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Raising Wages Would Be 'Stupid,' Trichet Says

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EUROPE WAGES
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(Reuters) - European Central Bank President Jean-Claude Trichet warned on Sunday against raising wages in the euro zone as inflationary pressures heat up in the bloc.

"It would be the stupidest thing to do," Trichet told France's Europe 1 radio, asked about pressure in countries like Germany for wage rises as economies emerge from the economic crisis and as higher commodity prices fan inflation.

"We can't do anything about the current rise in fuel and commodity prices but we must do everything to avoid what we call second-round effects, the fact that other prices start moving and settle at a higher level than complies with our definition (of stability)," Trichet said.

"I am thinking of the whole range of other prices, including of course, salaries, and we say to employers and unions: remember that we are in a medium to long-term perspective, to maintain price stability."

Trichet was speaking the day after a Paris meeting of G20 finance ministers and central bankers where inflation was a key topic of discussion. ECB governing council member Christian Noyer commented there that pay demands should be limited.

Euro zone inflation stands at 2.4 percent, above the ECB's 2 percent target, and the ECB has warned that its inflation outlook could move to the upside.

Meanwhile German Chancellor Angela Merkel and Economy Minister Rainer Bruederle have called for bigger pay rises for workers in 2011 after unions accepted modest increases in recent years as Germany was battling with recession.

Trichet said inflation remained the ECB's top concern and noted that it was those countries in the euro zone that had kept a lid on costs that had managed to reduce unemployment.

The Spanish government, keen to convince markets of its long-term growth prospects, is pushing to de-link wage increases from inflation, something Germany wants to make the rule across the euro zone as part of a new competitiveness pact.

(Reporting by Catherine Bremer; editing by Sophie Walker)

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