Union Gets Pay Increase
May 4, 2007
The last-minute agreement between the union and employers averted a strike. The deal was reached during 20 hours of negotiations with employers in the south German state of Baden-Würtenberg, but will be applied across Germany.
Besides the 4.1 percent raise this year, workers can expect an additional 1.7 percent a year later. Workers will also receive payments of 400 euros for the last two months before the agreement goes into effect on June 1.
Initially, the metalworkers' union IG Metall demanded a 6.5 percent increase. Employers countered with a 2.5 percent increase and a 0.5 percent bonus.
Analysts said the agreement was positive for both employer and workers. It is not likely to worry European Central Bank (ECB) policymakers concerned about risks to price stability.
"The wage rise has come in lower than generally expected," said Eckart Tuchtfeld, an economist at Commerzbank in Frankfurt, told Reuters. "ECB fears of excessive wage pressure in Germany and the resulting risk to inflation should ease as a result."
"Fears that wages would rise excessively didn't come true,'' said Stefan Bielmeier, an economist at Frankfurt-based Deutsche Bank AG, told the Bloomberg news service. "We stick to our estimate that ECB interest rates will rise to 4 percent in June and no further afterwards.''
Economists have been closely watching the IG Metall negotiations, with many fearful that handing out big pay hikes could slow Germany's economic growth.
Stefan Bielmeier at Deutsche Bank said the deal would equal a wage increase of 3.5 percent for 2007 in a country where inflation is currently just below two percent.
"That means the sector will remain competitive," he told Reuters. "It also means more purchasing power for employees. Both together are good for the economy."
Union pleased with deal
"A nice sum of money will be going into the wallets of employees," said negotiator Jörg Hofmann.
The union had put pressure on employers with temporary work stoppages and had threatened to strike if a deal was not reached quickly.
"I think it was very important for firms to avoid strikes, because business is booming just now and they've been racking up huge amounts of orders," Bernd Weidensteiner at DZ Bank told Reuters.
"Full-scale industrial action would have been poison for firms, so if you look at it from that perspective, they've gotten off pretty lightly," he said.
In 2002, more than 200,000 IG Metall union members participated in strikes. Carmakers DaimlerChrysler, Porsche and Audi, truck maker MAN and French-American telecoms equipment company Alcatel-Lucent are among firms which faced work stoppages this year.
Economy continues to boom
"It is balanced and appropriate given that the economy is doing exceptionally well," said Stefan Roell, who represented the state of Baden-Württemberg in the talks.
After years of gloom, the German government last month raised its growth forecast for 2007 to 2.3 percent, representing a clear improvement on its previous prediction of 1.7 percent.
Consumer sentiment and business confidence indices in the euro zone's biggest economy have also shown sharp rises recently.