Big rises in public sector pay in the eurozone contributed to collapses in EU countries' public finances, a senior European Central Bank official said today.
ECB executive board member Lorenzo Bini Smaghi said average eurozone public sector pay had risen 36% in the last 10 years compared with a 24% rise in the private sector.
“The pay trend has strongly contributed to the deterioration of public finances. If public sector salaries had increased in line with private ones, Greece's deficit last year would have been more than three percentage points of GDP less,” he wrote in Italy's Corriere della Sera newspaper.
The pay rises over the last 10 years have not only weighed on public finances but also on the growth potential of the European economy, he said: “Without a rapid and drastic reversal of the trend public finances will not become healthy again and growth will not pick-up.”