Pay Talks

IG Metall boss Berthold Huber told journalists in Frankfurt on Tuesday, Sept. 23, that the demand was justified in view of the robust state of the German economy and the uneven distribution of its benefits.

"Yes, 8 percent will hit profits, we are fully aware of that," he said, warning that the current economic uncertainty should not detract from the fact that the metalworking industry is a major component of Germany's highly successful export machine.

German trade unionists have long argued that while workers showed restraint through a long economic slowdown at the beginning of the decade, they have not seen any rewards for the upswing over the past two years.

Other branches watching

Current pay accords in the automobile, IT and household goods industries expire on Oct. 31, so the outcome of IG Metall's negations with employers will be closely watched by all sides.

But industry bosses have dismissed the union's demand as unrealistic. The president of the Gesamtmetall employers association Martin Kannegiesser called German industrial workers the best paid in the world.

The first round of negotiations starts on Oct. 2 for workers in three of Germany's 16 states. IG Metall ruled out any industrial action before the end of next month.

Fears inflation to spiral

Norbert Walter, chief economist at Deutsche Bank, Germany's biggest bank, said the danger from pay hikes was real. If pay were to rise sharply, "the outcome will be inflationary effects in the short term and probably a weakening in growth," he said.

European Central Bank (ECB) President Jean-Claude Trichet recently warned of the threat of a wage-price spiral and urged workers not to make high pay demands. Inflation has just begun to come off record highs, slipping to 3.8 percent in August from 4.0 percent in July.

"High wage demands in Germany will not make monetary policy easier for the ECB since they are (headed toward) reducing interest rates to support the ailing economy," Commerzbank analyst Eckart Tuchtfeld told the AFP news agency.

The 15-nation euro zone contracted 0.2 percent in the second quarter of 2008 and is forecast to stagnate in the third, in which case it would just barely avoid a recession -- defined as two quarters of negative growth.

The 8-percent wage increase is well above German consumer inflation of around 3.3 percent on the year, due to on price hikes, increased productivity and strong profits in the sector.

Low wages, high profits

Unions and employers in Germany negotiate wages sector by sector, and unions have become increasingly demanding after several years of moderate pay agreements that played a role in expanding Germany's economy faster than many of its neighbors.

There have been several strikes this year, disrupting activity in the transport, postal and dairy sectors before higher pay was agreed to.

According to the Hans Boeckler Foundation, a research group with close ties to the unions, Germany is the only European Union member where inflation-adjusted salaries fell between 2000 and 2008, by 0.8 percent.

That has raised eyebrows across Europe because it made the German economy more competitive, producing more goods at lower wage cost.

A European Commission calculation found that German wages would need to increase by 6 percent annually for several years to reach the level of other euro zone countries, according to a report in the German daily Die Zeit.

"It is now our turn to profit," IG Metall's Huber said. "The 8 percent should come from (corporate) profits, there is no question about it."