The Organisation for Economic Co-operation and Development (OECD) – a group of mostly rich countries – has condemned Belgium's system of government-mandated wage indexations, claiming that it poses one of the "main risks" to the country's economic outlook by potentially inducing "more persistent inflation".
In a report published on Wednesday, the OECD also criticised Belgium's growing fiscal deficit and high levels of government debt, and in general painted an unremittingly bleak picture of the country's near-term economic prospects.
"Inflation, tighter financing conditions, and high uncertainty will drag on domestic growth, while weak global trade prospects will weigh on net exports," the report noted. "The main risks include more persistent inflation due to wage indexation and a consequent loss of export competitiveness."
It added: "The fiscal deficit will increase in 2023 and remain large in 2024. In the longer term, measures to ensure the sustainability of public finances will be necessary given the high public debt. The level of debt poses macro-financial risks and limits the scope for public investment."
What about record company profits?
Though almost unique in its system of automatic wage indexations, Belgium is certainly not alone in its struggles with inflation. Numerous economists have consequently contested the OECD's surmise that Belgium's method of protecting employee salaries from devaluing is responsible for the country's high inflation rate.
One recent analysis conducted by Thomas Greuse, a researcher at the Confederation of Christian Trade Unions (CSC), found that Belgium's inflation rate is largely a consequence of companies exploiting the current crisis by unnecessarily hiking prices – otherwise known as "greedflation".
Annual #inflation at 8.5% in the euro area, 9.9% in the EU
Among the EU Member States, the lowest annual inflation rates in February 2023 were in: 🇱🇺Luxembourg (4.8%) 🇧🇪Belgium (5.4%) Highest: 🇭🇺Hungary (25.8%) 🇱🇻Latvia (20.1%) ➡️ https://t.co/aMsHHUUyYy pic.twitter.com/UQ7JtzTyVI — EU_Eurostat (@EU_Eurostat) March 21, 2023
"Companies have therefore more than compensated for the increases in their intermediate costs and the increase in wages," Greuse explained. He called this "a concrete example of greedflation" that is far more to blame for swollen prices than incremental pay rises.
The researcher refuted the claim often articulated by business leaders that continued wage indexations could lead to a devastating wage-price inflationary spiral, whereby wage rises lead to a surge in prices which then leads to greater demand for further wage increases.
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Greuse's research was arguably corroborated by another recent study by ULB economics lecturer Olivier Malay. This made the "conservative" estimate that Belgian companies made €35 billion in "opportunistic profits" over the period 2021 to 2022 – equivalent to almost 4% of Belgium's cumulative GDP.
"Yes, the amount of opportunistic profits is high," Malay wrote. "Many – including me – do not consider it normal, in the moral sense of the term, that people can no longer pay their bills because others have become richer."
