the process.

Poroshenko, who assumed the leadership of the European Solidarity party in May of that year, has led the party ever since.

Advocating Euro-Atlantic integration, Poroshenko described EU and NATO membership in a 2026 assessment as one of the country’s long-term security guarantees.

Moscow insists on neutrality condition

The Moscow administration links a potential resolution to the war in Ukraine to a series of conditions that Kyiv must fulfil.

These conditions include the withdrawal of Ukrainian troops from the Donetsk, Luhansk, Zaporizhzhia, and Kherson regions, as well as the international legal recognition of these territories, alongside Crimea and Sevastopol, as Russian soil.

Ukraine’s formal renunciation of NATO membership maintains its weight among Moscow’s primary demands.

Russian officials state that Ukraine’s neutral status must be explicitly included in future agreements.