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ECONOMY

Fat cats advise each other to lay off the cream

Two top managers have written personally to the leaders of Germany's top 30 companies, calling on them to control their own mushrooming salaries and bonuses.

Fat cats advise each other to lay off the cream
Photo: DPA

Klaus-Peter Müller, board chairman of Commerzbank, the second biggest German bank, and chairman of the commission for good corporate governance, and Manfred Gentz, former financial head of auto giant Daimler, wrote a joint letter to the heads of the DAX-listed companies – Germany’s 30 biggest firms.

The letter, seen by the Handelsblatt daily, calls for a long-term change in the pay structures in response to growing public anger at excessive bonuses.

“We should always keep in mind, that even, and especially, market economic systems need the understanding and the acceptance of society,” Müller and Gentz wrote.

“We are suggesting that integrating limits or caps into the pay structures might be considered, though of course the scale and suitability of these should be decided by the boards.”

Such a move would break a business taboo in Germany, where any interference in pay structures has previously been considered an illegitimate violation of market freedoms. Apparently for that reason, Müller and Gentz carefully deny in the letter that they are “instruments of political pressure.”

But they warned, “It is to be feared that otherwise, if only out of a populist impulse, politicians will start thinking in terms of legislation.” The initiative seems to be designed to head off politicians considering popular legislation ahead of next year’s elections.

Germany’s top businesses have come under increasing pressure to justify high wages for top management in recent months. The most recent surveys, undertaken by pollsters Forsa, suggest that as many as 71 percent of Germans think CEOs get too much money.

The move by Müller and Gentz is likely to increase that pressure, and history suggests that their fears about government intervention are justified. In 2004, the German parliament passed a transparency law forcing managers to reveal their incomes after many had refused to do so.

Now the two businessmen fear that Germans will no longer tolerate incomes of upwards of €10 million. New figures released in March showed that the CEOs of Germany’s top 30 companies earned an average of €6.1 million in 2011, up nine percent from the year before.

The highest paid German businessman last year was Volkswagen boss Martin Winterkorn, who last year earned €17.5 million in salary and bonuses.

The Local/bk

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ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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