ILO claims German economic policy 'caused euro crisis'

(GENEVA) - The International Labour Organisation said on Tuesday that German economic policy in the past two decades had harmed other European countries and contributed to the current eurozone debt crisis.

In its Global Employment Trends 2012, the ILO said policies designed to push down wages, particularly under the government of former chancellor Gerhard Schroeder in 2003, benefited German exporters at the expense of other nations.

"Rising competitiveness of German exporters has increasingly been identified as the structural cause underlying the recent difficulties in the euro area," the report said.

It added: "At the European level it has created conditions for a prolonged economic slump as other member countries increasingly see only even harsher wage deflation as a solution to their lack of competitiveness."

The ILO said the success of Germany, the world's second biggest exporter after China, was due less to low wages and high competitiveness, but to the fact its main export markets were in fast-growing regions such as Asia.

"The current problems are an inheritance from the past," the ILO argued, blaming what it called "ill-designed policies" in the wake of German reunification in 1990 for pushing up unemployment.

Authorities then implemented policies to push down wages and boost competitiveness in a bid to drive down unemployment.

An end to a low-wage policy in Germany, the report says, would create "positive spillover effects to the rest of Europe" and also "restore a more equitable income distribution" within the continent's top economy.