(Bloomberg) -- Volkswagen AG is set to shutter factories in its German homeland for the first time in its history, a move that pulls at a thread that could see a decades-long deal between workers and their employers unravel. If it does, inflation could move structurally higher, current account surpluses could shrink and investment flows could shift, according to Bloomberg Economics research.
- Faced with rising unemployment and stiff competition from Eastern Europe, German companies struck a deal with unions that saw wage restraint exchanged for job security.
- Slow pay gains helped to hold inflation down, raised competitiveness and may have contributed to macroeconomic imbalances in the euro area.
- With Chinese industrial policy forcefully directed at areas of historical German strength, and higher energy costs denting competitiveness, the grand bargain that crimped wages may now have outlived its usefulness.
- As the biggest economy in the euro area, a pivot to a more inward-facing economic structure in Germany would have implications for monetary policy and investment flows in the wider currency bloc.
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